is the chart of GS trying to tell us something?

Let's look at something different this Feb 24, 2010. Looking at the SPY, it doesn't really tell you much, except that we have a possible lower high, with the recent rally off of the January lows, a rally up to the 50 DMA. Looking at Gold, its similar, it's been in a downtrend since late December 2009, however is it bottoming or is there a little more to the correction to go (eg. will GLD trade down to 104 or 101 which are heavy support levels?)

Well let's look at one thing which seems more conclusive, the chart of Goldman Sachs. If you look at this chart, since Jan 2010, it doesn't look too nice with a series of lower highs and lower lows. the 50 DMA has crossed below the 200 DMA. The 50DMA , the 200 DMA, a previous support line, and the upper bar of the ascending trendline all seem to intersect at 162, which will likely be a major resistance point. Also recent price action would suggest that GS is forming a bearish wedge since forming the January lows. Say GS is able to rally to 162, then what? I would say that the likely direction for GS is further downside pressure perhaps to 141, which is an area of previous resistance.

So if GS goes down, guess what the SPY and the markets will do? Guess what commodities like gold will do? Mind you if the correction continues, it won't be anything like a crash, but in the very short term perhaps it's better to sit tight and wait for better opportunities to present themselves before buying anything.

feb 18 - FED raises discount rates

Feb 18 , the market rallied on relatively low volumes, but rallied impressively especially at the last hour of trade. Do you think the big boys were playing games, perhaps convincing people to buy when they should not buy? In the last 10 minutes of trade, you really saw a large volume selloff on the SPY, and that should have been warning signs. After all the SPY traded up to the 50 day moving average, the 61.8 fib retracement number, and frankly failed to convincingly break above a key resistance level (notice the little topping tail). And what does the market do after hours? S&P futures are down 9 points because of the FED raising the discount rates.

The market tried to break to the upside today, and it looks like it has failed. I have been taught, that when the market tries to do something and fails, it will reverse to the opposite direction violently. So what will happen? Well I guess I'll be a little bolder and say that we're probably gonna see some more downside pressure in the markets. I could be wrong, and the markets can "reverse the reversal", but it appears likely we'll see SPY prices closer to the 200DMA at what appears to be 103 now. Once this correction has run it's course (or a "reverse the reversal" happens), then the last final leg in the market rally will likely transpire. For short term traders be nimble.

feb 16 - short term target achieved as i said

Feb 16 update. The short term target I outlined earlier has been achieved. We got our rally on the SPY to close to 110 on very low volume. What will happen next? I wish I knew. Certainly commodities, and stocks for that matter are overly extended and due for a pullback.

Whether this pullback is a nasty correction (SPY 102), or the SPY will continue to rally is up in the air. Certainly it is troubling that the rally today came on very low volume. Also this week is options expiration, and a lot of wacky things can happen.

Long story short, be defensive. If a major correction occurs, wait till the dust settles before trying to find the last leg in the bull. If the market rallies, and confirms a rally, then this may be the last hurrah for the bull market before all the real fun stuff occurs when many countries, companies, or people starts defaulting on their debts.

consolidation continues... what will happen next?

I know I said in my last post that the markets will take a few days to figure out where they want to go. Well as of now Feb 12, it's still trying to decide what to do. But I certainly think in the very short term, (next 1-3 days), the market is going to rally because the US dollar (UUP) appears to have made a double top, and is ready to pullback a bit. That would mean that stocks, and commodities will rally. Especially when you see Friday's trading action, the market rallied from significant lows to just about break even, so certainly the market is not ready to die yet.

But my forecast last week remains the same, looking at the charts in the next 1-3 days, I believe the SPY will make it 110-111, GLD will make it to 109 and change. What happens after that is debatable and will again depend on price action. But if you look at the chart of UUP, and the SPY, I have outlined two scenarios, with the red hand drawn arrows. One is where the dollar continues to rally (UUP 24) and that would likely the SPY to correct back to 100-102. And the other scenario is that the dollar just starts to die and the markets will continue to party as if all the financial mess in Wall St. Greece, Europe, or heck the US gov't is non existant. Which one will it be?

Again while a correction back to SPY 100 would be significant, I don't believe that the market is ready to die just yet. We need to have a blowoff rally to suck everyone's hopes in before someone realizes that printed money is worth less than toilet paper (hey at least you can use toilet paper for something useful :P ), and that is when financial armegeddon will occur. Or maybe I'm just too pessimistic and that the model of printed money can continue forever???

is it breakdown or massive shakeout?

After trading on Feb 5, at least in the very short term, we can expect a snapback rally, especially with the bottoming tail on the SPY with massive volume, and a topping tail on the US dollar. A rally back to 110, or 111 on the SPY would not surprise me. But what happens after that depends on price action. If the SPY is able to decisively break 111 to the upside, then I would say that the rally is on... the recent correction would have been a failed breakdown, and the markets will rally violently. If the SPY is not able to break 111 to the upside, then there's a good chance that the SPY will correct to 102 ( where the 200 DMA is, and also symmetry from the two turquoise vertical lines).

Gold will likely see the same trading action as the SPY. It looks like it's forming a huge consolidation bull flag, but at the same time it could correctly back to the high $900s low $1000s , before a resumption of a huge rally. But if it is a failed breakdown, within the next few days, gold has got to decisively break $1100, and then it would be safe to say that we've seen the lows for gold for a while.

So a lot will depend on the next few days. If in a few days, the rally fails at the levels that I mentioned, then it's safe that the correction will continue. If it breaks past the resistance levels I mentioned, then we'll have a massive rally. So it's wait and see now... I can't see past the next few days, and we got to be prepared for anything.

support is broken... all bets are off

Well I thought that support was going to hold, but it appears, that support is broken... all bets are off, and it appears that we are in for one nasty correction. Wall St. has a way to manipulate people's emotions big time, and I admit that I have fallen victim sometimes as well.

We have to trade what we see, and not how we feel. Today thursday Feb 4, is a massive down day. I would not be surprised to see a bit of a bounceback tommorow Friday Feb 5, and that would probably be an opportunity to reduce long exposure.

I expect gold to dip into the $1000 range, and perhaps we'll see high or mid $900 for gold as that appears to be another level of massive support. As for the SPY, the correction will likely make it go to 99.

It appears the US dollar is sexy again. Don't know why, but investors just like this piece of fiat currency.