By Chris Vermeulen: www.TheGoldAndOilGuy.com

The months of November and December are the second strongest back to back months for the financial markets. Many traders and investors use this time of the year to reap big gains as they close the year out. The fact that most traders and investors are sitting in cash and underweight stocks in their portfolio’s leaves me to believe a Santa Clause rally is just around the corner. Reason being is everyone has cash on hand to buy stocks because they are selling their positions in this pullback we are in right now. I know traders well enough, they will buy back into the market trying to catch the holiday rally in the coming weeks.

Subscribers and myself have been short the SP500 for a couple weeks after watching the broad market become overbought and sentiment levels became overly bullish with greedy pigs thinking they could buy stocks after a massive month long rally that had not pullback. Once the selling started you would either get you head handed to you or you were going to make a killing buying leveraged inverse ETFs.

Those who arrived late to the rally are the ones selling out of their positions this week. The interesting thing about this week’s market condition is that I have not seeing any real panic selling in stocks, and I’m not seeing the volatility index spike in value yet.

What does this mean? Well it means we could actually see another big dip in the market which should last 1-2 days and then we get a sharp reversal to the upside.

Take a look at the SP500 & Volatility index below:

This chart allows us to get a feel for fear in the market. Me being a contrarian trader, I focus on market sentiment extremes. When the masses are losing money hand over fist I’m generally on the other side of that trade with open arms. Trading off fear is one of the easiest ways to trade the market. That is because fear is much more powerful than greed and it shows up better on the charts. Spotting panic selloff bottoms is something that can be traded successfully if you know what to look for and how to trade them.

On the chart you can see the pullbacks in the SP500 which triggered a panic selling spike in my green indicator. What I look for is a pullback in the SP500 and for my panic selling indicator to spike over 20. When that happens I start watching the volatility index for a spike also. The good news is that the volatility index typically rises the following day making my panic indicator more of a leading one…

/> Market Sentiment Trading 

I could write a 20 page report going into depth this with topic, but that’s not the point of this report. Just realize that the stock market is likely going to put in a bottom very soon and likely end with a STRONG panic selling washout this week or next. If you want to learn more about how to trade market sentiment and panic selling you can read my strategy which was published in Futures Magazine.

Prepare for a sharp drop in the market which should kick start a holiday rally in the next few trading sessions.

Chris Vermeulen /> www.TheGoldAndOilGuy.com –Index, Commodity and Currency Trading Alerts

Since gold topped in September at $1920, the Establishment has continued to disparage gold, nearly always warning of gold’s volatility.  The warning is valid.  Gold is volatile because its price reflects the emotions of buyers and sellers.

The warnings nearly always highlight gold’s 10% drawback from its September high but rarely notes that gold is up 600% over the last ten years.  And, it needs to be kept in mind that the same people who today diss gold told investors not to buy at $300.

Contrasting the Establishment’s negative position on gold is central bank buying.  And, nothing is more Establishment than central banks.  So, while the Establishment tells the investors not to buy gold, central banks  buy.

In the third quarter central banks, made their largest collectively quarterly gold purchases in four decades, adding 148.4 tons to their holdings, which puts central banks on track to buy more gold this year than in any year since the collapse of the Bretton Woods Agreement in 1971.  Over the last two decades, central banks were net sellers of gold, led by the Bank of England’s now infamous liquidation at the market bottom a decade ago.  Last year central banks became net buyers of gold; this year they are set to buy record amounts.

Central banks do not buy gold impulsively.  They normally set targets early in the year for the percentage of reserves that they want to hold in gold; to achieve those targets, central banks buy dips as they occur.   This, of course, puts an underpinning on the price of gold, and it appears that central bank buying provided the impetus for gold’s strong price action in September, weeks after gold topped.  Now, with gold selling off sharply over the last few days, central banks are looking at another opportunity to buy cheap gold.

Although Russia, Thailand and Bolivia disclosed recent gold purchases, most of the buyers that made it a record quarter have not yet been identified, but many are, according the World Gold Council, emerging nations.   Even the poor want to own gold.

All this begs the question:  Just how much gold are the central banks likely to buy?  One would have to be omniscient to know that.  However, we can look at the central banks’ potential for buying gold.

