Was Last Week's Market Rally a Head Fake?

Hello traders everywhere! Adam Hewison here, co-founder of MarketClub with your mid-day market update for Monday, the 17th of October.
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Was last week's market rally a head fake?

Last week, the equity markets rallied along with many other markets. We felt at the time this was a counter trend rally and with today's action we have probably put in an interim top. We also expressed the feeling that professional traders would be selling against the recent highs around 1220 to 1230 basis the S&P 500 index.

The rally was pretty unusual in the fact that it was on very light volume and it took off to the upside very quickly without any kind of market consolidation.

This is going to be a big week! Are we going to continue going up? Or are we going to see the longer term downtrend kick in? A downside reversal could be quite dramatic. This also holds true for the crude oil market, which has been mirroring the US equity markets.

The problems in Europe remain and we see little reason to celebrate any victories on that front. Greece will eventually default, and it remains to be seen if Ireland, Spain and Italy will dodge a bullet.

Every week it seems we go from "the world is coming to an end" to euphoria. Eventually the markets will sort out this conundrum. Our view longer-term remains with our Trade Triangle technology which remains negative on the equity markets indicating long-term weakness.

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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Once again the S&P 500 reversed from the resistance zone starting at 1220 and extending up to 1230. We would view a close today below the 1205.65 level as an indication that this market has put in an interim top, similar to what we saw back in August and September. We would not be surprised to see a pullback to the 1120 area. A 61.8% Fibonacci retracement takes the S&P 500 back to the 1130.94 area. 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 = + 60
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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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Our feelings towards the spot silver market are growing more and more pessimistic, as it looks like this market is rolling over to the downside. With two of our Trade Triangles in a negative mode 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 - 65, indicating that we may have a few more days to go before we head 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 = Positive
Combined Strength of Trend Score = - 65
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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 gold market has retraced approximately 38.2% from the lows that were seen around $1550 and the all time highs that were seen around the $1920 level. While all our Trade Triangles are in a positive mode, this market appears to be struggling in the short term to move higher. With our outlook on the silver market somewhat negative, we feel we are at a crossroads in regards to the trend in gold. Having said that, we are going to continue to rely on our Trade Triangles which are indicating that the trend remains to the upside. Gold has reached just beyond 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. 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 = Positive
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = + 90
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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 December crude oil market just peeked over the top of the Donchian trade channel before reversing to the downside. The crude oil market continues to follow the action in the equity markets. Providing the equity markets keep going lower, we should see oil go lower. We are looking for a pullback to the $80 a barrel level, which represents the 61.8% Fibonacci retracement. Our long-term Trade Triangles continue to be negative and we expect they will once again dictate the tone of this market. 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 = Positive
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = + 60
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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 had pulled back approximately 50% from lows that were seen August, and is now rallying from that point. It is also rallying from an oversold condition as well as from support at the lower levels of the Donchian Trading Channel. We would not be surprised to see a rally back 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 = - 60
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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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The REUTERS/JEFFERIES CRB COMMODITY INDEX has rallied back approximately 50% from the highs that were seen in late August to the recent lows seen in early October. The index is heavily overbought and we expect that this will be a harbinger of the move to the downside. Technically our long-term Trade Triangle remains negative and we expect to see this market once again resume its downward trend. I n the short term we're looking for a move back to the 305 to 300 level. 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 = Positive
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = + 60
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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 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