Gold and stocks continue to trade within a tight range this week. While the long-term trend for both stocks and metals is up and the charts look bullish, I'm not buying at these levels because the market is overbought.
Chasing prices higher, especially after a run this large, isn't the right move in my opinion. I did mention last week that we could see stocks continue to grind higher going into earnings season which is about two weeks away; I think that could happen. And if the same thing takes place that we saw last January on great earnings then watch out for another drop.
In short, if earnings are good -- which they have been and everyone is expecting will be in April -- then the typical "buy-on-rumor," or pre-earnings rally, which is what we have now, and "sell on the good news" in April, then all the suckers thinking the market should rally will provide some liquidity for the smart money to sell at a premium.
That being said, if the earnings aren't good then people will sell on that news also because the market is just waiting for news to sell. It's the exact same situation as last time.
Trading Bottoms in the Broad Market
The past few months I've been really focusing on buying dips in the broad market after I see a mini 3 wave correction. I use a mix between price patterns, volume, market sentiment, and market internals and, of course, years of watching how the market moves and evolves during times of economic expansion and contraction.
This is represented on the chart as the purple line.
The chart shows one of my custom indicators which have successfully timed intermediate market bottoms one to two days before everything started to rally higher. This is one of the reasons we bought into the selling on Feb. 5 and again on Feb. 25 using exchange-traded funds.
Because this is a new ETF trading strategy and a type of trading signal to be used in a bull market I still have to fine tune it a little more. I want to be sure we don't get shaken out of positions too early, which is what happened to a couple ETFs we got into Feb. 5.
We were buying when everyone was bearish and panicking out of positions making it an extremely emotional time for traders like myself to buy into the market. This is not an easy task. I still have trouble pulling the trigger on these days and sometimes I just sit back in my chair and with one quick poke from my finger I hit the enter button to buy. My heart gets pounding just from that. Add a few thousand followers on the pile relying on quality analysis and you start to understand what I'm going though. Not to mention the hundreds of emails with people telling me the market is about to crash, we should be shorting ...
These are crazy times for sure.
Anyway, I will be providing these new signals for subscribers. Because my focus is on managing risk and keeping it as low as possible this will be a learning curve as I apply it to the service and set protective stops which is very difficult to do during a time of high volatility in the market. We can see the market move 2% to 4% in one day during these times so if we are trading the
TNA 3x leveraged Russell 2000
fund we could see our position drop 12% in one day. Bigger risk, bigger rewards, as they say.
Gold and Silver
Gold and silver are currently trading in limbo at the moment. It's tough to say what's going to happen here which is why I continue to wait for something with a high probability of winning before putting any money to work.
The daily chart clearly shows a multi-month bull flag, ABC retrace, reverse head-and-shoulders, and wedge, all of which are very bullish.
It's just a waiting game as I do not jump the gun on any move because the market has the tendency to catch everyone off-guard and I don't want to be one of them. I've been there, done that too many times.
Keeping things short and simple, I think the stock market is in a major bull market. I am not buying anything until we get a pullback of some type. If the market unfolds properly we could have a great shorting opportunity (profit from a falling market) happening any day now, so that is my main focus at this time.
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.