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The Dow, Dollar & Gold – What Goes Down Must Come Up

This year has been a very exiting time for traders and investors. We have seen a steady climb in prices with controlled pullbacks in the broad market and gold.

Using technical analysis we are able to quickly and accurately make informed decisions just from looking at the charts. In the charts below you will see how simple chart patterns along with support & resistance levels can provide excellent low risk entry points. Also you will see how candle stick charts can be an early indicator for prices to reverse direction.

DIA ETF – Daily
The DIA (Dow Jones Index Fund) is trending higher. By applying some basic technical analysis you are able to time your entry points having the odds in your favor.

In this chart I use two simple forms of analysis. The broadening formation (red trend lines), and horizontal support zones shown in blue.

Broadening Formations: This is when the price becomes more volatile making higher highs and lower lows. I think of it as one of those Megaphones for talking to large groups of people. So when a chart has this pattern it’s virtually yelling at me and I start taking profits or tightening my stops.

Horizontal Support Zones: I like to focus on support or resistance zones which are a little different than most traders. I do not use the top and bottoms of previous waves for these levels. Instead I take the average price then expect the support level to be penetrated somewhat as the level is tested. This is how the market keeps you out of the good trades. I cover this in great detail in my Stock Market Trading Education Course available in January.

Analysis: The DIA ETF looks ready for a pullback to the $99- 100 level.


GLD Exchange Traded Fund – Weekly
Gold has been on fire and riding this wave up has been very profitable thus far. Last week a doji candle was formed on the chart and this can signal a change in short term price action.

This chart shows some of the past doji candles and what happened to the price of gold soon after. What this candle is telling us is that the buying and selling pressure is equal. So we know momentum is slowing and we should expect a consolidation or correction.

Because gold has rocketed higher, indeed going almost straight up in the recent weeks, I expect a pullback to be very quick. A drop to the $110 or even the $100 level in the coming weeks is not out of the question, but we all know commodities can go parabolic for several months (straight up). This is why we continue to tighten our stops and keep holding out long positions.


US Dollar – Weekly
The US dollar has been up and down like a yo-yo in the past 15 months. The chart below clearly shows what has been happening with this currency and what I think we could see very soon.

The blue support zone (73-74) is a key pivot point for the dollar. That being said lets take a look at the chart.

During the time when the price is trending higher July 2008 – Feb 2009 we see lower wicks appear more often. This tells me that sellers pushed the price down early in the week but were then overcome by buyers nearer the end of the week. This is bullish price action. Also the broadening patterns during this timeframe’s tops  indicate increased volatility and we know that is a sign of weakness.

From March 2009 – Sept 2009 the trend was down and there are longer upper wicks telling us buyers became over powered by sellers each time the price rallied.

In the recent 3 months we observe lower wicks meaning buyers are moving into the US dollar again. Knowing that there is major support below the current price I have to think the dollar could start to bottom around this level.


Trading Conclusion:
The broad market is becoming unstable and looks like it could have more of a pullback this week. I would not be adding to any long positions until we see the market trading near support. Three out of four stocks move with the market so it is crucial to understand the overall market direction when buying and selling stocks and commodities.

Gold is trading at a level which is fuzzy. The weekly chart is neutral and the daily chart is still on fire as it moves up. All we can do is ride our positions and keep raising our stop prices.

The US dollar could start to bottom over the next few weeks. Depending what happens with Dubai this week we could be in for a big bounce in the dollar as investors flock to safety as the US dollar is still the currency of choice if/when other countries start to have a financial melt down again.

If you would like to receive my free weekly trading reports check out my website: www.GoldAndOilGuy.com

Chris Vermeulen

[CU]

‘Tis the Season to Trade the Seasonal Charts, Dow, Gold, Silver, Oil and Gas

The market has had a fantastic week so far for stocks and precious metals. The financial and energy sector are underperforming which is a concern, but we continue to hold our positions and will wait until a reversal to lock in our gains.

Things seem to be lining up for stocks and precious metals to take a breather, which is in line with the Dow Jones Seasonal chart below.