The most likely buyers are those central banks with large reserves but whose gold holdings make up a low percentage of those reserves, typically Asian nations.  Conversely, the central banks of countries that have high percentages of gold holdings are not likely to be buyers, Western nations.

The unlikely buyers include the United States (75.5%), Germany (72.6%), Italy (72.2%), France (71%) and the Netherlands (61%).  Other countries actually hold higher percentages in gold, but their total gold holdings are small compared with above mentioned countries.  Those include Portugal (88.9%) and Greece (80%).  (Italy, Portugal and Greece are more likely to be sellers than buyers as they are members of the PIIGS group of European counties that are facing serious debt problems.)

The counties with huge reserves but low gold holdings are China (1.7%), Japan (3.3%), Russia (8.6%) and Taiwan (5.7%).  Other notables are Brazil (.5%), which recently added gold reserves, and India (9.0%), which purchased 200 tons from the IMF in 2009. Additionally, Thailand is a recent gold buyer.

China’s total reserves are some $3.2 trillion but gold makes up only 1.7% of its reserves.  Japan’s central bank has more than $1.1 trillion in reserves, of which gold makes up only 3.3%.  Russia has $516 billion in reserves with only 8.6% being held in gold.  (The Russians are important in the gold market because they have shown to be steady buyers of gold albeit it quietly and domestically.  India, also an important player in the gold market, has shown a willingness to buy large in open transactions.)

One of Wall Street’s favorite bullish indicators is “cash on the sidelines,” which measures total cash held by mutual funds and entities that may enter the market.  Large quantities of cash on the sidelines is a significant bullish indicator according the Wall Street.  Nowhere is more cash on the sidelines than in the gold market. This includes not only the cash holdings of central banks but also the cash holdings of individuals.

Over the recent couple months the precious metals charts have made some sizable moves. Most investors and traders were caught off guard by the sharp avalanche type selloff and lost a lot of hard earned capital in just a few trading sessions. Gold dropped over 20% and silver a whopping 40%.

The crazy thing about all this is that these types of moves in precious metals can be avoided and even taken advantage of in certain situations. There is no reason for anyone to continue holding on to those positions after they pullback 6% of more because of the type of price and volume action both gold and silver had been displaying in the past few sessions.

I warned investors on Aug 31^st that precious metals were about to top any day and that protective stops should be tightened or taking profits was also a smart move. It was only 2 trading sessions later that precious metals topped and went into a free fall. You can get my detailed analysis if you read my report “Dollar’s On the Verge of a Relief Rally Look Out!”.

A couple weeks later once precious metals has found support and the uneducated investor’s were licking their wounds wondering what the heck just happened to their trading accounts… I put out another report but this time with a bullish outlook. Silver was currently trading at $29.96 and I had a $35-$36 price target over the next two months. Gold was trading down at $1611 and I saw it heading back up to $1750-$1775 area before finding resistance and pulling back. Both these forecasts were reached over the next two months. You can quickly review the report called “Precious Metals Charts Point to higher Prices” for more info.

With all that said, what exactly are the charts saying right now?

Current Precious Metals Charts Summary:

The past 6 weeks we have been watching both gold and silver struggle to hold up but they have managed to grind their way to my price targets. After reaching those targets a couple weeks ago sellers have stepped back into the precious metals market and put pressure these metals.

Last week gold and silver started to pullback in a big way with rising volume. This could just be the start of something much larger which I will cover in just a moment.

The wild card for precious metals and for every stock and commodity for that matter is Europe. Every other day there seems to be headline news moving the market and most of takes place in overnight trading for those of us living in North America. It’s this wild card which is keeping me from getting aggressive in the market right now.

Let’s take a look at the charts…

Silver Precious Metals Chart:

Silver is currently in a down trend and may be starting another leg down this week. Long term I am bullish but for the next couple months I am remain neutral to bearish for silver until it forms a base to start a new uptrend from.

/> Precious Metals Chart 

Gold Precious Metals Chart:

Currently I am neutral/bearish on gold. If it can trade sideways for a few weeks then I will become bullish.

/> Precious-Metals-Charts 

Precious Metals Charts Conclusion:

In short, I feel there is a good chance the US dollar will continue higher and if that happens we should see strong selling in North American equities, commodities and likely on the precious metals charts.

Financial markets around the world are at a tipping point meaning something really big is about to take place. The question is which way will investment move. The only thing we can do is trade with the current trends, price patterns and volume.

