By Chris Vermeulen of TheGoldAndOilGuy.com
So far, this week has been pretty slow. Large-cap stocks continue to lag the market, which can be observed by looking at the
Dow Jones Industrial Average,
which still has room to move higher before breaking the January high.
One important thing to note is that volume has picked up this week considerably -- particularly on the
and OEX. It's difficult to say if this volume is a good sign or not.
A lot of stocks and sectors are trading near their January highs, giving traders a reason to unload shares. On the flip side, the several sectors and indexes have broken their January highs, triggering a surge in volume as breakout traders try to take advantage of the new highs and momentum. So you can see how the surge of volume is not a useful indicator right now.
Here are some charts of what I think we could see in the coming weeks.
US Dollar Index -- Daily Trading Chart
I follow the U.S. dollar index very closely, simply because it affects the prices of stocks and commodities. I used a line chart below in order to take out the daily candlestick noise, which made it very difficult for our eyes to pick up this pattern.
The chart shows a possible head and shoulders pattern. If that is the case, we should see the dollar start to slide lower. In turn, this would boost stocks and commodities. This is the fuel that I think could really move the market sharply higher in the coming weeks.
SPDR Gold Shares
(Daily Trading Chart)
The price of gold looks to set up for a nice bounce off support and the timing could just work out if the U.S. dollar starts to drop over the next few days. There could be a low-risk setup just around the corner.
iShares Silver Trust
(Daily Trading Chart)
Silver has held up well but today's reversal candle to the downside scares me a little. The odds are that silver will carry this strong momentum selling down for another one to two days. Again, with any luck, it will test support and the U.S. dollar will start to slide lower.
Crude Oil -- Daily Trading Chart
Oil has had a great run the past month but as you can see it's currently trading at the top of a large trading range. I would like to see a sideways move before it takes another run at the $84 level, but the seven-day bull flag that formed two weeks ago may have been enough to maintain the upward momentum. Again, if the dollar drops we will see oil rally.
Natural Gas -- Daily Trading Chart
This chart is actually very attractive-looking. Even if you do not understand how to read charts, I think it's safe to say this one is a no-brainer. I will be closely watching for a potential low-risk setup in the coming days.
Midweek Trading Conclusion:
In short, stocks and indices are trading at resistance levels with many of them making new highs and that is great to see.
A lot of things are trading in limbo, waiting to see what the U.S. dollar is going to do. Several months ago, I posted some charts showing that 81 would be a key resistance level for the dollar. If it broke above that then 84 would be the next key level to watch. So we just have to wait and see. The hardest part of trading is the waiting.
Gold, silver, oil and natural gas all look like they could continue higher in the next few days if things unfold that quickly. But the market always finds a way to drag out moves so we could still be two to three weeks away.
I hope this report helps give you an idea of where things are at in the market.
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-- 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.