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JULY 2011 – MAJOR MARKETS (DOW, S&P, GOLD, OIL) Analysis
Since last update in March 2011, quite a lot has happened. The global news empire is in trouble, Euro zone problems escalated, US Debt ceiling issues are still on the table and generally the earnings have surprised on the upside. With all of these grey swans and uncertainty, the markets have responded quite well to the price levels charted earlier in March 2011 issue. Regardless of how the news on TV may appear to be, market sentiment is not at extremes, as can be seen via AAII sentiment readings. The sentiment index is not at bullish / bearish extremes (between 25% and 45%). Therefore no caution on extremity of sentiments.
Now, let’s delve into the charts...
DOW
It is still in the long-term bullish channel; therefore we were looking only to buy. Initially, we were looking for buying interest around 12500 resistance. In our March 2011 newsletter we said “Next resistance is at 12500, after which any pullback should be bought with confirmation of bullish candles. Aggressive traders may look for counter trend short opportunities around that level.”
Therefore, we got that TRADE 1 opportunity to go long at 12530 with stops around 12350 (stop was below 20 moving average (MA) and also below the swing lows on lower timeframe). Target was 12850 as it was the channel’s resistance. The trade was closed successfully. Aggressive traders could have also shorted at channel resistance where we closed the trade, as the price showed a bearish candle. While it was very tempting, we avoided going short. Second TRADE 2 was also long around 200 MA and round number region of 12000 and the trade was entered at 12000 when price broke the high of 16 June 2011. The trade is still in play with 230 points locked in at 12230 (stop is below 20 and 50 MAs and also below recent swing lows). We still have the long term bullish bias for Dow based on charts and will look for opportunities around the buy zone carved out on chart below. The 200 MA if broken is then likely to also break the bullish channel, as every bounce off the 200 MA makes it weaker. We will look go short for medium term if price goes below 200 MA (currently around 12120 but this is a dynamic level) and then pulls back a bit to show bearish candle patterns. Alternatively, we will also look for short opportunity around channel resistance at 13400 (which is also a target for current Long trade).
GOLD
Gold trades have not played very nice though, we said in last newsletter “looking for short candles, price carved a reversal candle (doji style) on 21 March 2011, at the break of this candle on the downside; I will place shorts around 1405 with tight stops, as this is an aggressive counter-trend trade.” However, the 1405 level short was not activated. Gold bull story is still not over, however, from a technical perspective we are looking at buy only at meaningful pullback (if there will be any) between 1450 and 1300 which is a strong support area coinciding with medium to long term trend lines as well as 200MA. Aggressive trade opportunity in short term would be to short daily bearish candle below 1570 (as on weekly charts there is a bearish candle and potentially a double top after taking out stops above previous swing high), with tight stops above 1600, targeting around 1450 level.
S&P 500
S&P has also been behaving quite well. In March 2011 newsletter we said “Still holding the long with profit locked in as stops moved to the low of 23 March 2011 at 1280. Targeting 1350, which is previous high, before we revaluate the bias.” Our target was achieved successfully. No further trades were taken; market appears to be range bound between 1350 and 1250. A clear break of either of those levels would establish bullish or bearish bias respectively. When price breaks these levels, a minor pullback with bullish or bearish candles should be evaluated for further trade opportunities.
OIL
We were bearish on Oil as it continues to stay range bound in medium term (no new higher highs) and bearish in long term (top still in place). In previous newsletter we said “Now looking for shorts again below 104.60, as double top forms, and also RSI also confirms weakness”. So we shorted initially at 104.60 but then stopped out at 107. Another opportunity of double top presented itself on same principles short at confirmation of double top and cover at 200MA, so we entered short at 110.50 with target closed at 92.50. For next trade, we aim for a long entry above 98.80 as price bounces above previous resistance (now support) and 200MA for a target around 115 or until conditions change.
Model Portfolio
Price Patterns (to watch for levels /zones discussed above)
Levels and zones are potential pivot areas – For trade entries, the price patterns / candles around these levels/zones should be observed or pyramid your entries with money management for aggressive trading approaches.
