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.

David Banister- www.MarketTrendForecast.com

It’s been several weeks since I’ve written about Gold and we have had a wild ride since the 1910-1920 highs in August.  When gold was trading at that lofty price I forecasted a major correction was nearing. We were shorting gold from $1862- $910 prior to the huge $208 drop that took place over just a a few days.  We covered our short at $1725 and then Gold rallied back to a double top at $1920 and then fell back to $1531.

That pullback to $1531 qualifies as a Fibonacci retracement of the 34 month rally from $681 to $1920, and would also qualify for a price low for a 4th major wave correction that I discussed in prior forecasts.  My initial targets for the Gold pullback were $1480-$1520 if the $1650 area was violated.  Most recently we have seen Gold run up to 1681 which is another Fibonacci resistance zone a few times and then back off to the low $1600’s.

With the recent push over $1681, we can now confirm the 4th wave is over at $1531 lows and that the 5th wave is likely in the very early stages, but beginning to build steam. I will say that we want to make sure the 1650-1680’s areas are defended by Gold on any pullbacks in order for this forecast to remain valid.  During this 5th wave up, eventually we should see the $2380 ranges in Gold, but it will not take place overnight.  In the next few months I am looking for Gold to attack the $1900 range, possibly even by year end, and then in 2012 attacking the $2000 plus ranges.

With all of the Macro events in Europe changing on an almost daily basis, the whipsaws in both the precious metals and equities markets are difficult to forecast and trade for most investors. However, Gold has been moving in defined Fibonacci and wave patterns for ten years now, and has about three years left in a 13 year bull cycle if I’m right.

Below is the updated weekly chart of Gold.  You can see prior low’s as they related to oversold indicators, and where we just came off the 1531 lows and its Fibonacci pivot along with the oversold indicators below.

Look for Gold to attack 1775 first, then 1800, 1840, then 1900 in the coming 6-10 weeks or so.

 

You can get 3-5 updates a week on Gold, SP500, and Silver by visiting www.MarketTrendForecast.com

Writing about financial markets is probably the most challenging endeavor I have ever immersed myself into. I am a trader first and a writer second, but I have really come to enjoy scribing missives about financial markets because it really forces me to concentrate on my analysis.

Writing for the general public has really enhanced my perception of the market and forced me to dig deeper and learn new forms of analysis. I find myself learning more and more every day and the beauty of trading is that even for the most experienced of traders there is always an opportunity to learn more. As members of my service know, I strive to be different than most of my peers as my focus is on education and being completely transparent and honest.

I want readers to know that I was wrong about my recent expectations regarding the European sovereign debt summit. I was expecting the Dollar to rally based on the recent price action and quite frankly I expected stocks to falter after running up nearly 15% into the announcement. My expectations could not have been more untimely and incorrect.

I share this with you because as I read and listen to market pundits discussing financial markets I find that too many writers and commentators flip-flop their positions to always have the appearance of accuracy. In some cases, there have been television pundits that stated we were possibly going to revisit a depression in 2012 no more than 5 weeks ago. These so-called experts have now changed their positions stating that we have started a new bull market in recent weeks. How can anyone take these people seriously?

Financial markets are dynamic and consistently fool the best minds and most experienced traders out there. Financial markets do not reward hubris. If a trader does not remain humble, Mr. Market will happily handle the humbling process for him. I was humbled this week. I was reminded yet again that  financial markets do not take prisoners and they show no mercy. I am sharing this with readers because I want you to know that I refuse to flip-flop my position without first declaring that I was wrong.

When I am wrong, I will own up to it purely out of sense of responsibility. My word and my name actually mean something to me, and while I strive to present accurate analysis I am fallible and I will make mistakes. The key however to the mistakes that I make is my ability to learn from them and the past week was a great learning opportunity.

After regrouping and stepping back after the price action on Thursday, a few key elements really stood out to me regarding recent price action. First of all, in the short-term we are extremely overbought. The chart below illustrates the number of stocks in domestic equity markets trading above their 20 period moving averages over the past 5 years:

What is apparent from the chart above is that prices are almost as overbought right now as they have been anytime in the past 5 years. The number of domestic equities trading above their 50 period moving average over the past 5 years is also nearing the highest levels seen during the same period as the chart below illustrates:

Equities trading above the 100, 150, and 200 period moving averages are somewhat subdued by comparison meaning in the short run a possible correction appears likely. The longer-term time frames are no longer oversold, but they have considerable upside to work with before we could declare that they are overbought.

