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Low Volumes Could Extend Rally: A Chart View

My experience shows this time of the year is perfect for short-term swing plays or daytrading.

The market last week fell into its regular holiday tradition of light volume as institutions and big traders enjoyed the holidays, thus allowing prices to drift higher. We still have one more week of light trading volume before the holiday season and this year is over.

Trading during low volume times is regularly misinterpreted. Many traders figure they should not be trading this time of the year, but from my experience the last two weeks of the year are amazing for short-term swing plays or daytrading. The market seems to be much more predictable when the large program traders aren't involved.

Also, the more speculative plays, such as small- and mid-cap stocks, always seem to outperform as buyers bid the prices higher into the light selling volume. This is most likely why we are seeing the

Nasdaq

and Russell 2000 indexes making some nice gains of late.

Take a look at the charts:

Gold prices -- as shown here on the daily chart for the

SPDR Gold Shares

(GLD) - Get Report

exchange-traded fund -- broke down as expected in early December and are now nearing a possible bottom.

The past three weeks have provided some very exciting daytrades shorting spot gold prices. In the next few weeks I will be starting to provide more spot gold charts and intraday price action for all the international traders and futures traders.

I didn't provide the chart of silver as it trades very similar to gold. When the time comes I will provide detailed analysis for entry and exit points for members.

The

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United States Oil

(USO) - Get Report

fund had a very nice pullback in early December and I pointed out a spec play at $35.50 with targets set at $37, $38 and $40. So far, the first two profit-taking targets have been reached.

Sorry for all the lines on the chart but sometimes it's the only way to remember where all the crucial levels are for trading pivot points.

Natural gas trades like a bucking bronco. It's a tough ride if you don't understand market psychology and apply strict money management to your positions.

Last week's price action closed with a bearish candle after testing resistance twice. We could get a short trade this week depending on what happens from here. Let's keep our eyes open for a low-risk setup.

This year has been fantastic for making money, but next year most likely will be much more difficult if we see the market top and head south or trend sideways. The market topping isn't an event. Rather, it's a process and trend-following systems will start having more losing trades than winners as the market momentum shifts from up to sideways then down.

Don't get me wrong, I am not saying I think it's going to roll over and head south because quite frankly no one knows what it is going to do from this point forward. This is the reason we are in cash and patiently awaiting new low-risk opportunities to place our money. The joy of trading with technical analysis is that you don't care which direction the markets go because the analysis, if done correctly, allows you to profit in all market conditions using different trading strategies.

The broad market, in my opinion, is way overbought due to the holiday rally. But we must remember there is another low volume week as we approach New Year's Day and this could extend the rally more. Smaller trading positions should be used until we enter 2010 and volume steps back into the market.

Gold and silver are in a short-term downtrend and trading near a resistance level. We could see prices drop quickly or rally from here. So we are letting things unfold before making a commitment.

Oil continues to move higher and last week's weakening U.S. dollar helped give oil a boost.

Natural gas is trading at resistance and looks ready to head back down. The daily and 30-minute chart didn't set up a signal to short natural gas, but it was very close.

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.