Updates to include U.S. stock market futures pointing to higher open.
NEW YORK (
) -- It was another extremely volatile week of sharp rallies followed by sharp selloffs. Fear is controlling the market. The bulls and bears continue to battle it out.
pointed to a positive open Monday and appeared to be rebounding after a disappointing jobs report sent stocks tumbling to end last week.
Futures for the Dow Jones Industrial Average were 16 points higher at 9,962, and were 37.03 points above fair value. S&P500 futures were up by 2.9 points at 1069 and were 4.72 points above fair value, while futures for the Nasdaq were ahead by 3.75 points and were 5.71 points above fair value.
The charts on the following pages cover some important trends and market internals that I watch daily.
U.S. Dollar Index Daily Chart
The dollar has been in rally mode for the past two months. Over the last 14 days we have seen a large bullish pennant form, and this pattern typically marks the halfway point for a trend. The measured move for the dollar is pointing to 93 over the next few months.
Gold Futures Daily Chart
As we all know, gold is seen as the major safe haven, and the price per ounce has been steadily climbing. On Friday we saw the major indices sell off very hard, but both the dollar and gold posted solid gains. Gold does looks as though it needs some time to digest the recent move higher, and this could take a week or two before anything exciting happens. Still, I am on the lookout for low-risk setups.
Volatility Index 60-Minute Chart
This index measures the fear in the market. When fear is high and everyone is selling their positions we see the VIX jump in price. Over the past month we can see a possible head-and-shoulders pattern forming. If this pattern unfolds in textbook fashion, we should see equities bottom in the coming week, with the VIX dropping below the blue neck line. There's a saying that goes, "When the VIX is high it's time to buy, when the VIX is low it's time to go."
Put/Call Ratio 60-Minute Chart
In short, when the put/call ratio is higher than 1.00 then there are more traders/investors buying put options than call options. People buy put options to gain leveraged exposure to lower prices. I think that when people do this they have already sold all their long positions. Well, if the majority of investors has sold everything, then there shouldn't be much left to sell. So the correction that started in April is almost finished.
NYSE Advance/Decline Line 60-Minute Chart
This is one of my favorite charts. Although there are several indicators needed to determine whether the market is overbought or oversold, this chart can help give you a good idea about whether you should be looking to buy or sell or just stay in cash.
S&P 500 Futures Two-Hour Chart
The S&P 500 has been up and down like a yo-yo with some very dramatic moves. Up 2%-plus one day, then down 2%-plus the next. Such sharp and powerful moves can be either very profitable or very costly, depending on how one trades them. Last week we caught a nice 2% gain in less than 24 hours, which was exciting. It looked as though the market was about to break out to the upside and possibly reach the 1150 level, but early Friday morning there were rumors about a European bank having serious problems. That was just enough to cause a domino effect, sending the market lower through the entire session and leading to a negative close for the day and week.
That being said, market internals indicate that equities are oversold at current prices and that a bounce is due soon. With the panic selling on the
Friday reaching 119 sell orders for every buy order, we should see some follow-through next week with lower prices, then a rebound once investors finish selling everything they own. At that point, we will be looking to get involved again.
Weekly Trading Conclusion
In short, money continues to flow into the safe havens of gold and the dollar. The major indices are showing extreme panic selling and look ready to bottom in the next few days. However, there is a possibility that the market could break down and start another major leg down, which is a big concern for me. I will be glued to the market internals and support levels for the major commodities and equity sectors, hoping either to catch the bottom or to avoid another meltdown.
If you would like to receive my daily premarket videos and trading alerts please check out my Web site at
-- 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.