Additionally, the details of the European Union’s supposed solution have not yet been released raising questions going forward. Every move that is made will create unintended consequences. As an example, since Greece had 50% of their debt written down why would Ireland or Portugal refuse to pay their debts in full?

The Irish and Portuguese governments are going to come under pressure from their constituents to renegotiate the terms of their debt based on the agreement that was made with Greece recently. Spain politicians will likely be under pressure as well. The decisions made in these so-called bailouts reverberate across the geopolitical spectrum. Moral hazard still exists, it just evolves over time.

The risk premium of sovereign debt has to be adjusted since credit default swaps did not trigger payment as the write-downs were considered “voluntary.” Thus credit default swaps are not the answer to hedge sovereign debt as it would appear that governments have the ability to write down debt without triggering a default based on the status of the write-down. The long-term unintended consequences could be severe and are unknown at this point in time.

In addition to the unknown factors impacting the European “solution”, next week the Federal Reserve will have their regular FOMC meeting and statement. There has been a lot of chatter regarding the potential for QE III to come out of this meeting. While I could be wrong, initiating QE III right after the Operation Twist announcement would lead many to believe that Operation Twist was a failure.

With interest rates at or near all time lows and the recent rally we have seen in the stock market, it does not make sense that QE III would be initiated during this meeting. It is possible that if QE III is not announced the U.S. Dollar could rally and put pressure on risk assets such as the S&P 500 in the short to intermediate term. If this sequence of events played out, a correction would be likely. The following is a daily chart of the S&P 500 with possible correction targets in place:

Right now it is a toss up in the financial blogosphere as to the expectations of where price action will head. Are we near a top? Is this the beginning of a new bull market? I scanned through several charts Friday evening and Saturday morning and came to this realization. If the market is going to breakout and this is not a top but the beginning of a major bullish wave higher, then the Nasdaq 100 Index (NDX) has to breakout over the 2011 highs.

The Nasdaq 100 Index is comprised of stocks such as AAPL, GOOG, INTC, and YHOO. In order for a new leg higher to transpire, hyper beta names like AAPL and GOOG have to breakout higher and show continuation with strong supporting volume. If the NDX does not breakout over the 2011 highs, a top could potentially be forming. The daily chart of the Nasdaq 100 Index is shown below:

In conclusion, the short term looks like a possible correction could play out. However, it is critical to note that the longer term time frames are more neutral at this time. Furthermore, if price action cannot penetrate the 2011 highs for the Nasdaq 100 Index, I do not believe that a new bull market will have begun. If the Nasdaq 100 Index cannot breakout above the 2011 highs, we could be putting in a potential top going into the holiday season.

In closing, I will leave you with the thoughtful muse of famed writer and minister Hugh Prather, “Almost any difficulty will move in the face of honesty. When I am honest I never feel stupid. And when I am honest I am automatically humble.”

Subscribers of OTS 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 OTS at http://www.optionstradingsignals.com/specials/index.php and take advantage of our free occasional trade ideas or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

By: JW Jones

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.

Writing about financial markets is probably the most challenging endeavor I have ever immersed myself into. I am a trader first and a writer second, but I have really come to enjoy scribing missives about financial markets because it really forces me to concentrate on my analysis.

Writing for the general public has really enhanced my perception of the market and forced me to dig deeper and learn new forms of analysis. I find myself learning more and more every day and the beauty of trading is that even for the most experienced of traders there is always an opportunity to learn more. As members of my service know, I strive to be different than most of my peers as my focus is on education and being completely transparent and honest.

I want readers to know that I was wrong about my recent expectations regarding the European sovereign debt summit. I was expecting the Dollar to rally based on the recent price action and quite frankly I expected stocks to falter after running up nearly 15% into the announcement. My expectations could not have been more untimely and incorrect.

I share this with you because as I read and listen to market pundits discussing financial markets I find that too many writers and commentators flip-flop their positions to always have the appearance of accuracy. In some cases, there have been television pundits that stated we were possibly going to revisit a depression in 2012 no more than 5 weeks ago. These so-called experts have now changed their positions stating that we have started a new bull market in recent weeks. How can anyone take these people seriously?

Financial markets are dynamic and consistently fool the best minds and most experienced traders out there. Financial markets do not reward hubris. If a trader does not remain humble, Mr. Market will happily handle the humbling process for him. I was humbled this week. I was reminded yet again that  financial markets do not take prisoners and they show no mercy. I am sharing this with readers because I want you to know that I refuse to flip-flop my position without first declaring that I was wrong.