At this time I still see a higher dollar and that means lower stocks and commodities. This could change at the drop of a hat depending on the news that comes out of Europe so the key to trading right now is to remain cash rich and taking only small positions in the market.

If you would like learn more about etf trading and receive my daily pre-market videos, intraday updates and detailed trade alerts which even the most novice trader can follow then join my FREE trading education newsletter and my premium trading alert service here: http://www.GoldAndOilGuy.com

Chris Vermeulen

By JW Jones – OptionsTradingSignals.com

The current trading environment is one of the most difficult that I can recall in recent memory. Risks abroad regarding the European sovereign debt crisis is keeping market participants on edge as headline risk seemingly surrounds traders at every turn.

In addition to the risk posed by Europe, the market’s reaction to the Congressional Super Committee’s upcoming statements also poses risks. As it stands now, the media is reporting that the committee is in gridlock and has yet to compromise. The deadline for the Super Committee is Wednesday, November 23^rd. The gridlock leads to uncertainty, and Mr. Market hates uncertainty. High levels of uncertainty corresponds with increased volatility levels, thus caution is warranted.

Recently I have been actively trading around the wild price action, but I have been utilizing smaller position sizes in light of the elevated volatility levels. In addition to the smaller position sizes, I have been aggressively taking profits and moving stops in order to protect trading capital.

This past week, members of my service enjoyed two winning trades. We were able to lock in gains on a SPY Put Calendar Spread for a nice 20% gross gain. On Friday we closed a USO Put Calendar Spread for a gross gain of 17%. These trades were relatively short term in duration, but the gains they produced were strong.

Both trades took advantage of increased volatility which resulted in enhanced profits. If volatility remains elevated going forward which I expect, these types of trades will offer great risk / reward going forward. Volatility is an option traders friend, and this past week members of my service were able to lock in some strong gains with relatively muted levels of risk.

Gold Futures

I have not written much about gold recently as I have honestly not seen a great deal of opportunity in either direction there. The price action has been quite volatile, but this past week we saw gold futures sell off sharply. I believe the explanation for the selloff is partially due to strength in the U.S. Dollar. The daily chart of the U.S. Dollar Index is shown below:

/> The recent selloff in gold can likely be attached to the increase in margin calls around the world as a likely consequence of the MF Global bankruptcy. Uncertainty surrounds the commodities market as the collapse of MF Global has interrupted traditional capital flows and broad based volume around the world. The MF Global situation continues to provide a negative headwind for financial markets in general.

I continue to be a long term bull regarding precious metals as nearly every central bank is either printing money deliberately or is increasing the money supply through quantitative easing. With multiple calls coming out of Europe over the weekend for the European Central Bank to print money to monetize European sovereign debt, it may not be long before the ECB begins their own quantitative easing program. In the long term this can only mean higher prices for gold.

Right now the short term looks bearish for gold as the daily chart of gold futures shows gold tested near the top of a recent rising channel and failed. The selloff was strong, but  a pullback here makes sense from a technical perspective. The daily chart of gold is shown below:

The longer term time frame continues to remain technically positive for the yellow metal. As long as gold prices hold in their multi-year rising channel, higher prices remain likely. Right now the $1,500/ounce price level needs to hold as support if the bulls are going to remain in control in the long term time frame. The weekly chart of gold futures shown below illustrates the long term rising channel:

Right now we are in a seasonally strong period for gold. I am going to be watching closely in coming weeks for a solid entry point to get long the yellow metal for a longer term time frame. Right now the short term remains bearish, but the longer term is bullish from technical and fundamental viewpoints.

S&P 500

The S&P 500 Index sold off sharply during the past week. In my most recent article, I discussed two key price levels to monitor to the downside. The key support levels were the 1,230 and 1,190 price levels respectively. The bulls need the 1,190 area to hold as support to give them any chance for a “Santa Claus Rally” into year end.

Last week the S&P 500 Index closed below the 1,230 support level meaning the 1,190 area has to hold. Otherwise, we could see a sharp selloff into the end of the year. The daily chart of the S&P 500 below illustrates the key support levels:

The S&P 500 looks vulnerable to the downside presently. However, headlines coming out of Europe and/or the Super Committee this week could push prices higher. The key pivot line remains around the 1,257 price level on the daily chart. If the bulls can regain the 1,257 price level on a weekly close a test of 1,290 will become more likely. However, as long as prices remain below 1,230 and 1,257, the S&P 500 is vulnerable to additional downside.