BULLISH PATTERNS
BEARISH PATTERNS
DISCLAIMER
Trading in the financial markets is a challenging opportunity where above average returns are available for educated and experienced investors who are willing to take above average risk. However, before deciding to participate in financial markets trading, you should carefully consider your investment objectives, level of experience and risk appetite. Do not trade / invest money you cannot afford to lose. This website/newsletter is neither a solicitation nor an offer to Buy/Sell/Hold. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on the website/newsletter. The past performance of any trading system or methodology is not necessarily indicative of future results.
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I've been buying physical and holding it since 1968. It hasn't made me as rich as a Wall St banker but it hasn't made me poor either...and, I have not needed a chart to get here!
Very impressive results! Will watch your progress with interest.
Something funny is happening to crude. I subscribe to the guy from australia and his FFT economic newsletter at http://www.forecastfortomorrow.com and his calls on crude are insanely good!
But the market depth the last day or so is playing up? More manipulation? or big news coming?
Humans, for evolutionally survival reasons, are so adept at pattern recognition that they see patterns even when there are none.
We're all fooled by randomness.
Another Taleb fan;)
Note to the Tylers..., if it ain't broke, don't fix it.
My rule for gold dating back to 1977 has been "BUY BREAKDOWNS and SELL BREAKOUTS"...
When it comes to charts and gold, remember the song of the ancient (failed) sea captain: "In the hold of every sunken ship, you will always find a chart."
in the hold of Captain Rob Prechters sunken ferry you'll find hundreds of failed Elliott Wave charts from 2009 all the way through 2011 plus thousands from their weekly analysts (failures) Steven 'Peanut Brain' Hochberg and other clueless Idioticians ...unfortunately Capt'n Nob still has waterwings and is keeping his scrawny kneck above the rising waves to keep preaching to his religous fools (Elliott Wave subscribers) ...the worst Captain ever to ride the waves
Btw, this is the method used for drawing channels / trend lines:
http://www.spytrdr.com/priceChannel.pdf
Hi folks,
It is mentioned quite clearly that Gold is in a bull trend, but shorting only based on conditions menioned above, it offers a good risk/reward opportunity only in near/short term.
Cargo cult or not, keeping good risk/reward has been extremely profitable, as you can see through previous newsletters as well. No need to fix something which is not broken.
A valid point has been made about channels looking arbitary, however, they are not arbitary if you zoom out to longterm / weekly charts. Going forward will consider posting pictures of channels / trend lines drawn out of higher timeframe charts, and then trade opportunities on shorter term as shown above. Not generally a fan of lagging indicators like MACD/Stochastics, etc as haven't found much success using them (again they may work for/suit others). Would only use RSI for confirmation of strength in predicted direction of the next price move and/or divergence.
Desi, is that not a H&S pattern in the Dow and S&P, even if it is with a rising kneck line?
Yes both of them currently do have that potential h&s pattern, we start paying attention to that pattern when the neckline is broken. At the moment, the neckline and rising trend lines /channels are still in tact.
this looks very greek to me,no necessity for an oracle..
Better to consult the Delphic oracle. Really, grown men and women giving credence to this shit knowing while knowing of all the manipulation going on.
Better to consult the Delphic oracle. Really, grown men and women giving credence to this shit knowing while knowing of all the manipulation going on.
It has all the trappings of a cargo cult.
It's so arbitrary how you draw channels, support and resistance and so on. There's got to be a better way. How about using indicators to help you draw the channels. When stochastics or MACD bottom, that gives you the bottom of your channel and when they top, that gives you the top of the channel. The channels can also be curvlinear--in fact they will be if you use stochastics or MACD as a guide. It's better to have indicators working together with chart patterns in this manner than to just draw arbitrary lines. Likewise, when you have head and shoulders, that is just a big cycle top sinewave with a smaller amplitude and period sinewave added to it. That's why the head and shoulders formation predicts a drop--because the big cycle is topping.
I know this must be a smart guy or Tyler wouldn't give him the space, but I'm looking at the same gold chart and I don't see the shorting opportunity. I mean, it's come out of a few months of consolidation and made new highs, MACD is ++ and stochastics say buy. Give me a reversal or a down turn in the indicators and I'll start thinking of taking profits because I'm still long.
agree on gold chart - looks like a breakout plus consolidation. According to his spreadsheet he's looking to short if gold drops below 1570, which would present a decent risk/reward if the stop is around 1650.