When I am wrong, I will own up to it purely out of sense of responsibility. My word and my name actually mean something to me, and while I strive to present accurate analysis I am fallible and I will make mistakes. The key however to the mistakes that I make is my ability to learn from them and the past week was a great learning opportunity.

After regrouping and stepping back after the price action on Thursday, a few key elements really stood out to me regarding recent price action. First of all, in the short-term we are extremely overbought. The chart below illustrates the number of stocks in domestic equity markets trading above their 20 period moving averages over the past 5 years:

What is apparent from the chart above is that prices are almost as overbought right now as they have been anytime in the past 5 years. The number of domestic equities trading above their 50 period moving average over the past 5 years is also nearing the highest levels seen during the same period as the chart below illustrates:

Equities trading above the 100, 150, and 200 period moving averages are somewhat subdued by comparison meaning in the short run a possible correction appears likely. The longer-term time frames are no longer oversold, but they have considerable upside to work with before we could declare that they are overbought.

Additionally, the details of the European Union’s supposed solution have not yet been released raising questions going forward. Every move that is made will create unintended consequences. As an example, since Greece had 50% of their debt written down why would Ireland or Portugal refuse to pay their debts in full?

The Irish and Portuguese governments are going to come under pressure from their constituents to renegotiate the terms of their debt based on the agreement that was made with Greece recently. Spain politicians will likely be under pressure as well. The decisions made in these so-called bailouts reverberate across the geopolitical spectrum. Moral hazard still exists, it just evolves over time.

The risk premium of sovereign debt has to be adjusted since credit default swaps did not trigger payment as the write-downs were considered “voluntary.” Thus credit default swaps are not the answer to hedge sovereign debt as it would appear that governments have the ability to write down debt without triggering a default based on the status of the write-down. The long-term unintended consequences could be severe and are unknown at this point in time.

In addition to the unknown factors impacting the European “solution”, next week the Federal Reserve will have their regular FOMC meeting and statement. There has been a lot of chatter regarding the potential for QE III to come out of this meeting. While I could be wrong, initiating QE III right after the Operation Twist announcement would lead many to believe that Operation Twist was a failure.

With interest rates at or near all time lows and the recent rally we have seen in the stock market, it does not make sense that QE III would be initiated during this meeting. It is possible that if QE III is not announced the U.S. Dollar could rally and put pressure on risk assets such as the S&P 500 in the short to intermediate term. If this sequence of events played out, a correction would be likely. The following is a daily chart of the S&P 500 with possible correction targets in place:

Right now it is a toss up in the financial blogosphere as to the expectations of where price action will head. Are we near a top? Is this the beginning of a new bull market? I scanned through several charts Friday evening and Saturday morning and came to this realization. If the market is going to breakout and this is not a top but the beginning of a major bullish wave higher, then the Nasdaq 100 Index (NDX) has to breakout over the 2011 highs.

The Nasdaq 100 Index is comprised of stocks such as AAPL, GOOG, INTC, and YHOO. In order for a new leg higher to transpire, hyper beta names like AAPL and GOOG have to breakout higher and show continuation with strong supporting volume. If the NDX does not breakout over the 2011 highs, a top could potentially be forming. The daily chart of the Nasdaq 100 Index is shown below:

In conclusion, the short term looks like a possible correction could play out. However, it is critical to note that the longer term time frames are more neutral at this time. Furthermore, if price action cannot penetrate the 2011 highs for the Nasdaq 100 Index, I do not believe that a new bull market will have begun. If the Nasdaq 100 Index cannot breakout above the 2011 highs, we could be putting in a potential top going into the holiday season.

In closing, I will leave you with the thoughtful muse of famed writer and minister Hugh Prather, “Almost any difficulty will move in the face of honesty. When I am honest I never feel stupid. And when I am honest I am automatically humble.”

Subscribers of OTS 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 OTS at http://www.optionstradingsignals.com/specials/index.php and take advantage of our free occasional trade ideas or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

By: JW Jones

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.

David Banister- www.MarketTrendForecast.com

It’s been several weeks since I’ve written about Gold and we have had a wild ride since the 1910-1920 highs in August.  When gold was trading at that lofty price I forecasted a major correction was nearing. We were shorting gold from $1862- $910 prior to the huge $208 drop that took place over just a a few days.  We covered our short at $1725 and then Gold rallied back to a double top at $1920 and then fell back to $1531.