Let’s take a look…

Dow Jones ETF
You can see from looking at the chart the repeated pattern of price rallies, leading to exhaustion and a test of support, followed by another repeat of the pattern.  It looks as if the broad market is setup for a test of support which could happen within 2-4 days. Then as we near the holiday prices will start to drift higher. This pattern occurs more often than not as seen on the Dow Jones Seasonal chart below.



Dow Jones Seasonal Trends
This chart clearly shows weakness in the first half of December and continued strength moving forward. This has not really happened in the past two years which means we are overdue for continued strength.

That being said, the previous two years were bear markets and we are now in a bull market. So the tendency is for buying to continue into year end.



GLD ETF Fund
Gold continues to push higher surprising many of us. It seems as though money is rushing into metals and buyers are not particularly concern about price. While this is great for short term traders and those of us in the trade, we must remember that the faster things go up, the quicker they correct.

Don’t get me wrong, I don’t think gold is going to crash, I just think we could get a 10% correction before moving much higher. Gold is also trading near the upper end of the trend channel and could have a 2-4 day consolidation with the broad market before pushing much higher.



SLV Exchange Traded Fund
Silver has been underperforming yellow gold but is still a solid investment. It is also trading near the upper end of the trend channel and could have a 2-4 day consolidation with the broad market.



USO & UNG Funds
Oil continues to flag from its breakout back in October. This is a bullish pattern. Last Friday we saw oil open much lower then rally back into the trend channel. This is called an outside day and many times this happens to stocks and commodities as it shakes out the weak traders before starting another rally higher. We will keep a close eye for any low risk entry point.

Natural Gas had a nice rally last week which I mentioned looks a lot like a short covering rally. The price action this week suggests it was and has now made a new low. Today on CNBC it was reported that a new source of natural gas has been discovered.  This resource is 20 times larger than the biggest source in the US. Enough gas to last the US over 100 years. This added to the selling on both natural gas and oil today.



Trading Conclusion:
Precious metals continue to perform well and it’s important to note that PM stocks are now moving higher with gold. They have been lagging for some time but are on fire again. Great to see!

The Dow Jones index and several others look ready for a breather. The timing of these overbought charts bodes well for the seasonal December pause before the holiday rally. Time will tell.

Energy and financials are both underperforming the market and without their participation we will not see the indexes move much higher.

Continue to hold precious metals positions but be ready to lock in profits if we see the market reverse sharply. I am watching energy for a play but no setups at this time.

Check out my Free ETF Trading Newsletter

Chris Vermeulen
www.TheGoldAndOilGuy.com

[CU]

ETF Trading Gold, Silver, Oil, Natural Gas and the Index

December 9th, 2009
Etf trading has made it so easy for traders and investors to get maximum exposure to the entire market without the high fees of mutual funds and manager. There are now etfs covering almost every investment type whether it’s stocks, indexes, sectors, commodities, bonds, real estate, currencies etc…

In this short report I will quickly show a few charts on what is happening for precious metals and energy.

HUI – Gold Stock
This monthly chart of the gold stocks index you can see how easy it is to trade the market and avoid large sell offs when using technical analysis. Currently gold stocks are in a bull market, testing the 2008 highs. Until we are proven wrong buying stocks after a pullback is a winning strategy.


Trading the GLD ETF
We have been in the GLD etf for a few months as we ride this bull to new highs. This chart clearly shows how buying dips in a bull market can really pay off. I do have certain criteria which must be met before buying dips so I know the odds are in my favor.


ETF Trade Silver
Silver along with gold and oil are looking ready for an oversold bounce. I don’t think prices will jump and rally higher right out of the gate but eventually I feel the will head higher.


Crude Oil Fund Trade
Crude oil looks prime for the picking. It is currently oversold and testing 2 support levels. The downside momentum is still strong so this selling could last another 1-2 days but I’m expecting it to soon.

This is not a low risk setup. This is more of a short term aggressive contrarian play. For those of you who like heart pounding plays


Natural Gas Fund Chart
Natural gas has been taking its time to bottom. Virtually every bottom picker has been burned this year. I am starting to hear everyone get more bearish on it again which is great! It should bottom any day then! LOL….

