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Is February a Risk-On or Risk-Off Trade: Equities or Gold & Bonds

Recent price action in the stock market has many traders on edge. With the market closing below our key support trend line last week, the market has now technically starting a down trend.

While trend lines are a great tool for identifying a weakening trend and reversals in the market, I do not put a lot of my analysis weighting on them.

Most of my timing and trading is based around what I call INNER-Market Analysis (Market Stages, Cycles, Momentum and Sentiment). Using these data we can diagnose the overall health of the market. Knowing the strength of the market we can then forecast short term trend reversals before they happen with a high degree of accuracy.

In this report I keep things clean and simple using just trend lines. During the last three weeks we have seen the price of stocks pullback. And because 2013 was such a strong year for stocks most participants are expecting a sharp market correction to take place anytime now.

So with the recent price correction fear is starting to enter the market and money is rotating out of stocks and into the Risk-Off assets like gold and bonds.

Stocks tend to fall in times of economic uncertainty or fear. These same factors push investors towards the safety trades (Risk-Off) high quality bonds and precious metals. As more money goes from risk-on to risk-off, stocks will continue to fall and the safety trades will rise. The move by investors to select the safety of gold and bonds compared to the volatility of stocks will result in these risk plays to moving in opposite directions.

Let’s take a look at the chart below for a visual of what looks to be unfolding…

Gold Trading Newsletter

How to Trade These Markets:

While these markets look to be starting to reverse trends, it is critical that we understand how the market moves during reversals and understand position/money management.

Getting short stocks and long precious metals in the long run could work out very well, but if you understand the price action that typically happens during reversals you know that the stock market will become choppy and we could see the recent highs tested or possibly even a new high made before price actually starts a down trend. And the opposite situation for gold and bonds. Drawdowns can be huge when investing and why I don’t just change position directions when the first sign of a trend change shows up on the chart.

Price reversals are a process, not an event. So it is important to follow along using a short term time frame like the daily chart and play the intermediate trends that last 4-12 weeks in length. By doing this, you are trading in the direction of the most active cycle in the stock market and positioned properly as new a trend starts.

 

What I am looking for in the next week or two:

1. Stocks to trade sideways or drift higher for 3-6 days, then I will be looking to get short. Again, cycle, sentiment, and momentum analysis must remain down for me to short the market. If they turn back up I will remain in cash until a setup for another short or long entry forms.

2. Gold remains in a down trend but is starting to breakout to the upside. I do have concerns with the daily chart patterns for both gold and silver, so next week will be critical for them. We will be using some ETF Trading Strategies to take advantage of these moves.

3. Bond prices (not yields) look to be forming a bottom “W” pattern. They have had a big run in the last few weeks and are now testing resistance. I think a long bond position is slowly starting to unfold but if we look at the futures price charts for both bonds and gold, they have not yet broken to the upside and have more work to do. As mentioned before ETFs are not really the best tool for charting but I show them because they what the masses follow and trade.

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Chris Vermeulen
Author of “Technical Trading Mastery – 7 Steps To Win With Logic










 

The post Is February a Risk-On or Risk-Off Trade: Equities or Gold & Bonds appeared first on ETF Trading Strategies & ETF Trading Newsletter.

Gold Market Traders – New Gold Bull Market Cycle Has Started

2013 was one of the worst years for gold in a generation and the strangest part of it is that this loss came during a time in what should have been a banner year for gold.

When the Fed launched its QE1 and QE2 programs, gold posted huge gains but with QE3, we only had a brief rally in late 2012, it’s been all downhill form there.

The price of gold over the last year highlights just how much Europe has become a powerful driver behind gold vs. the US which has historically been the main mover. When the European debt crisis started a few years ago, people fearing a financial meltdown in Europe put a lot of their money into gold as it was the save haven of choice.

However, with financial and political risk in Europe subsiding, we have seen money leave gold and move into other markets, hence the big outflows from gold ETF’s.

Other factors that have dragged on gold over the last year include falling jewelry demand, the loss of its role as an inflation hedge with deflation becoming more of a concern in some areas, also tax increases on gold imports in India, and the supposedly improving economy in the US. All these contributed to the selling of gold.

