shake and bake and what's next for week Aug 31

Thursday Aug 27, and Friday Aug 28 were rather interesting trading days on the SPY. If you go back even further to Aug 13, we have developed a lower high, and then carved a lower low on Aug 17, with another attempt at retesting the lows on Aug 19, before a powerful rally with a high of around 104 in recent days. This is what is known as a shakeout, where the big boys play games to convince people to sell (or short) when they should be doing the opposite. Now on Aug 27, we had a relatively major correction in the morning that took out previous lows I believe due to some bad economic news, only for the market to recover and to rally to near the highs for 2009, and on Friday we had a major gap up in the market due to great earning reports (I believe from DELL and Intel), marking a high on the SPY for 2009, only for the market to puke for the rest of the day. What are the big boys trying to do? Are they trying to fake people out (convincing the little fish to buy when they should be selling instead)? Judging by the ES futures (10pm EDT), it's looking more and more like Friday was a fake out, and at the minimum we'll likely have a small pullback. Longer term what will the future hold? Who knows, but I honestly don't have high hopes for the economy.

Quick comment about gold. It appears that it is ready to breakout any day now, as we are nearing the apex of a very long triangle. Although I'm biasing myself to higher gold (due to money printing), we must be flexible enough to recognize that the breakout could be to the down side.

This is why I believe that buy and hold is a losing strategy, at least for now.

SPY blowoff top happening?

GS called for the SPX to be 1100-1150 sometime this year... I mentioned before that they're probably trying to sell their shares, and that their predictions are usually a little bit off. From the chart of the SPY, we smashed through resistance of 102, and the next (and probably last resistance before we crash) is at 105.6 (around 1060 on the SPX). If the market does reach that point before a crash, it would be pretty consistant with GS making predictions that are slightly above what the market is capable of doing (like oil last year). We would also have had a spectacular rally from March 09, to now, about 5-6 months in duration. I would like to remind readers that after the 1929 crash, the market staged a 50% rally from the lows of 1929 to the highs of 1930, before going on to destroy all wealth in the mid 30s. Not sure if that would happen now, but I don't really see any fundamental reason for hope. As always you be the judge.

XLE appears that is can rally just a bit more as well, which would help the SPY achieve it's blowoff top. The US dollar (UUP) appears to heading to retest recent lows, however this coming week, the US treasury is auctioning bonds, and I'm sure some trickery would happen to prop up the US dollar. One of those tricks include getting some investor to buy US treasuries to bid up the price, and then for the US gov't to buy it off this investor 10 days later, to give the illusion of confidence in the USD and solid demands for US treasuries. (Check this youtube clip
http://www.youtube.com/v/Ts5T6YTJrps )

Gold and the GDX appears to have held the ascending red line of support, and so the possible breakdown that I noted last week appears less likely, and it's more likely that we're gonna see more upside. For the past several months, it has been very frustrating to gold investors. If you look on the daily chart, we've been consolidating in a triangle pennant, and if we're able to break out of this pattern to the upside, we should see a massive run up for gold. Personally since I believe gold is money, then my bias is for an up move in gold. But again, we'll let the charts dictate what is likely to happen.

spy, gold, silver -- things don't look too promising

Today Aug 17, was a brutal day for the markets, and from the chart pattern for gold and silver, and their miners, things don't look too promising, in the short term (and possibly the mid term as well). Let's start with silver (SLV) along with an example miner SLW. In both SLV and SLW, they broken below a short term ascending trendline (white). It looks likely that further declines to a lower support level seems likely, with the lowest support level being the long term ascending trendline (red). If that level is broken then I think silver's uptrend is dead.

Gold seems to be in danger of breaking it's long term (from Jan 09) ascending trend line (in red). For gold's uptrend to continue, it must not break below the red ascending trendline. Notice that two example miners KGC and GG have already broken below their long term ascending trendlines. We'll see what happens, but things don't look promising at the moment.

As much as I hate to admit, but compared to gold and silver, the SPY seems to be the strongest. Granted today was an ugly day, and downside moves seem very likely. You can barely see the red ascending trendline which markes the upward trend from the March 09 lows, to the recent highs, and it's way below at 94. We're now hovering around heavy support at around 98.3, with another major support level at 94.5. We can have a downmove to 94, and it still will not invalidate the uptrend. If the market can smash through 94, then can we say the bear market rally is dead. But don't expect a move down to 94 to be linear. In fact a downmove might not even happen at all. Remember government always have weapons to deal with short sellers.

spy, gld, and some miners -for week of Aug 17

I don't really have much to say about the SPY. Who really knows where it is headed. All I know is that the market is heavily manipulated, with big movements near the beginning and the end of the day. All I can say is watch the chart. The upper horizontal line represents resistance, and the lower horizontal line represents support. A close above or below the respective S/R lines will dictate where the market is heading for the next couple of weeks. I do notice that we have traced out a lower high on the SPY. A close below the lower support line would be cause to be very defensive.