That pullback to $1531 qualifies as a Fibonacci retracement of the 34 month rally from $681 to $1920, and would also qualify for a price low for a 4th major wave correction that I discussed in prior forecasts.  My initial targets for the Gold pullback were $1480-$1520 if the $1650 area was violated.  Most recently we have seen Gold run up to 1681 which is another Fibonacci resistance zone a few times and then back off to the low $1600’s.

With the recent push over $1681, we can now confirm the 4th wave is over at $1531 lows and that the 5th wave is likely in the very early stages, but beginning to build steam. I will say that we want to make sure the 1650-1680’s areas are defended by Gold on any pullbacks in order for this forecast to remain valid.  During this 5th wave up, eventually we should see the $2380 ranges in Gold, but it will not take place overnight.  In the next few months I am looking for Gold to attack the $1900 range, possibly even by year end, and then in 2012 attacking the $2000 plus ranges.

With all of the Macro events in Europe changing on an almost daily basis, the whipsaws in both the precious metals and equities markets are difficult to forecast and trade for most investors. However, Gold has been moving in defined Fibonacci and wave patterns for ten years now, and has about three years left in a 13 year bull cycle if I’m right.

Below is the updated weekly chart of Gold.  You can see prior low’s as they related to oversold indicators, and where we just came off the 1531 lows and its Fibonacci pivot along with the oversold indicators below.

Look for Gold to attack 1775 first, then 1800, 1840, then 1900 in the coming 6-10 weeks or so.

 

You can get 3-5 updates a week on Gold, SP500, and Silver by visiting www.MarketTrendForecast.com

David Banister- www.MarketTrendForecast.com

It’s been several weeks since I’ve written about Gold and we have had a wild ride since the 1910-1920 highs in August.  When gold was trading at that lofty price I forecasted a major correction was nearing. We were shorting gold from $1862- $910 prior to the huge $208 drop that took place over just a a few days.  We covered our short at $1725 and then Gold rallied back to a double top at $1920 and then fell back to $1531.

That pullback to $1531 qualifies as a Fibonacci retracement of the 34 month rally from $681 to $1920, and would also qualify for a price low for a 4th major wave correction that I discussed in prior forecasts.  My initial targets for the Gold pullback were $1480-$1520 if the $1650 area was violated.  Most recently we have seen Gold run up to 1681 which is another Fibonacci resistance zone a few times and then back off to the low $1600’s.

With the recent push over $1681, we can now confirm the 4th wave is over at $1531 lows and that the 5th wave is likely in the very early stages, but beginning to build steam. I will say that we want to make sure the 1650-1680’s areas are defended by Gold on any pullbacks in order for this forecast to remain valid.  During this 5th wave up, eventually we should see the $2380 ranges in Gold, but it will not take place overnight.  In the next few months I am looking for Gold to attack the $1900 range, possibly even by year end, and then in 2012 attacking the $2000 plus ranges.

With all of the Macro events in Europe changing on an almost daily basis, the whipsaws in both the precious metals and equities markets are difficult to forecast and trade for most investors. However, Gold has been moving in defined Fibonacci and wave patterns for ten years now, and has about three years left in a 13 year bull cycle if I’m right.

Below is the updated weekly chart of Gold.  You can see prior low’s as they related to oversold indicators, and where we just came off the 1531 lows and its Fibonacci pivot along with the oversold indicators below.

Look for Gold to attack 1775 first, then 1800, 1840, then 1900 in the coming 6-10 weeks or so.

 

You can get 3-5 updates a week on Gold, SP500, and Silver by visiting www.MarketTrendForecast.com

Writing about financial markets is probably the most challenging endeavor I have ever immersed myself into. I am a trader first and a writer second, but I have really come to enjoy scribing missives about financial markets because it really forces me to concentrate on my analysis.

Writing for the general public has really enhanced my perception of the market and forced me to dig deeper and learn new forms of analysis. I find myself learning more and more every day and the beauty of trading is that even for the most experienced of traders there is always an opportunity to learn more. As members of my service know, I strive to be different than most of my peers as my focus is on education and being completely transparent and honest.

I want readers to know that I was wrong about my recent expectations regarding the European sovereign debt summit. I was expecting the Dollar to rally based on the recent price action and quite frankly I expected stocks to falter after running up nearly 15% into the announcement. My expectations could not have been more untimely and incorrect.

I share this with you because as I read and listen to market pundits discussing financial markets I find that too many writers and commentators flip-flop their positions to always have the appearance of accuracy. In some cases, there have been television pundits that stated we were possibly going to revisit a depression in 2012 no more than 5 weeks ago. These so-called experts have now changed their positions stating that we have started a new bull market in recent weeks. How can anyone take these people seriously?

