Due to Technical issues with the video we will be updating this post with the video later this afternoon. You can still read Adam's thoughts on the markets below.
Hello traders everywhere! Adam Hewison here, co-founder of MarketClub with your mid-day market update for Friday, the 14th of October.
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Is this rally for real?
What is behind this market's rally? The market has been going higher on light volume and admittedly to an area that has presented problems for the S&P 500 in the past - the 1220 area.
It is an important policy to respect market action, as we believe that trumps everything in the long run. The market is at some very crucial levels. Looking back at the past two months, you can see we have just been in a very broad trading range. I believe that professional traders will be shorting the S&P 500 against the highs that were seen just recently. The risk is maybe 10 or 15 points and the downside is maybe 200 points. So the risk-reward ratio is really quite attractive from a trading standpoint.
There are "two flies in the ointment" we see right now. First, the S&P 500 is heavily overbought on the Williams% R indicator and at resistance. Secondly, our monthly Trade Triangle continues to be negative for this market. I believe that this combination will begin to put this market on the defensive, perhaps even later today and next week.
It has been an interesting week and it would appear that all of the markets we track are closing against the major trends. This is not to say the markets have reversed course, rather we are seeing a counter trend rally against the bigger trends.
Now, let's go to the 6 major markets we track every day and see how we can create and maintain your wealth in 2011.
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S&P 500 INDEX
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One of the key things to watch today in the S&P 500 index is where we close. If we see this market close unchanged or lower for the day, I think that's a very good chance that one can short this market against the 1220 resistance area. There are a number of ETFs that you can use to accomplish this and we have listed those below. The long-term trend for the equity markets and the S&P 500 index is still on the downside. While this market his higher for the week, last week we closed at 1155, we still expect to see this market move down and test the recent lows. Long-term traders should continue to hold short positions in this index.
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Monthly Trade Triangles for Long-Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = + 75
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Suggested S&P 500 Trading Instruments:
Non Leveraged ETF's: (Long SPY) (Short SH)
2 x Leveraged ETF's: (Long SSO)(Short SDS)
Futures: Contracts are available to trade this market. Contact your broker
Options: Options Contracts are available to trade this market.Contact your broker
WARNING: Liquidity is some ETFs is very thin. Contact your broker for more information.
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SILVER (SPOT)
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Last week, the spot silver market closed at $31.12 and currently we are just a few cents above that level in what has become a mainly sideways market. We feel that this impasse is going to change fairly soon. With all of our Trade Triangles negative, we expect we will see further downside pressure in this metal. We believe that the markets are looking at silver as an industrial metal and if we are correct on the trend in the world equity markets, then silver should fall to around $20 an ounce. Our Chart Analysis Score just moved to a - 85, indicating that momentum is picking up to the downside. Intermediate and Long-term traders should continue to hold short positions in silver with appropriate stops.
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Monthly Trade Triangles for Long-Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trend = Negative
Daily Trade Triangles for Short-Term Trends = Negative
Combined Strength of Trend Score = - 80
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Suggested SILVER Trading Instruments:
Non Leveraged ETF's: (Long SLV) (Short the ETF SLV)
Leveraged ETF's: (Long AGQ) (Short ZSL)
Futures: Contracts are available to trade this market. Contact your broker
Options: Options Contracts are available to trade this market.Contact your broker
WARNING: Liquidity is some ETFs is very thin. Contact your broker for more information.
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GOLD (SPOT)
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The spot gold market is up over $30 for the week. Unlike Silver, the gold market has a positive long-term Trade Triangle indicating that the longer-term trend is still positive. With a Chart Analysis Score of +65, we expect this market to continue to remain in a trading range. Gold has reached the midpoint of the Donchian trading channel, which will probably halt its upward momentum for the time being. We would not be surprised to see this sideways action continue for another week or so. I think most traders would be better off just watching from the sidelines until the volatility subsides. Only long-term traders should maintain long positions with the appropriate money management stops in place.
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Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = + 65
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Suggested GOLD Trading Instruments:
Non Leveraged ETF's: (Long GLD) (Short the ETF GLD)
Leveraged ETF's:(Long UGL) (Short GLL)
Futures: Contracts are available to trade this market. Contact your broker
Options: Options Contracts are available to trade this market.Contact your broker
WARNING: Liquidity is some ETFs is very thin. Contact your broker for more information.
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CRUDE OIL (DECEMBER)
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IMPORTANT ALERT: Please note that we are following the December contract for crude oil.
The crude oil market continues to mirror the action in the equity markets. Providing the equity markets keep going higher, we should see oil go higher. Conversely, if we see the equity markets heading lower, we will see oil heading lower. At the moment, we believe the latter course is going to be the direction for this market in the next few weeks. Both our long-term and intermediate term Trade Triangles continue to be negative and we expect they will come into play perhaps as early as later today. Last Friday, December crude oil closed at $82.97. Let's see how we close today for the week. Intermediate and Long-term traders should continue to be short the crude oil market.