I would not be shocked to see the S&P 500 push higher this week to work off short term oversold conditions. Truncated weeks result in lower than average volume which generally favors the bulls. However, in this environment anything could seemingly happen. Risk is high in either direction.

Subscribers of Options Trading Signals have pocketed more than 150% return in the past few months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out my OTS service at optionstradingsignals.com and join the hundreds that are taking home the profits.

/>

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

If you’ve watched the news for any length of time you’ve probably heard mention of speculators and how they seem to be responsible for much of what ills us.  Last week, Japan’s Finance Minister Jun Azumi said that a massive intervention in the Yen market was necessary as there were signs of speculation.  Much of the price inflation in commodities over the last decade has been blamed on speculators.  And don’t forget Nixon closing the gold window in 1971, in order to protect the dollar from international speculators.

So who are these speculators and why have we not been able to rein them in after all of these years?  It’s difficult to find an agreed upon definition of a speculator.  Many seem to carry the same political overtones that are pushed by those who blame them.  But at its essence, a speculator is simply someone who attempts to profitably invest in an environment where some degree of risk is present.

If you’ve ever put money in a 401k, you are a speculator.  If you’ve ever bought gold to protect your savings, you are a speculator.  If you’ve saved your childhood baseball card collection because it might be worth something someday, you are a speculator.  Speculation is bad in the same way that seeking profit is bad.  They are both the driving forces that make a free market function.

The notion that speculators are bad is a fallacy generally used to draw attention away from the real problem. Nixon didn’t close the gold window because of speculators, he did it because the US got caught red handed writing bad checks to it’s trading partners and didn’t have enough gold to pay up.  Likewise, commodity price increases aren’t do to greedy speculators, but rather wealth fleeing paper assets that are failing as the inevitable result of a fiat money system.

So the next time you hear someone blaming speculators for a particular problem, don’t forget to take a closer look at who is pointing the finger.

If you’ve watched the news for any length of time you’ve probably heard mention of speculators and how they seem to be responsible for much of what ills us.  Last week, Japan’s Finance Minister Jun Azumi said that a massive intervention in the Yen market was necessary as there were signs of speculation.  Much of the price inflation in commodities over the last decade has been blamed on speculators.  And don’t forget Nixon closing the gold window in 1971, in order to protect the dollar from international speculators.

So who are these speculators and why have we not been able to rein them in after all of these years?  It’s difficult to find an agreed upon definition of a speculator.  Many seem to carry the same political overtones that are pushed by those who blame them.  But at its essence, a speculator is simply someone who attempts to profitably invest in an environment where some degree of risk is present.

If you’ve ever put money in a 401k, you are a speculator.  If you’ve ever bought gold to protect your savings, you are a speculator.  If you’ve saved your childhood baseball card collection because it might be worth something someday, you are a speculator.  Speculation is bad in the same way that seeking profit is bad.  They are both the driving forces that make a free market function.

The notion that speculators are bad is a fallacy generally used to draw attention away from the real problem. Nixon didn’t close the gold window because of speculators, he did it because the US got caught red handed writing bad checks to it’s trading partners and didn’t have enough gold to pay up.  Likewise, commodity price increases aren’t do to greedy speculators, but rather wealth fleeing paper assets that are failing as the inevitable result of a fiat money system.

So the next time you hear someone blaming speculators for a particular problem, don’t forget to take a closer look at who is pointing the finger.

David Banister- www.MarketTrendForecast.com

Back on October 3^rd, I penned a public article forecasting a major low in the SP 500 to occur around 1088.  The SP 500 had been declining from the 1370 highs this May and was in the 1130’s and nearing its final descent in a corrective pattern.  The next day, the market bottomed intra-day at 1074 and closed north of 1100.  Since that time, we have rallied impressively to a high of 1292, with a strong pullback to 1215, and now what I believe is the finally rally to a major top formation.

This current rally is part of a normal retracement of the 1370 highs to 1074 lows that similarly occurred in the 2008 rally off the first major market drop.  One would expect this rally to take a few months to complete from October 4^th and likely peak sometime between now and Christmas in the 1292-1320 ranges as outlined below.