Financial markets are dynamic and consistently fool the best minds and most experienced traders out there. Financial markets do not reward hubris. If a trader does not remain humble, Mr. Market will happily handle the humbling process for him. I was humbled this week. I was reminded yet again that  financial markets do not take prisoners and they show no mercy. I am sharing this with readers because I want you to know that I refuse to flip-flop my position without first declaring that I was wrong.

When I am wrong, I will own up to it purely out of sense of responsibility. My word and my name actually mean something to me, and while I strive to present accurate analysis I am fallible and I will make mistakes. The key however to the mistakes that I make is my ability to learn from them and the past week was a great learning opportunity.

After regrouping and stepping back after the price action on Thursday, a few key elements really stood out to me regarding recent price action. First of all, in the short-term we are extremely overbought. The chart below illustrates the number of stocks in domestic equity markets trading above their 20 period moving averages over the past 5 years:

What is apparent from the chart above is that prices are almost as overbought right now as they have been anytime in the past 5 years. The number of domestic equities trading above their 50 period moving average over the past 5 years is also nearing the highest levels seen during the same period as the chart below illustrates:

Equities trading above the 100, 150, and 200 period moving averages are somewhat subdued by comparison meaning in the short run a possible correction appears likely. The longer-term time frames are no longer oversold, but they have considerable upside to work with before we could declare that they are overbought.

Additionally, the details of the European Union’s supposed solution have not yet been released raising questions going forward. Every move that is made will create unintended consequences. As an example, since Greece had 50% of their debt written down why would Ireland or Portugal refuse to pay their debts in full?

The Irish and Portuguese governments are going to come under pressure from their constituents to renegotiate the terms of their debt based on the agreement that was made with Greece recently. Spain politicians will likely be under pressure as well. The decisions made in these so-called bailouts reverberate across the geopolitical spectrum. Moral hazard still exists, it just evolves over time.

The risk premium of sovereign debt has to be adjusted since credit default swaps did not trigger payment as the write-downs were considered “voluntary.” Thus credit default swaps are not the answer to hedge sovereign debt as it would appear that governments have the ability to write down debt without triggering a default based on the status of the write-down. The long-term unintended consequences could be severe and are unknown at this point in time.

In addition to the unknown factors impacting the European “solution”, next week the Federal Reserve will have their regular FOMC meeting and statement. There has been a lot of chatter regarding the potential for QE III to come out of this meeting. While I could be wrong, initiating QE III right after the Operation Twist announcement would lead many to believe that Operation Twist was a failure.

With interest rates at or near all time lows and the recent rally we have seen in the stock market, it does not make sense that QE III would be initiated during this meeting. It is possible that if QE III is not announced the U.S. Dollar could rally and put pressure on risk assets such as the S&P 500 in the short to intermediate term. If this sequence of events played out, a correction would be likely. The following is a daily chart of the S&P 500 with possible correction targets in place:

Right now it is a toss up in the financial blogosphere as to the expectations of where price action will head. Are we near a top? Is this the beginning of a new bull market? I scanned through several charts Friday evening and Saturday morning and came to this realization. If the market is going to breakout and this is not a top but the beginning of a major bullish wave higher, then the Nasdaq 100 Index (NDX) has to breakout over the 2011 highs.

The Nasdaq 100 Index is comprised of stocks such as AAPL, GOOG, INTC, and YHOO. In order for a new leg higher to transpire, hyper beta names like AAPL and GOOG have to breakout higher and show continuation with strong supporting volume. If the NDX does not breakout over the 2011 highs, a top could potentially be forming. The daily chart of the Nasdaq 100 Index is shown below:

In conclusion, the short term looks like a possible correction could play out. However, it is critical to note that the longer term time frames are more neutral at this time. Furthermore, if price action cannot penetrate the 2011 highs for the Nasdaq 100 Index, I do not believe that a new bull market will have begun. If the Nasdaq 100 Index cannot breakout above the 2011 highs, we could be putting in a potential top going into the holiday season.

In closing, I will leave you with the thoughtful muse of famed writer and minister Hugh Prather, “Almost any difficulty will move in the face of honesty. When I am honest I never feel stupid. And when I am honest I am automatically humble.”

Subscribers of OTS 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 OTS at http://www.optionstradingsignals.com/specials/index.php and take advantage of our free occasional trade ideas or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

By: JW Jones

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.