Gold and gold stocks crashed last year in the summer. They have since been going through a stage one base. This suggests that 2014 will mark the start of a new bull market for gold, gold mining stocks and commodities. The commodity sector as a whole should be your focus in the coming months if you want to be able to invest in something for longer than a few days or weeks and make a huge amount of money be sure to check out my gold newsletter.

Gold Market Traders & Manipulators Provide Contrarian Bullish Outlook

Gold market traders and manipulators like some of the commercial banks/brokerage firms have been verbally slamming gold, and it turns out many are not as negative as lead us to believe…

Goldman Sachs we all know are the biggest hypocrites. While advising clients to sell gold in the second quarter of 2013, they bought a stunning 3.7 million shares of the GLD. And when Venezuela needed to raise cash and sell its gold, guess who jumped in to handle the transaction? Yup, GS! So while they tell everyone to sell gold, they are accumulating as much as they can without being obvious.

There is a lot more reasons and fundamentals to be bullish on commodities and gold, but that is not the point of this technical based report.

Weekly CRB Commodity Index – Bull Market Cycle About To Start

Taking a quick look at the CB index which is a basket of commodities, it looks as though a breakout above its down trend line will trigger a new bull market in the commodity sector. While this has not yet happened it looks as though it may happen in the next few months.

On stock market that recently broke out of a Stage 1 basing pattern (new bull market) is the Toronto Stock Exchange. This index is heavily weighted with commodity based stocks. I talk about this more in my new long-term algorithmic trading newsletter.

Gold Newsletter

 

In this report I want to show you some interesting charts that are pointing to a new gold bull market cycle which looks to be starting.

The chart below of the gold miner’s bullish percent index is often misread by many traders and trade off its information incorrectly. Many for example think this index is based on stocks trading above a moving average which is no correct.

How a bullish percent index is calculated is based on Point & Figure buy and sell signals with each individual stock within the sector and in our case the gold minders ETF GDX.

Gold prices peaked in 2011 at $1923 an ounce when the gold mining stocks index was above 80%. Why is this important? Because gold stocks typically lead the price of gold in both directions, tops and bottoms.

As of today we have the reverse situation with the bullish percent index at 13% and showing bullish divergence from that of gold stocks. This is an early signal that the new gold bull market cycle is turning up and it should not be overlooked.

Also we see the 5th and final Elliott wave pattern forming and we could once again witness another multi year rally in the price of gold.

Gold Mining Bullish Percent Index – Weekly Chart

Elliott Wave Gold Forecast

Gold Miners ETF – Monthly Chart

Gold stocks have not yet broken out to start a rally as you can see in the chart below. But the important thing to note is that the daily chart has formed a mini Stage 1 Basing patterns and could breakout this week to kick start a multi month/year rally.

Gold Market Traders

Gold & Gold Stock Bull Market Conclusion:

If you have been following me for a while, you know I don’t try to be a hero and pick tops or bottoms. We all know that strategy is a losing one over the long run.

Since 2011 I have been a very dormant gold trader. Why? Because the price and technical indicators topped out and confirmed a massive consolidation or bear market was in motion.

With gold, gold stocks and precious metals about to start a new bull market, it is time to get back to trading gold and gold stocks.

You can get my daily gold, silver and gold stock analysis every morning with my gold newsletter and save 50% on your membership by joining today!
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Chris Vermeulen
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The post

Gold Market Traders – New Gold Bull Market Cycle Has Started

appeared first on ETF Trading Strategies & ETF Trading Newsletter.

Precious Metals: Gold, Silver and Miners Are Trapped

The precious metal market has been stuck in a strong down trend since 2012. But the recent chart, volume and technical analysis is starting to show some signs that a bottom may have already taken place.

This report focused on the weekly and monthly charts which allow us to see the bigger picture of where the precious metals sector stands in terms of its trend.

Let’s take a look at a few charts below for a quick overview, but if you want more interesting ones visit: https://stockcharts.com/public/1992897

Gold Spot Price – Weekly Chart

This chart clearly shows the trends which gold has gone through in the last three years. With simple technical analysis trend lines, clearly price is nearing a significant apex which will result in a strong breakout in either direction.