On another note, I'll make some small observations on GLD and some miners. Although I am still relatively optimistic about GLD and the miners, I must note that I am getting concerned with the chart pattern. If you look at KGC, GG, they have all carved out a pattern of lower highs and lower lows in recent days. A general market decline would definitely cause declines in the miners (and GLD) as everyone harps about the evils of deflation. However I believe that a decline of the miners would not be as severe as a decline of general stocks. I went through the reasons before. Gold (and silver) = Money. However looking in the charts on the short term, it looks like we might continue to have corrections in GLD and the miners, as they are all trading at or right below the orange ascending trendline that I drawn. I also drew in other horizontal and ascending trendlines that represent heavy support due to past trading patterns. We'll see what happens. If the market still has legs, I would expect a decline in gold and the minors should not penetrate the lower support lines too much that drawn on the chart. With a major decline in the markets, then all bets are off, and it is best to wait until the storm settles, or short into the decline.

spy blowoff top?

I am absolutely amazed at the parobolic rise of the SPY over the last couple of weeks as it reached my target of 102 without any pullback at all. So now what? I'm not yet ready to declare this bear rally dead. Far from it. One should not try to pick a top. From the above chart of the SPY, we're hovering around the 102 resistance band, and a breakout will lead to 106. Anyone who is still long though should be extremely cautious. This is not normal market behaviour. If you look at the intraday chart, you will see heavy evidence of manipulation. For the past couple of weeks, we've seen markets steadily decline over the day, only to be propped up between 3:30pm and 4pm with heavier volume. Now for the past week, we've seen the market gap higher, only to be met with intense selling from 3:30pm to 4pm with heavier volume. Perhaps GS has already made their money from the bear rally and is trying to cash out and dump onto the little guy? So I wonder if the SPY is experiencing a blow off top before a spectacular crash, just like oil last year.

The USD has traded higher for some reason (risk aversion?) , and that does not bode well for gold or other commodities in the short term. If you look at the daily chart of GLD, you will see that there should be heavy support for GLD around the 92.40 to 93 level from the moving averages, the lower yellow trend line, and a prior S/R level (white horizontal line). I do believe fundamentally that things do bode well for gold in the long term because of all the money printing, so I have reason to believe that those support levels will hold despite a new downtrend for gold. Of course we'll let charts dictate what to do, and be flexible enough to change our views based on the charts. GLD will have to trade lower than the lower white trend line for it to be in real trouble and for gold bugs to reconsider their views.

some miners, KGC and SLW

I've added some charts on KGC and SLW (gold and silver miners), along with trendlines, support resistance lines. You be the judge as to what you think will happen. I already alluded in my previous post what I think will happen. A small pullback on one of the support resistance lines on SLW might be a good place to enter. KGC is either gonna break out of the upper trend line very soon, or pullback and consolidate. Watch price action to dictate where to enter.

August... what will happen next?

What would August bring? I know in my opening post, I stated that I was bearish, and really I still believe that is the case. But as a trader it is important to trade what I see, and not what I feel. Based on the chart of the SPY, I do see a bearish ascending wedge, but what can happen? Certainly we are very extended to the upside, and at the very least a correction to 95 (yellow horizontal line) seems reasonable, especially since we've seen some hangman's the past two trading sessions. But can that correction turn into the crash I believe will happen one day or another, or will the market break above the ascending wedge, and make new highs? (A lot of magic can be done with $1T floating around, and the government has been known to print out more money on an as needed basis) Who knows? We'll just have to let price action tell us.

One thing that I do know is that the USD is on a long term trend downwards, and that does not appear that it will change. The gov't can print all the money they want, but they cannot dictate it's value, that is up to the market. Frankly I'm amazed at how the USD is holding up, considering that the USD is being printed like monopoly money. The the chart of the UUP does show that the USD is on a long term ( if slow) steady decline.

But sooner or later, I really do believe that there are ramifications to uncontrolled money printing that not even Uncle Sam can really do much about, and long term I think that bodes well for gold. Gold is traditionally money... it cannot be printed. So far the powers have managed to hold down the price of gold, but long term I don't think they can stop the eventual ascent of gold, as printing money is inflationary, and this long period of time where gold is consolidating only means that gold will shoot up to the moon if and when it does break out. For the time being let's just focus on the short term. If you look at the 30min chart of GLD, it does look like Friday's spike upwards, does make GLD overbought in the short term. You seen a spike up, a pullback, and then a lower high got created before pulling back again. I would imagine that a pullback to $92.75, gap fill and a support area would make it an attractive area to get in on gold. If you look on the daily chart of GLD, it does appear that an inverted Head and Shoulders pattern has formed, and a $100 price objective does not seem unreasonable. Long term, if GLD can manage to break the upper trend line at about $100, then that is probably when gold, and precious metals stocks will go to the moon.