Gold, Silver, Index ETFs Post Mini Crash

Gold and silver show serious potential after last week's mini market meltdown.
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By Chris Vermeulen of TheGoldAndOilGuy.com

NEW YORK (

TheStreet

) -- As we all know, last week's stock market blip/mini crash was very emotional for those who were watching it or trading it live. A lot of money changed hands last week and you either lost a bundle or made a bundle.

I did send out some

charts and a video

on Thursday night about the market crash/recovery, if you have not seen it.

Below are my ETF charts for the commodities and index I actively follow and trade.

Gold Bullion ETF (GLD) - Get Report: Daily

GLD is a great ETF to trade, as it generates 10-20 quality, low-risk setups each year. The chart clearly shows the large rally in late 2009 and the correction as it formed patterns moving from a downtrend -- base -- and back to an uptrend.

U.S. Dollar Index: Monthly

This weekly chart shows some serious potential for gold and silver prices. The USD is now trading at a key resistance level and will likely have a tough time moving higher. The dollar has been moving up for several months and looks ready for a pullback or at least a pause. If the dollar starts to roll over in the next few months, then we should see gold and silver move substantially higher.

Silver Bullion ETF (SLV) - Get Report: Daily

Silver, like gold, bounced off a key support level last week as investors started to buy silver as a safe haven. Gold moved up sharply on the day of the intraday market crash, while silver traded sideways for a day before joining the party. The following day, investors startied buying up silver, because it was lagging its big sister "yellow gold."

Oil Fund (USO) - Get Report: Daily

Several weeks back I posted this chart showing how volume was drying up as oil tested resistance on declining volume. This indicated to us that once the price started to roll over, it would trigger a sharp selloff as short-term traders, who bought in anticipation of a breakout to the up side, sold out of their positions, once support was broken. This is what caused the heavy volume and sharp price drop.

S&P 500 Index Trading ETF (SPY) - Get Report: Daily

It's tougher now to read the index charts, as last week's heavy-volume market crash could be seen in two very different ways.

First way: We are starting a correction and had a jumpstart with the human error of selling billions of dollars worth of investments, instead of millions, prematurely pulling the market down to a level where I think it will test again before moving up.

Second way: This extremely heavy selloff is just the start of what is to come.

Since the government owns the largest banks and the banks are unloading/selling massive amounts of shares, calling it an error, how do we know it's not a scam allowing them to completely short the market in anticipation of a collapse, which would make them unheard of amounts of money as the market drops? It is tough to trust anyone sitting in those power positions after everything they have been caught for already.

I personally think we could see lower prices in the coming month, then the market will bottom and we will see new highs for 2010.

Trading Strategy Conclusion

Stepping back and looking at the above charts, it looks as though we could see stocks and commodities digest the recent moves. In short, gold and silver have rallied strong and are now trading near resistance. Oil dropped last week and is now trading near a key support level. I feel the market will trade sideways and stabilize for a while, as the S&P 500 had that crazy drop last week and now the market is in shock. I figured it would normally take three or four weeks to reach those prices, yet it happened in just one day, so now the market could do very little for three to four weeks.

The U.S. dollar is something we will be watching more closely because it's trading at key resistance level. In the past, it has taken a month or two for a rally to roll over and head back down. This could play out very nicely if the dollar tops and the rest of the market trends sideways to digest the recent moves. Once the dollar starts to fall, it will provide fuel for the next rally in both stocks and commodities.

If you would like to receive my ETF Trading Strategy and Trading Signals, please check out my Web site:

www.TheGoldAndOilGuy.com

-- Written by Chris Vermeulen in Collingwood, Ontario, Canada

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.