Remember, this is the weekly chart, so we could still have another month or three of sideways chatter to work through. But a breakout in either direction will trigger a large move.

goldtrend

 

Silver Spot Price – Weekly Chart

Silver is also stuck in a similar pattern.  Currently the odds still favors lower prices and for the upper resistance trend line to reject price and send it lower. But if we keep out eye on the leading indicators like gold miners, we may be able to catch a breakout or traded the rejection of resistance in the next month or so.

silvertrend

 

Gold Mining Stock ETF – Monthly Chart

Gold miners have a very sloppy looking chart. Price is extremely volatile and the recent price action in 2013 could go either way VERY quickly. I have a gut feeling GDX in the coming months could have a washout bottom and tag the $20 price level. While I hope I am wrong for many investors sake, if it does happen, it will be a very strong investment level to accumulate a position.

gdxtrend

 

Precious Metals Bigger Picture Outlook:

In short, I remain neutral – bearish for this sector.  In the next 1-3 months we are likely to see some strong price action which will be great. We need a breakout or bottoming pattern to form before we get involved at this level.

I know everyone is dying to get involved in precious metals again for another huge rally… but sometimes it’s just best to wait for the big picture chart to catch up with your bias before taking a position of size.

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Precious Metals & Miners Flash Short-Sell Signal

It has been a bumpy ride for precious metal investors over the past couple of years and it unfortunately I do not think its over just yet.

The good news is that the bottom has likely been put in for gold, silver and gold miners BUT the recent rally in these metals and miner looks to be coming to an end. While we could see another pop in price over the next week or so the price, volume and momentum see to be stalling out.

What does this mean? It means we should expect short term weakness and lower prices over the next month or two.

Below are three charts I posted several months ago on my free stockcharts list. These forecast were based off simple technical analysis using cycles, Fibonacci and price patterns. As you can see we are not trading at my key pivot level which I expect selling pressure to start to increase and eventually overpower the buyers sending the prices lower.

 

Gold Trading Weekly Chart:

Here you can see that gold is technically in a bear market when viewing it on the weekly chart. If you were to pull up a daily chart you would likely notice how the price of gold is trading at a key resistance level on the chart and has reached its full flag measured move.

What does this mean? It means the odds are pointing to lower prices for gold in the next few weeks. Keep in mind though I do feel as though a major bottom has been put in place for the precious metals sector. So buyers are likely to step back in around the $1300 area.

goldoverbought

 

Silver Trading Weekly Chart:

Silver has a little bit different looking chart but the same analysis applies here as it did in gold.

silveroverbought

 

Gold Miners Trading Monthly Chart:

Gold miners may have bottomed on this monthly investing timeframe chart but the daily chart which you will see next clearly shows short term weakness has started.

GDXLongtermBottom

 

Gold Miners Trading Daily Chart:

This daily chart really shows my thinking for miners and the overall precious metals sector as a whole. The recent weakness in gold miners to the down side point to distribution of shares. This is very negative for the price of physical gold and silver as gold mining stocks tend to lead physical metals.

The yellow box shows a possible major stage 1 basing pattern forming. If this is the case, then we will have a great opportunity in the coming months when the precious metals down trend completes a reversal and start heading higher.

gdxoverbought

 

How to Trade Precious Metals & Gold Miners Conclusion:

In short, I think that staying in cash or shorting metals is the play for the next couple weeks. After that anything can happen and until price breaks down or finally completes the basing pattern and confirms a market bottom I would be very cautious trading here.

In the last week members of my trading newsletter took profits on our short SP500 trade and we closed a long trade in natural gas for a quick 6.5% gain. Join our community of traders and have your money on the right side of the market!

Chris Vermeulen
www.GoldAndOilGuy.com

 

Tis the Season to Look At Gold & Oil Prices!

The two most popular investments a few years ago have been dormant and out of the spot light. But from looking at the price of both gold and oil charts their time to shine may be closer than one may thing.

Seasonal charts allow us to look at what the average price for an investment does during a specific time of the year. The gold and oil seasonal charts below clearly show that we are entering a time which price tends to drift higher.

While these chart help with the overall bias of the market keep in mind they are not great at timing moves and should always be coupled with the daily and weekly underlying commodity charts.

