It's been a great year as we head into the final few trading sessions. The past several weeks the indices haven't done much of anything, which is why we are now in cash.
However, I think the market is about to change direction abruptly in the coming days or weeks. Here is why:
- 1. The New York Stock Exchange, Dow Jones Industrial Averageand S&P 500 are all drifting higher into resistance levels on the 10-day, 60-minute charts. Light volume tends to favor higher prices, hence the reason for the holiday rally.
- 2. Broad market momentum waves are topping.
- 3. These same indices are trading at resistance levels from early 2008.
- 4. Money flow is indicating large institutions have been big sellers over the past three weeks.
- 5. I think the U.S. economy is in worse shape than most want to admit.
So take a look at these 10-day charts, which clearly show resistance and support trend lines.
Each, if broken, will lead to a sharp decline. I used the ETFs of
DIAMONDS Trust, Series 1
NYSE Composite Index
, as substitutes for the indices.
Stocks have started to decouple from the dollar in recent days.
Thus, I'm not focusing much on what effect the dollar will have on the indices mentioned earlier.
That being said, the dollar (
PowerShares DB US Dollar Index Bullish
) is at a pivotal point. It's either going to bounce off the trend line support level (blue line) and send gold back down to test the previous low, or break down through the support trend line. A falling dollar will give gold some power to muscle its way back up to the next short-term support level.
On Tuesday, we said gold stocks and silver prices would move higher. I consider gold stocks and silver my leading indicators for the price of gold. On Wednesday, gold stocks and silver shot higher, outperforming gold by 7-to-1, which is very bullish for gold.
Crude oil had a large rally Wednesday, sending the
United States Oil
ETF surging 3.5%, confirming a bounce off our support level two weeks ago. It could be warming up for another rally.
Natural gas opened lower but put in a strong session as it trended up all day Wednesday. This also looks very strong, and if prices break out and follow through next week natural gas could stage a real rally for once.
This is a short trading week with Thursday being only a half session and Friday being closed for Christmas. We won't have any low-risk setups this week. We are sitting in cash.
Chris Vermeulen is Founder of the popular trading sites www.thegoldandoilguy.com and www.ActiveTradingPartners.com . There he shares his highly successful, low-risk trading method. Since 2001 Chris has been a leader in teaching others to skillfully trade in gold, silver, oil, and stocks in both bull and bear markets. Subscribers to his service depend on Chris' uniquely consistent investment opportunities that carry exceptionally low risk and high return.