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Monthly Trade Triangles for Long-Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = - 55
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Suggested Trading Instruments:
Non Leveraged ETF's: (Long USO) (Short the ETF USO)
Leveraged ETF's: (Long UCO) (Short DTO)
Futures: Contracts are available to trade this market. Contact your broker
Options: Options Contracts are available to trade this market.Contact your broker
WARNING: Liquidity is some ETFs is very thin. Contact your broker for more information.
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DOLLAR INDEX
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The dollar index has pulled back approximately 50% from the lows that were seen in late August. With that move, it changed our intermediate term weekly Trade Triangle to negative, but did nothing to change the longer term positive trend based on our monthly Trade Triangle. This market is heavily oversold and we expect to see more two-way action before we see a bounce back up to the 78.50 area. We continue to be friendly to this index and want to hold long positions with money management stops. This index is coming from a large energy field that is capable of carrying it much higher. Long-Term traders should maintain long positions with the appropriate money management stops in place.
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Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short-Term Trends = Negative
Combined Strength of Trend Score = - 70
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Suggested DOLLAR INDEX Trading Instruments:
Non Leveraged ETF's: (Long UUP) (Short UDN)
Leveraged ETF's: (Long) (Short)
Futures: Contracts are available to trade this market. Contact your broker
Options: Options Contracts are available to trade this market.Contact your broker
WARNING: Liquidity is some ETFs is very thin. Contact your broker for more information.
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REUTERS/JEFFERIES CRB COMMODITY INDEX
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Today's pop in the crude oil market moved this index to the key resistance level that we've been talking about, 315 to 316. Crude oil plays a very crucial part in the composition of this index. The index is now at an important level of resistance which was former support back in early August. With both the intermediate and longer term Trade Triangles in a negative mode, we suspected that once our short-term indicator turns red, we will see this market pullback from current levels. On a Fibonacci basis we have not yet retraced 50%, but we are close to that 317.49 level. Intermediate and Long-Term traders should maintain short positions with the appropriate money management stops in place.
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Monthly Trade Triangles for Long-Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = - 55
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Suggested REUTERS/JEFFERIES CRB COMMODITY INDEX Trading Instruments:
Non Leveraged ETF's: (Long CRBQ) (Short the ETF CRBQ)
Leveraged ETF's: (Long) (Short CMD)
Futures: Contracts are available to trade this market. Contact your broker
Options: Options Contracts are available to trade this market.Contact your broker
WARNING: Liquidity is some ETFs is very thin. Contact your broker for more information.
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As always, we rely on our market proven Trade Triangle technology for catching the big moves.
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This is Adam Hewison for MarketClub and I’ll see you tomorrow with my mid-day market update. Don’t forget to enter for a free 1 year subscription to MarketClub on a HP WiFi Tablet.
All the best,
Adam Hewison
President, INO.com
Co-creator, MarketClub
To Ralph
I see what you’re saying, you might be right; I can’t say you’re not. I’m just going on the Monthly Red Triangle on calling this a Bear market (but still in a sideways motion at this moment), but yea if you use the Fibonacci back to March 09 low to may 2011 high then we had about a 32.8% retracement in the major markets so far. That will also mean on the S&P 500 if it dropped down to around 935.00, this will put us at a 61.8% retracement still in a bull market buy this measurement (a long way down to be bullish), I guess it depends on the masses & what form of measurement is used.
I do believe if and when the markets hit the 61.8% retracement many bulls may be looking to get in, my only question is this. What new disasters will we be facing then & can the bulls stop the downhill spiral & get the markets moving up. on April 2010 to July 2010 we also had a 32.8% then continued up so heck the markets can pull up now for all we know lol, even though I highly doubt it with all the problems going on, only time will tell.
Adelino
I respectfully disagree. We are in a secular bull market since March 2009. We've had two major corrections: April 2010 to July 2, -- 15%; and today, July 8, 2011 to Oct 3, 2011 -- about 18%.
Chartwise, last week action on SPY points to further advances. Week ago Friday, the ETF rises above Bollinger Bands midpoint; Monday, breaks through 50-day SMA; Tue, breaks through 55-day EMA; Wed, passes 1st pivot point resistance at 120; Thur, beats off the bears and remains above 120; Fri, breaks thru previous Sept high to 122.57 and achieves a 50% retracement from the Summer high. There are no further areas of technical resistance until 132.68. And many shorts are still hanging on like grim death. It's too, too perfect. That's the trouble with it.