Now, let’s take a quick look at what the god father of technical/market analysis shows in terms of market cycles and where I feel we are trading… As I mentioned last week, a picture says a thousand words so why write when I can show it visually.

 

John Murphy’s Business Cycle:

JMCycle

Mature Stock Market:

cycletop

Commodity Index Looks Bullish and Should Rise:

GCC

Gold & Silver Seasonality, Price Charts w/ Analysis:

 Precious Metals like gold and silver are nearing a bounce and possible major rally in the second half of this year.

GoldSeason

Goldseasonalchart

Silverseasonalchart

 

 

Crude Oil Seasonality, Price Chart w/ Analysis:

Crude oil has been a tough one to trade in the last year. The recent 15 candles have formed a bullish pattern and with the next few months on the seasonal chart favoring higher prices it has been leaning towards the bullish side.

OilSeason

oil1

 

 

Commodity, Gold & Oil Cycle and Seasonality Conclusion:

In short, I feel the equities market is nearing a significant top in the next couple weeks. If this is the case money will soon start flowing into commodities in general as more of the safe haven play. To support this outlook I am also factoring in a falling US dollar. Based on the weekly dollar index chart it looks as though a sharp drop in value is beginning. This will naturally lift the price of commodities especially gold and silver.

It is very important to remember that once a full blown bear market is in place stocks and commodities including gold and silver will fall together. I feel we are beginning to enter a time with precious metals will climb but it may not be as much as you think before selling takes control again.

Final thought, This could be VERY bullish for the Canadian Stock Market (Toronto Stock Exchange) as it is a commodity rich index. While the US may have a pullback or crash Canadian stocks may hold up better in terms of percentage points.

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Chris Vermeulen

Chris Vermeulen Tells You How To Become a Full Time Trader – Interview by: FuturesPortal.com

By Futures Portal

Chris Vermeulen www.TheGoldAndOilGuy.com a full time trader shares
his experience of trading futures and ETFs.
——————————————————–

You call yourself the “Gold and Oil Guy”, are the gold and oil sectors are your specialties?

I follow gold and oil closely and give my analysis, thoughts and trades ideas to my followers each morning before the market opens. While I follow them closely the SP500 is my baby and what I prefer to trade. I found that emotions run wild in the stock market and once you understand what state of mind the majority of traders are in, then you are able to accurately track and forecast future moves 1-3 days in advance.

How did you get started trading?

I started years ago in college trading from my laptop. It didn’t take long before I decided this was what I was meant to do for a living. I have never stopped since. I work with several financial websites and professional traders each week and trade each day either managing swing trades or taking a day trades.

What instruments do you trade the most?

Depending on the risk and type of trade (swing, momentum or day trade) I jump between trading ES Mini Futures, 1x ETFs, 2x ETFs and 3X ETFs. I prefer index trading specifically the SP500 as that has been my main focus for day one. It’s better to be really GOOD AT ONE THING than average at a bunch of things. This strategy has many benefits to it including less time searching for trade setups, less stress, lower risk levels etc…

How did you choose the time frames you trade on?

Choosing the time frames to trade took many years of trial and error. But I did eventually find a couple time frames which have proved to be VERY accurate when trading the SP500 specifically. Money flows in and out of the market in waves (cycles) and once I realized these cycles and could identify fear and greed in the market place finding and timing trades was the difference between night and day.
The really exciting thing about the SP500 and its cycles/timeframes is that I can trade full time and have trades almost every other day or site back and wait for the longer term swing trades and enjoy time with my family, friends and exercise. I have built a trading system that automatically breaths with the market using current volatility levels, various cycles, buy/sell volume levels and momentum and it alerts me in pre-market trading each day if I a buy, sell or position adjustment is to be made. The time frames I focus on are the daily, 30 minute, 10 minute and 3 minute.

Do you trade leveraged instruments? Do you trade them differently from non-leveraged investments?

I trade all types of instruments based around the SP500. In short, the more leverage I use the smaller the position I take and the shorter term the trade is.

For example I will trade the ES mini futures for day trades which are always closed out at the end of the day.