Seriously it cannot get much more bearish for gas. We don’t have enough space to store it and companies are finding more natural gas in the ground every day. Because it sounds like a terrible investment it must be getting close to a bottom. If this is the start of a flat basing pattern, then I expect it could drag out for a few months before actually making a nice move up.


Dow Jones DIA ETF
The Dow looks similar to gold and silver. I feel we are ready for a 1-2 day bounce then we go a little lower to shake traders out of the market before heading higher.


ETF Trading Conclusion:
Gold stocks and the broad market are in a bull market. The recent pullback has many traders worried. I think this an opportunity to bet into some positions before the next rally. Buying the dips in a bull market is a low risk trade until proven wrong. I think we still have more of a pullback yet but then we could have a very profitable year end Xmas rally.

Natural Gas is just bumping along bottom I think. Not expecting any trade for a few weeks anyways.

Crude Oil looks like its ready for a move whether it is a 1-2 day bounce or the start of a new leg higher. If you loot at late Sept you can see USO broke down on heavy volume shaking most traders out of their positions just before the next leg higher, and this is what I feel it is doing now. Only time will tell.

Let’s see how the second half of this week unfolds.

Join my Free ETF Trading Newsletter

Chris Vermeulen
www.TheGoldAndOilGuy.com 

[CU]

What’s Next for Stocks, Gold, Silver, Oil & Nat Gas?

December 13, 2009
The past three weeks have been interesting to watch as the Dow (DIA ETF) has broadened causing traders to be shaken in and out of positions. Commodities have been under pressure as the US dollar has risen. Below are some charts of these investments and what I think could happen in the next couple weeks.

DIA – Exchange Traded Fund
As you can see the broadening formation is bearish as it results in a short term pullback. This type of price action is what frustrates breakout and novice traders. As traders jump into positions once the previous high is broken, they hope for a rally. Instead the market briefly moves higher then reverses and moves down to penetrate the previous pivot low. This is where breakout traders place their stops and as the market knows this, it obliges by moving below this level to shake out these traders before it rallies again.

That being said, it looks like stocks could make a new high this week, just enough to suck in more short term breakout traders before rolling over once again to test a deeper support level. A pullback to the $99-100 level would make for a great buy point.


GLD – Gold Exchange Traded Fund
The strengthening dollar is putting pressure on precious metals with gold testing the first support level. Depending on what the dollar does in the coming days we could see gold test the second support level.

In my opinion gold can test the second support level without triggering any major sell signals for traders and investors. The trend will still be up and it is important to know the horizontal support level is more important than a trend line support level.


SLV – Exchange Traded Fund
Silver is in the same boat at gold. Only time will tell if we get a bounce or a further test lower. Either way, the underlying trend is still up and we will be able trade it.


USO – Oil Exchange Traded Fund
Oil broke down out of its bull flag last week and is currently testing both trend line support and horizontal support levels. We could see a short term bounce here to the $37, 38 or 40 levels. Taking money off the table at each resistance level and raising your stop is an important money management strategy I use for this type of play.

This is a high risk type of play which I am not taking part in. But I do find it fun to track plays like this for educational reasons.


UNG - Natural Gas Exchange Traded Fund
The natural gas fund is a touchy topic with so many traders. I get emails every day asking why I trade UNG because of the contango and the fact that so many people have lost money with it; they don’t want to touch it again. My answer is very simple, it works perfectly fine for short term trading which lasts 1-20 days. “If it works, Don’t Fix It”.
I do agree UNG is tougher than other ETFs to trade, but it still makes money and that is what our goal is.

Anyways natural gas has found some support and is bouncing around. We could see it trend sideways or up until a test of our blue resistance trend line is reached. From there we can asses the situation for a possible trade.

The underlying trend is down on the monthly and weekly charts so do not get too excited about going long anytime soon.


ETF Trading Conclusion:
Overall the market feels a little top heavy and the price action on the charts are saying the same thing. My short term indicators are telling me the Dow (DIA fund) is over bought and ready for a couple days of selling. With any luck we will see a test of support which will flush out most short term traders this week, then a nice low volume rally going into Christmas. On the other hand, the market has been holding up well and prices could continue to drift higher from here. If that is the case we simply continue to hold our current long positions and enjoy the ride.