First you must understand that my forecasts are largely based on human behavioral patterns and not economic news or European headlines.  The crowd commonly buys and sells in the same fear and greed swing patterns over and over again throughout history.  Once you understand these patterns, you can make pretty strong educated guesses on the direction and pivot highs and lows within a few percentage points.  Other than those wave patterns, there are other indicators I use to confirm what I think I’m seeing, so let’s review:

1.  The bullish Percent Index readings are now at 72%, which typically is an area that marks a rally high in the markets.  These indicators tell you how many of the SP 500 stocks have bullish point and figure charts.  Typically a reading over 70% is way overbought and all bulls are on board, and a reading below 30% is the opposite.   The market bottomed this summer twice on August 8^th and October 4^th as these readings were sub 30%.  The market topped in July at 1356 as this reading was over 70%. With my wave patterns and this reading now again over 70%, it’s a strong warning of an imminent reversal.
2. Sentiment Indicators are now back to full on bullish.  In the most recent AAII survey, we have nearly 46% of those polled bullish, up from an extreme low of 24% in early October near the market lows.  In addition, the Bears in this survey are at a near extreme low of 24% of those polled, leaving the ratio at almost 2 to 1 bulls.  This is another warning flag.

The Bullish Percent Index chart is below with some notations: />

Longer term, my best view right now is that this is a counter-trend bounce off the 1074 lows that will give way to another big down leg.

Here is my reasoning:

First, look at the SP 500 chart. I show the congestion zone from 1275-1300.  My Fibonacci and wave targets have been 1292/93-1306 for a few weeks; we hit 1292/93 once and fell hard.  The market is trying to work back up there in this final E wave up I think.  So far 1274-76 were hit (One of my targets) and we will see if it can run to 1292/93 and the final is 1306-08.

This is a B wave rally or wave 2 rally off the 1074 lows. We are in a bear cycle bounce.

From March of 2009 (I forecasted a market low on Feb 25th 2009), the market rallied from 666 to 1370 in 3 clear waves, ABC. Those are corrective patterns of a bear market. The market topped at .786% of the 2007 highs to 2009 lows at 1370 with Bin Laden’s death, a seminal event. 

Since then— 5 waves down (impulsive) to 1074 marked a 38% retrace of the Bear rally that went from 666 to 1370.

This is a counter-trend rally from 1074 to 3 potential pivot areas. 1292 (which I forecast and already hit), 1306-1308, and max 1320. 1306-08 is probably the max in my views.

Why?

A wave: 1074-1233 wave A from October 4th lows.  (I forecasted a bottom on October 3rd)

B wave:  1233-1195 wave B (A mild .236% retrace of A wave)

C wave: 1195- 1292, 1308, 1320 wave C  (Where wave c is either .618, .71, or .786 of wave A (159 points 1074-1233))

This recent pattern in a more microcosmic view is much like the ABC rally from 666 to 1370. There the A wave was huge and went from from 666 to 1221.  The B wave 1221-1010; and then the C wave 1010-1370.  That C wave was only 64% of the A wave.  All of those pivots, 1010, 1221, 666, 1370 etc. have Fibonacci relationships to prior market highs and lows.

I’m looking for this current counter-trend rally to mimic the nature of the 2009-2011 ABC Rally.  That means this final pattern up now we are in from 1195 pivot would be much less substantial than the rally from 1074-1233.  That is why I look for 1292-1306 ranges (same forecast I had weeks ago) as a top between now and Christmas at best.  At any time this market could top and crack, so I’m laying it out as best as I can.

Bottom Line: Market is trying to complete a counter-trend rally which so far peaked at 1292/93 and is struggling to get back up there or maybe a tad higher before the markets lose strength.  Many indicators short term are peaking as well, and everyone should be on guard.  If you’d like to be forewarned of major tops and bottoms in Gold, Silver, and the SP 500 with outside the box thinking, check us out at www.MarketTrendForecast.com for a great offer.

Our normal price is $327 per year, however, in the spirit of the holiday’s and the upcoming “Black Friday” shopping day, we are offering an early Holiday Present with a large discount of $100 off the annual price for just $227 for the first year of your TMTF subscription.

Various reports coming out of last week’s G20 meeting in Cannes are suggesting that some member countries had proposed Germany use its gold reserves as collateral for a Eurozone bailout fund.  This brought a series of quick and unequivocal responses:

“German gold reserves must remain untouchable” said the German Economy Minister Philipp Rosler.

