As we wind down 2009, I have decided to post one broader review on the weekends, instead of the one or two subject posts each day. I will be giving overviews of more markets this way and what to expect the coming week.
S & P 500
We are still sailing merrily along here in spite of my warnings that I think we are in dicey ground now. We really have not gone anywhere for a month and a half at this point. The Will Go indicator is showing a downward move starting in the first quarter of next year which also ties in to the Bradley Model. The middle graph show commercials being net buyers over the last two weeks. There will have to be a big catalyst of some type to knock this over, and I have no idea what that might be. To say this is a house of cards, is the best understatement of the year. However, houses can be built very high as we have seen in many asset classes. You simply cannot fight trends like this if you want to survive financially. The 1020 area which is where I have the horitzontal line on the chart is the key price level. As long as we stay above this level, the long term trend is still intact.
I exited the short position yesterday for a small gain of 10 S & P points, $500 per contract. I suspected the powers that be whether they are the PPT or large institutions, or both, would not allow this to fall at the end of this year. Once we started to bounce after making new lows, that was my cue that it was business as usual saving another decline, and I took profits. You just have to realize where we are. In big uptrends you have to take profits on shorts quickly.
My favorite market as of late, along with Silver. We are now in weekly support areas here in an uptrend. A couple things are a bit unusual here. First notice how quickly the sentiment has shifted to bearish from bullish on this decline, this is a bullish development. However, the commercials have not been buying this dip as you can see their short position continues to grow. My small fries with sentiment indicator has not reached the buy zone yet. Lastly, we are approaching the seasonal down bias period. Next I will show something I have shown previously which also says to look for a potential buy signal to develop.
This is a proprietary indicator I have displayed in here before when I shorted up at the highs. What we are looking for here is a divergence in it that shows up once we get to a extension in it to the black bands. We had one right at the high, and now we have one here on this new low this past week. We really want the blue line to be above the orange, so it is not perfect, but it is a signal to start watching the daily chart to see if a pattern shows up. We are not close to one on the daily yet, so I am still short there. However, the big late equity bounce brought Gold with it so my breakeven stop could very well be hit on Monday. The daily chart shows Silver having held it's recent low and that market has been weaker. This is also potentially bullish. I am still very bearish overall and expect $500 or $600 dollar Gold before this is over, but we may be getting a bounce here.
Bonds are setup as a sell on this pullback here. The only thing that will drive Bonds higher at this point is going to be the flight to quality scenario if we were to get an equity selloff. Since I feel that is unlikely until next year, this should be a shorting opportunity on this pullback.
The dollar has made it's low as I have been talking about in here. We have had a quick shift to excessively bullish sentiment as well as alot of commercial selling on this bounce. As I have stated, when in a downtrend on a weekly basis like this, we have a sell setup here. This could be a major trend change but if we get a sell pattern on the daily charts that ties in to this setup, it has to be taken. There is not one by the patterns I use at this point. This probably is a major low in this market, so what I am hoping is the get long a dip. Even though we have spiked sharply higher here, the world is unaware of this. Once the amateur economists at the water cooler start realizing their GOLD to $500 based on a plummeting dollar is going south, watching the race to the exits is going to provide great opportunity for trading gains. It will acclerate this market like few expect, and knock down the metals.
I have stated repeatedly in here, this is the most crowded trade I have ever seen and by the time this is over, it will be a ghost town.