Silver and gold are testing support levels and if the market continues to rally here, I figure precious metals will follow. But if we see stocks pull back and test support, then we will most likely see the metals pull back further also.

Crude oil has formed a scary looking chart as it flushes out traders on this recent drop. My general rule for spec plays is to buy when the chart looks scary, but is trading at multiple support levels. It is very difficult to buy at these levels but as my good buddy David Banister from ActiveTradingPartners.com always says, “Buy when they Cry, Sell when it’s Loud”. Meaning buy when everyone is panicking out of their positions, and sell when everyone is buying into the move usually seen by high volume levels and much higher prices.

Natural Gas is jumping around like crazy. We continue to wait for a tradable price pattern to form in conjunction with a support or resistance level to help put the odds more on our side.

If you would like to receive my Free ETF Trading Newsletter visit my website: www.TheGoldAndOilGuy.com

Chris Vermeulen

Disclaimer: I currently own GLD exchange traded fund.

[CU]

Stocks and Commodities Are Trading Predictably

It’s been a great week so far. Stocks and commodities are moving as expected from my weekend trading report. I like to see the market unfold in a calm collected manner.

The US dollar has made a nice move in the past couple weeks. Although it has broken out of its down channel I think there is a lot of short covering going on making this bounce more powerful than others. Also it is important to note that it is near resistance which could dampen things around the $77-77.5 level. If the dollar heads back down I expect gold to start making a move back up which it started to do Wednesday.

Below are my thoughts and charts about what I think is unfolding for both stocks and commodities.

DIA – Dow Jones Index Fund
The DIA fund has performed just the way I thought it would. Push to a new high then sell down. Generally I would expect this move down to test my support level or trade near that level, but because we are heading into the holiday season and volume is light the market has a natural tendency to drift higher. I’m sure this is why it’s still trading near the high.

This new yearly high was enough to suck in breakout traders and only time will tell if they get follow through or get shaken out of this trade also. Oh, the joys of buying a breakout in an over bought market condition 


GLD – Gold Exchange Traded Fund
Gold broke down sharply from its trend channel and has settled into a support zone. Wednesday we saw a nice bounce but the question is, is this a rally or a sucker’s bounce?
I’ve found the best setups and moves occur after an ABC retrace. The black lines on the chart show exactly that type of price action. These retraces shake out most short term traders before starting a new rally. There is a thin dotted blue line showing a possible resistance trend line which would need to be broken after the ABC retrace pattern has formed if we want a low risk setup with a sizable win/loss ratio.


SLV – Silver ETF Trading Fund
Silver is in the same boat as its big sister (Yellow Gold). We just need to wait for a high probability setup to present its self before putting any of our hard earned money to work.


USO – Crude Oil Fund
USO has provided some great short term gains for anyone who used my analysis from my Sunday night report. The quote and chart below covers my thoughts for USO.

Sunday night report:
“Oil broke down out of its bull flag last week and is currently testing both trend line support and horizontal support levels. We could see a short term bounce here to the $37, 38 or 40 levels. Taking money off the table at each resistance level and raising your stop is an important money management strategy I use for this type of play.”


UNG – Natural Gas Trading Fund
Natural gas is still very much a speculative play as everyone thinks they will make huge money from this commodity.

This means two things in my opinion:
1.   It’s still headed lower
2.   After rallies the sellers jump back in.

UNG is trading near resistance and it could provide a great shorting opportunity in the coming days.


ETF Trading Conclusion:
Although it’s been a quite week in the market, I have really enjoyed it. Not sure if it is related to everything unfolding in a controlled manner or the holiday season nearing, or maybe both?

November and December have been quiet for our ETFs but I know we are on the verge of either a large move up or down in the coming weeks. Let’s watch the market and funds unfold and see if we can get another trade or two in before year end.

Receive my Free ETF Trading Newsletter: www.TheGoldAndOilGuy.com

Chris Vermeulen