“Germany’s gold and foreign exchange reserves, administered by the Bundesbank, were not at any point up for discussion at the G20 summit in Cannes,” said Steffen Seibert, a German government spokesman.
An MP from Angela Merkel’s Christian Democratic Party stated that it is out of the question that Germany’s gold be used to fund Rome.  However, Italy could use its gold instead.

Well isn’t that interesting.  Central banks and their governments (I believe that is the correct hierarchy) don’t bat an eyelash at creating billions of dollars worth of their currencies to intervene in a market, or peg their currency to a sinking ship, but suggest that they might put some gold at risk and suddenly everyone has their hackles up.

If gold really is just a barbarous relic, or tradition, then why would anyone care?  Warren Buffet says it’s a useless metal that we spend money to dig out of the ground, then spend more money to guard in a vault.

Don’t believe a word of it.

Central bankers know that the only real asset they have on their books, apart from their fancy buildings, is gold.  It’s tough to get excited about accumulating a bunch of currency units created by another bank, at will, in exchange for a bunch of currency units, that you just created, at will.  It all seems rather valueless doesn’t it?

The Federal Reserve is the ultimate example of how little central banks value the currencies they produce.  Over the last several years they have created trillions of dollars to be handed out willy nilly to seemingly anyone who knows the proper person to ask.  After the crisis of 2008. two Wall Street wives created a legal entity called Waterfall TALF Opportunity (get it?) to grab $220 million from the Fed in near 0% rate non-recourse loans.  These ladies invest the money and pocket the profits.  If they lose money they just send a bunch of sub par paper back to the Fed and call it even. Getting rich is easy when you are an insider to the criminal currency creation monopoly.

Privately, central bankers are the ultimate gold bugs.  They, more than anyone else, understand the fleeting value of the digital currency units they produce at the stroke of a key.  They understand that the current money paradigm won’t last forever, because at the finish line for the race to devalue, waits the number zero.  And when the ultimate restructuring comes, it will largely be the amount of physical gold each possesses, that will determine their pecking order in whatever monetary system replaces the current one.

Various reports coming out of last week’s G20 meeting in Cannes are suggesting that some member countries had proposed Germany use its gold reserves as collateral for a Eurozone bailout fund.  This brought a series of quick and unequivocal responses:

“German gold reserves must remain untouchable” said the German Economy Minister Philipp Rosler.

“Germany’s gold and foreign exchange reserves, administered by the Bundesbank, were not at any point up for discussion at the G20 summit in Cannes,” said Steffen Seibert, a German government spokesman.
An MP from Angela Merkel’s Christian Democratic Party stated that it is out of the question that Germany’s gold be used to fund Rome.  However, Italy could use its gold instead.

Well isn’t that interesting.  Central banks and their governments (I believe that is the correct hierarchy) don’t bat an eyelash at creating billions of dollars worth of their currencies to intervene in a market, or peg their currency to a sinking ship, but suggest that they might put some gold at risk and suddenly everyone has their hackles up.

If gold really is just a barbarous relic, or tradition, then why would anyone care?  Warren Buffet says it’s a useless metal that we spend money to dig out of the ground, then spend more money to guard in a vault.

Don’t believe a word of it.

Central bankers know that the only real asset they have on their books, apart from their fancy buildings, is gold.  It’s tough to get excited about accumulating a bunch of currency units created by another bank, at will, in exchange for a bunch of currency units, that you just created, at will.  It all seems rather valueless doesn’t it?

The Federal Reserve is the ultimate example of how little central banks value the currencies they produce.  Over the last several years they have created trillions of dollars to be handed out willy nilly to seemingly anyone who knows the proper person to ask.  After the crisis of 2008. two Wall Street wives created a legal entity called Waterfall TALF Opportunity (get it?) to grab $220 million from the Fed in near 0% rate non-recourse loans.  These ladies invest the money and pocket the profits.  If they lose money they just send a bunch of sub par paper back to the Fed and call it even. Getting rich is easy when you are an insider to the criminal currency creation monopoly.

