S&P 500 Charts: Shorting Opportunity - TheStreet

S&P 500 Charts: Shorting Opportunity

Plus, a look at charts of gold, silver, oil and natural gas exchange-traded funds.
Publish date:

The stock indices have been trading very choppily, making it difficult for swing/trend traders. It's during times like this that seasoned traders rise above the herd.

If you only trade one strategy, such as swing trading or trend trading, then you are likely finding it difficult to make money right now. On the other hand, day traders are having a blast taking advantage of the powerful intraday rallies and selloffs.

I personally like swing trading, but during times like this, when I know such a strategy will not work, I switch to daytrading and focus on the 60- and 5-minute charts.


(SPY) - Get Report

(S&P 500 Index Fund)

I posted this chart earlier this week, and I want to be sure everyone takes something away from it, because I believe it shows a perfect low-risk setup for shorting the market. Alternatively, you could buy a reverse fund which goes up as the market moves down.

At first glance, this chart is noisy, but if you simply focus on the the different color analyses separately you will notice how simple trading can be.

Red Analysis


1. Overall market trend is down so we are looking for a short trade, signs of weakness.

2. First we see a light volume test of the previous high set earlier in the day. The low volume indicates there are not many participants in the move up, and that is a weak sign.

3. Between 14:30 and 15:30 we notice the price start to drift higher on very light volume. Also, the price moves up into a resistance level. This is a perfect setup.

4. You would sell short SPDRs or buy a reverse index fund at this point, hoping for the market to start selling. You could also wait until the market started to drop before taking a position, but when a chart looks this good I try to get in at the highest price possible.

Blue Analysis


1. The price starts to drop, forming several small bear flags going into 14:30 before bouncing. Also note the volume begins to rise as more selling happens. This tells us that trading activity is predominately selling and that we should also focus on shorting when the time is right.

2. Again, the price starts to drop, forming several small bear flags going from 15:00 - 15:45 before bouncing. Also note the volume begins to rise as more sellers take part in this short-term trend.

Black Analysis


1. This shows, more or less, the resistance level, the area to short the index and the nice trend down.

SPDR Gold Shares

(GLD) - Get Report

Gold has been under selling pressure since early December. That powerful drop and the chart pattern it has formed should resolve itself after an ABC retrace pattern. I have drawn this on the chart. This daily chart has a small 4-day bear flag and bearish reversal candle, which is pointing to lower prices in the near term.

iShares Silver Trust

(SLV) - Get Report

Silver has a funky-looking chart. It has formed a large megaphone pattern and a possible head-and-shoulders pattern. Both are bearish. If we use the possible head-and-shoulders pattern to calculate where silver could end up trading if it continues to break down, $14.00 looks like a level where we could see a bounce.

United States Natural Gas

(UNG) - Get Report

The natural gas fund UNG has been in a down trend for more than a year, and the recent drop looks to be the start of another selloff. This could possibly form a reverse head-and-shoulders pattern, with this drop moving UNG down to the $8.75 - $9.00 area. We will have to wait and observe how things unfold.

United States Oil

(USO) - Get Report

USO looks to be trading at support. I am inclined to patiently wait another session before taking a position.

Midweek Trading Conclusion

In short, the overall market, including stocks and commodities, could bounce, but the selling is not over yet. The drop we have seen in the past week is the halfway mark. So this bounce would be the starting of an ABC retrace for stock indices. During choppy times I like to be sitting in cash and or daytrading for short-term profits.

Precious metals do look oversold and ready for a small bounce or sideways move; I do think they will head lower. Too many traders are still holding on to their gold positions, and until a large number of them get scared out of their positions, we will not see gold rocket higher.

Natural gas looks like it's about to head much lower this week while oil looks ready for a solid bounce off support.

We continue to wait for new low risk setups as different investment scenarios unfold.

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.