Hi Adam, do you use the weekly triangles to get in and the monthly triangles to get out for long-term trades? Also, if the S&P goes higher next week, are you going to buy the overbought breakout or wait for the first pullback after the breakout on the S&P? Thanks!
this is reminding me of the sept 2010 sept fed pomo rally 5 months up no down days on light volume
The trend is your friend, follow the trend and you will make a lot of money. Going against the trend is very risky. I usually buy when the markets is weak and sell into strength. I bought SPY at around 108 and took my profit at 120-121. I am on the sideline now waiting for the downtrend before shorting. Remember to trade smartly. Good luck
To Ralph
Oops Ralph. What do you think the 3 to 5% strategy was?............. answer MONEY MANAGEMENT STOPS! LOL come on Ralph. Yes Long-Term traders may only use the Monthly Trade Triangles for trading but only in a trending up ETF or Stock not best in a sideways market. Price action alone in the major markets will tell you it’s a Bear sideways market & for that it’s best to use the Donchian Channels & the Williams % R like in Adams videos for a sideways markets.
If Deb held on to the short ETF or Stock this whole ride down waiting for a Monthly Triangle, it’s obvious there wasn’t any safety stops in place. The 3 to 5% strategy is one of many ways to do that. I don’t know about Deb but for myself TZA is a short ETF for the Russell 2000, I keep an eye out on the Russell 2000 & the S&P 500 using the Donchian Channels & the Williams % R. The 3 to 5% (give or take if you like) strategy has been working great for me as a MONEY MANAGEMENT system, it may do the same for Deb.
PS. it’s a traders market not an investing market, if it was an investing market then great use the Monthly Trade Triangles only but at this moment if you want to make money now, not years from now you must trade!
Here is a theoretical question for you . . . how do you factor in massive, large scale corruption, such as using trillions of dollars worth of derivatives to manipulate the sales of the 10 and 30 year notes? Or shorting billions of ounces of silver and tens of thousands of tons of gold when you don't actually have the metal?
If we use stop-loss, then we are not a long-term nor intermediate traders aren't we...
Sorry, the last message was not for Deb but for Adelino. Excuse me.
oops Deb. What Adam suggested was "Intermediate and Long-Term traders should maintain short positions with the appropriate money management stops in place."
To Deb:
Adam never said to hold shorts based on the Monthly Trade Triangles, what Adam says on all of his videos (if you watch them) WE’RE IN A TRADING RANG, and we should uses the Donchian Channels & the Williams % R to trade it (just like he shows us on the videos).
Try this, when the price goes down to the bottom of the Donchian Channels & the Williams % R is oversold, put your buy price 3 or 5% over the closing price to buy that ETF or Stock. When the price gets up to the top of the Donchian Channels or over bought on the Williams % R put your sell price 3 or 5% below the closing price. If prices move up move your sell price up, if prices move down then you’re out & you keep the profits you made. Have a nice weekend ;-). PS don’t forget to keep an eye out on the volume of the rally.
Chartwise, SPY has now achieved a 50% retrace from the summer highs. That was the original target and bulls can say mission accomplished. Time to take part profits and tighten stops. But I still don't think this run is done. There's a lot of talk about low volume. It's true volume has been declining since Oct 4. But the rise from 118 in Dec 2010 to 131 in Feb 2011 was accomplished with volume that was generally about 150 million/day, and many days it was about 50 million. Since we clocked 110 on Oct 4 to 122 today, volume is between 300 million and 200 million.
As for the news. I snooze.
S&P had it's lowest daily trading volume in 32 days. Not what you would expect as it pokes it's nose through a magic number.
OK Adam, the S&P didn't close unchanged or lower for the day, in fact it closed up significantly ()...now what? We just got a weekly 'UP' triangle, while on the other hand we are at the top of the Donchian AND, as you've pointed out...this 'rally' is on low volume. And yes, the market poked its little nose above the 1220 resistance three times today, fell back twice but close 5 pts above. Rather mixed signals wouldn't you say? Not exactly overwhelming evidence to short? Your thoughts? And, yes, I know this market is being manipulated with a bullish bias.
Second question, I've been looking for market prices on oak lumber, CME gives "random length lumber" but what KIND of lumber??? Obviously there's a huge difference between the price of framing lumber vs oak / maple / walnut etc. Thanks for your help on this.
I've also noticed the light volume and it's made me wonder if this rally is real or not. However, volume can pick up and confirm the new up trend when it breaks through resistance at 1220. Gold is forming a rising wedge on lower volume. Put into context, I think it says one more down leg could be in the near future. Everything is set up for a tumble downwards. But will we get it? I hope so... as I'm sitting in cash right now.
OMG.. Market is soaring like anything. S&P is at 1224 now. It is simply ridiculous to hold short based on monthly trade triangle..Have a nice weekend!!