Privately, central bankers are the ultimate gold bugs.  They, more than anyone else, understand the fleeting value of the digital currency units they produce at the stroke of a key.  They understand that the current money paradigm won’t last forever, because at the finish line for the race to devalue, waits the number zero.  And when the ultimate restructuring comes, it will largely be the amount of physical gold each possesses, that will determine their pecking order in whatever monetary system replaces the current one.

With all eyes on the unemployment report and Europe, the CME Group’s PR Department nearly created an all out panic with their announcement after the market close on Friday relating to futures maintenance margin. The original statement was vague and I was quite concerned until I checked out the CME Group’s web-page and the PR Department sent an update clarifying their position. At this point I think the crisis has been averted, but this is just another reminder that we live in “interesting times.”

Keep in mind that if the CME starts raising margin rates across the board for futures contracts in order to protect themselves stocks and commodities could collapse. Silver recently has is margin rates increased and silver since then dropped 25% in value. So imagine if they raised the rates for more commodities…

The current price action in the marketplace pales in comparison to the world’s geopolitical tensions and deteriorating social mood. In my trading career, I have never seen the price action in the indices react so violently to intraday headlines and rumors. Risk is high and the types of traders profiting from this market are day traders and very short term traders with trades lasting  just a couple hours to 24 hours in length. Aggressive trading which small position sizes is all that can be done right now. This is not meant to be investment advice, but more as a function of the market environment in which we find ourselves currently trading within.

Right now it is hard to say where price action in the broader indices heads in the short-run.  One headline out of Greece or Italy could dramatically alter economic history. In the intermediate term I remain neutral to bearish for a number of reasons. One indicator I follow is the bullish percent index on the S&P 500 which at this point is arguing for lower prices.

The chart below illustrates the S&P 500 Bullish Percent Index:

As can be seen above, the S&P 500 Bullish Percent Index is presently at an overbought status. When looking at the relative strength and full stochastics indicators one would argue that a pullback is warranted. Historically when the S&P 500 Bullish Percent Index is this overbought, a pullback ensues which ultimately sees the S&P 500 Index selloff. The more arduous task is trying to determine just how deep the pullback on the S&P 500 Index might be.

It is critical to point out that while I do believe a pullback is likely, I will not rule out a rally into the holiday season. Much of the near-term price action is going to be dictated by headlines coming out of Greece and the rest of Europe. In addition to Greece, Italy is also starting to see increased concern regarding an unsustainable fiscal condition. Depending on how the European Union handles the varying degrees of risk in the near term, we could see price action react violently in either direction.

With the market capable of moving in either direction, I wanted to point out some key price levels which should act as clues regarding potential future price action in the S&P 500. The two key support levels to monitor on the S&P 500 Index are the 1,240 and 1,220 price levels.

The daily chart of the S&P 500 Index below illustrates the price levels:

For bullish traders and investors the key price level to monitor is the recent highs on the S&P 500 around the 1,290 area. The weekly chart below demonstrates why this price level is critical and which overhead levels will offer additional resistance should the recent highs be taken out to the upside.

SP500 Weekly Chart Analysis:

While I am neutral in the intermediate to longer term presently, in the short run I have to lean slightly bearish simply because of the future headline risk and also because a major head and shoulders pattern has been carved out on the hourly chart of the S&P 500 Index. This type of chart pattern is synonymous with bearish price action.

The hourly chart of the S&P 500 Index is shown below:

Right now I remain slightly bearish, but should the head and shoulders pattern fail and/or we begin to see multiple positive reactions to news coming out of Europe a strong rally into the holiday season is likely. Unfortunately all we can do is monitor the key price levels and wait patiently for Mr. Market to tip his hand.

Until we see a breakout in either direction, we could see price action inhabit the 1,220 – 1,290 price range for several weeks before we get any more clarity of future direction. Until I see a breakout, I will remain relatively neutral with a slight short term bias to the downside based on price patterns in the shorter term time frames. This is a tough market to trade in, and I don’t want to get chopped around or do any heavy lifting. I’m going to focus my attention on high probability, low risk trade setups until directional biased trades make more sense.

In closing, I will leave you with the thoughtful muse of the late Texas Congresswoman Barbara Jordan,

“For all of its uncertainty, we cannot flee the future.”

Market Analysis and Thoughts By:

Chris Vermeulen – ETF Trading Videos & Trade Alerts

JW Jones – Options Trading videos & Options Alerts

This material should not be considered investment advice. Under no circumstances should any content from this article be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.