Momentum trades which last 1-3 days I will use a 2x or 3x ETF like SSO or SPXU to get more juice from a play but maintain a healthy risk level as overnight trading and price gaps cut both ways.

Swing Trades I take the largest positions in up to 50% of my trading account in a single position using a 1x ETF like the SPY. These trades can last up to 4 months at times.

I do at times make things a little more complicated when trading with a strong trend. Sometimes when I get a swing trade buy signal I will buy a position using the 1x ETF. If in the next 3 days I get lower prices of more than 1% against me while the uptrend remains alive I will add more of a position using a 2x and 3x ETF also. Once the market bounces back a little I close out the leveraged positions to a quick gain and continue to ride the swing trade. I do this same thing in down trends when I am on a hot streak and in the zone with the SP500.

What has been your biggest hurdle becoming a full time trader?

The toughest part of trading for me is keeping laser-beam focus on my strategy as it is mandatory for success. I work with, talk to and read a lot of market opinions of other traders each day and it can cloud my judgment causing me to break my own rules.

In your opinion, what do most traders don’t realize about the “game” of trading?

Most traders/investors do not understand risk/reward for positions. I would say 90% of people I talk with take much too large of positions in investments which carry very high risk. Also they do not use protective stops based of technical analysis/risk tolerances. Those are the two main things, but this list could go on and on… There are a lot of moving parts in the market and each must be closely monitored, managed and understood clearly.

Again, It’s better to be really GOOD AT ONE THING than average at a bunch of things meaning you should be jumping around trading random stocks, sectors, commodities and investment types like options, equities, forex etc… Just learn one, master it and then expand.

Without revealing your proprietary method, could you please tell us what tools you use for trading? Any specific indicators?

I am a technical trader so I focus 100% on Price, Volume and Momentum. News, economic data and rumors mean absolutely nothing to me. The only thing that pays traders is price action so that is what I follow. It’s simple supply and demand. High volume means there is power behind a move and momentum is how fast the price is moving on various time frames.

As long as you trade with the daily trend direction forget about picking market tops or bottoms you instantly have the odds in your favor. Problem is people always want to try and outsmart the market by going against the trend and trying to pick these tops and bottoms.
As for the indicators I use. Again they are simple and based off price, volume and momentum. Each of my indicators has been customized for the SP500 and is unique. I do like stochastics and bollingerbands but they each need to be tuned for the underlying investment to provide a trading edge.

What advice would you give new traders to start on the right foot?

I would tell a new trader to spend a lot of time thinking about what their ideal/dream lifestyle would be like if they could choose. Do you want to be looking at the computer and trading every day? Or do you want to always be in positions and actively managing them on a weekly basis so you can enjoy life little more? Or A mix of both?

Then you need to figure out what you would like to trade. Stocks, Options, ETFs, Futures, or currencies?
Once you know these things then you should spend a lot of time looking for a successful trading doing EXACTLY what you want and do everything in your power and never give up to learn, master and live that lifestyle. Learning to trade is not cheap. You either lose a lot of money or spend a lot of money to fast track things… either way it’s going to cost you thousands of dollars.

Personally I do a hybrid with laser-beam focus. I focus on only one investment (SP500). And I have learned and created my own trading system so I can day trade, momentum trade and swing it. This give me total freedom as I can spend 20 minutes a day looking at the market to manage my swing trade if needed and then walk away. Or can be replying to emails and see a setup unfolding on the intraday chart and take a quick trade and pocket a few hundred bucks on a day trade.

Final question is about drawdowns. How do you handle them in your trading?

Drawdowns are simple really… Depending on the type of investment you are trading the percentage amount will vary. But the same rule should apply. You should have a maximum loss per trade set so that you never blow your account up. Hopefully your protective stop is set way before that level is ever reached but sometimes price moves beyond normal volatility levels.

My general rule is to never lose more than 1% of my account in a trade. So once I spot a setup and then calculate where my stop should be and figure out how much capital to put to work so that if my stop is hit I do not lose more than 1% of my trading account. Because I focus on the SP500 the volatility is low compared to trading individual stocks so moves in price as easy to digest and reduces fear/stress when in a position.

Chris, thank you very much for sharing your experience with us and our readers.
Best of luck on everything.

FuturesPortal.com Editorial