By now, you are probably aware of the possible scenarios for the broad indices, going forward. The sexiest thing to talk about is the longer term head and shoulders topping pattern that we may have been forming since the beginning of this year. I have also discussed the possibility of an intermediate term inverted head and shoulders bottom. It is important to always consider scenarios as a trader, so as to try to limit the amount of times that Mr. Market will catch you off guard.
With that said, I am going to focus this post on what the market is actually giving us at the present moment. The updated and annotated daily chart of the S&P 500 shows that the bears owned all of last week. After Monday’s head fake and subsequent sharp reversal from 1131, we saw a steady move lower to 1067 (see below).
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Since that huge down day on May 20th, the market has been in a channel. Although we have made higher highs, we have yet to make lower low. At the same time, the trading channel is very sloppy, and not particularly bullish looking. Moreover, the channel needs more time to develop and, especially, needs to make another higher low before we can determine that it is constructive for the market. The chart below should illustrate this channel, which I have denoted with yellow lines.
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It is not quite a megaphone topping pattern like we saw in late April, because we have not been making lower lows. Thus, the channel can best be described as neutral for now. We are simply going to need more information before making more aggressive directional bets. The bulls need to see a higher low–and subsequent rally–this week. The bears, however, are looking for yet another test of 1040, which could easily fail given how obvious of a support level it has become over the past eight months.
Thus, my portfolio continues to be hedged, with an overweight cash position.
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Finally, let’s take a big picture look at the ETF’s for the two main precious metals. The weekly chart on Gold remains bullish. Trying to call a top to the move in Gold is proving to be, well, fool’s gold. The yellow metal is in a secular bull market, and I do not see any evidence of a blow off top that usually accompanies the end of secular bulls.
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The Silver weekly is still trying to break out of the triangle that I pointed out several weeks ago. If Silver is going to catch up to Gold, you have got to love the upside here.
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Although the precious metals got crushed in the 2008 crash, Gold and Silver have historically done quite well during prolonged periods of debt deflation in society. If going long these metals and/or their miners is not your style, then so be it. However, I must say that I see absolutely no evidence that would lead me to believe that shorting these metals is a high probability trade.
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[youtube:http://www.youtube.com/watch?v=dxBvUqLs_eU 450 300]
However, I must say that I see absolutely no evidence that would lead me to believe that shorting these metals is a high probability trade.
Agreud.
Someone needs to tell Timmah Knight.
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Ha..Asking Timmy not to short is like asking Chris Matthews not to spit all over the camera on “Puffball”
SP-500 seems to have found res @ 100sma, and got back below 20sma. trip bottoms don’t usually hold.