By Chris Vermeulen, The Gold and Oil Guy
NEW YORK (
) -- It's been, an interesting week as stocks and commodities claw their way back up after the end-of-week selloff on Friday. Most of the chart technicals are pointing to another wave lower for gold, silver, oil and the broad market.
This next wave of selling would form an ABC retrace pattern on the commodity charts and this pattern is bullish. Also commodity prices would drop to key support levels, which would most likely provide a low-risk entry point depending on the price and volume action at that time. So lower price is good for the big picture, which is higher prices.
The charts below are a quick visual of what I am seeing and thinking.
The gold ETF is getting closer to completing its four-month correction and starting another rally, if all goes well in the coming week or two. What I am looking for is gold to hit resistance at $113 and then drop to the $110 level, which is a key support level.
Silver ETF looks ready for a pullback. Both gold and silver tend to move together and support would be tested here also.
Oil Trading Fund Chart
United States Oil Fund
shows that one more thrust down would bring prices to a key support level.
Stocks have been on fire the past few months, but this rally looks to be getting long in the tooth. After a rally this strong without any pullbacks, one has to think that when a correction does start, it will be a very sharp selloff. I will point out that a few years ago we saw this exact type of price action for the broad market and it continued higher for several more months before actually putting in a large correction. If we don't see a large correction, then we would likely see similar price movement, which we saw last November and December, with the sideways choppy price action and slow rally higher.
Mid-Week Market Update
In short, I think the market is ready to finally take a breather. I am looking for another selloff that will break the low for gold, silver, oil and the S&P 500 last week. If this happens, panic would be triggered, washing the market of all the traders who have been buying at these high levels (chasing prices).
Stocks have been very strong and new money continues to push prices higher, so we could just see a relatively small pullback between 3%-5% and then the rally could continue. This would work very well with gold, silver and oil, as they would be testing key support levels and should be ready for a another upward surge.
It doesn't really matter what the market does, as there will always be great opportunities. Waiting for quality setups requires discipline and focus, because they are not very frequent. I see traders making all kinds of silly trades that chip away at their profits because they cannot sit and watch when they should.
During slow times, I actually focus on learning more about the markets, going through charts, intermarket analysis, comparing things. That kills a ton of time and helps make you a better trader in the long run. So if you don't see a good trade, get out and do something fun or educational. Don't just start trading the 5-minute charts because you want to trade.
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Written by Chris Vermeulen, The Gold and Oil Guy
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.