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Weekly Wizards

Expected Shakeout for Gold

Wed, Jan 27 2010, 05:45 GMT
by Mike Paulenoff, Jack Steiman, Harry Boxer

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Harry Boxer, On UltraShort ETFs to Watch (TheTechTrader.com)

Today I'm going to feature some of the ultrashort ETFs. With the market looking precarious here, I wanted to give you some ideas.

Starting with the Direxion Large Cap Bear 3X Shares (BGU), it formed a base this month and broke out three days ago. Since then it had a consolidation, another run-up, another consolidation, and then a 5th wave up, before a more substantial consolidation set in Monday. However, it held support all day, and bounced off the moving average and trendline toward thee end of the day with volume. So, it could see some more extension on the upside, and move up to the 18 1/2 zone, my initial target. Overhead resistance is up around the 19 area, then 19.40, which would be minor targets. A break through that level could see something toward 22 1/2, my intermediate target, but that could come quickly if the market does fall apart.

The Emerging Markets Bear 3X Shares (EDZ) also based out recently and then broke out in the last week, flagged and stair-stepped its way higher. Over the last couple of sessions it stalled a little bit, possibly a head and shoulders top, although I doubt it. Volume got really quiet. The stock is still holding lateral support around the 5 1/4 area, with resistance around 5.60. A move up above that could lead to our short-term target of 6-6.05. Beyond that on the daily chart, it could see something up around 7.40-.45, then 8 1/4, our near-term targets.

UltraPro Short S&P 500 (SPXU) is a new one that we're following. A nice base formed this month, and then a break out occurred across key resistance around 34.60. The stock ran all the way up to 38.35, and then backed and filled Monday in a kind of coiling action. Towards the end of the day it firmed up as the market rolled over, but held the moving averages on the 50-minute charts. Target is up around 40-40.25 and beyond that the daily chart shows a key overheard resistance at 40.25 and if taken we could possibly see something up toward the mid-to-high 40s, maybe 47 1/2.

Technology Bear 3A (TYP) spiked up after basing out for about 2 weeks, backed off and had an inside day Monday above the 50-day moving average. The 15-minute chart shows the base pattern being taken out across 9. The spike up took it up to over 10, after which the stock backed off and consolidated in the high 9s and could break out and run up towards my initial target, which right now is up toward the 11-11.10 range. On the daily chart we'll see a more protracted target up around the 12.90 area.

UltraPro Short S&P 500 (VXX) has a 1-year trend down channel. It has a ways to go, but a move up towards that level would give us something around 35, which is about 3 1/2 points from where it is. On Monday it had a nice consolidation day after a 2-day thrust above the 10- and 20-day moving averages. It has more to go, though. If the market starts to really get ugly we can see that quickly move up to 35, and beyond that around the 38-39 area may be doable.

Other shorts on Harry's chart today are Financial Bear 3X Share (FAZ), Ultra Short FTSE/Xinhua (FXP), UltraShort Real Estate (SRS), and Small Cap Bear 3X (TZA).

Mike Paulenoff, On Expected Shakeout for Gold (MPTrader.com)

The weekly chart of spot gold is warning me that the real shakeout of the long side of gold is ahead of us, not behind us! Of course, there is a possibility that some near-term "force" will "intervene" to prevent spot gold from breaking the Dec low at $1074. The problem is that my intermediate-term technical work is positioned for additional weakness that should break $1074 on the way to test much more significant support along the Oct 08-Jan 10 up trendline, now at $1056. Let's notice that the sharply rising 40-week moving average is at $1020, which could be where the price structure is heading in the upcoming hours/days.

Jack Steiman, On Watching Financials & Buying Strong Earners (SwingTradeOnline.com)

Monday's candlestick traded inside of Friday's large down stick and normally that equates to another day of struggling for this market. When a market has trended down for a few or more consecutive days and you get this type of inside stick, you can expect a little more selling in normal times. Nothing will be easy for this market very short term. Those tough and too powerful sentiment readings just haven't been worked off enough to get aggressive with regards to buying stocks.

While things have assuredly unwound some on that front, we still haven't seen any real fear in the options market or in sentiment from traders on the floor. We, in normal times, will need to bring fear up to much higher levels and get bullishness ramped downward. Only then can we get sustained upside action. Sure, Apple (AAPL) can bring a little upside possibly but sustainable upside will be very rough for the bulls right now. I'm not suggesting a market free fall. I'm just suggesting that now would not be the optimum time to be buying hand over fist.

We all know by now that CitiGroup (C) is an important stock to follow with regards to this market and the healing process. Lately it has not been behaving well. It's closing in on its poor secondary pricing of 3.15. It printed 3.13 and then headed up but is now closing in on 3.13 once again. It would not be great to see this beast of a stock in terms of importance lose that level. It would be bad news for the financial sector which is what needs to hold more than any other sector because of the risk in that area of the market. If the financials fail, so will the market. The good news is that things are rapidly unwinding in this part of the market in terms of the oscillators. Let's just keep a close eye on C in the days ahead.

Earnings have been solid overall. Anyone who says anything to the contrary is only fooling themselves. The market is allowing some stocks to soar on earnings and not allowing others due to the run up they've had prior to their reports. Those stocks are full and simply need a pause in the action. Just because a stock sells on earnings does not mean it had bad earnings. When stocks get overbought and the news was in prior to the report, they will usually sell off some to allow their oscillators to unwind. Nothing bearish about that. The fact that it falls on earnings allows for the masses to get more bearish and that's just the tonic this market is begging for. I warn about getting bearish on stocks that have blow out earnings but fall once those earnings have been reported. They usually set up as great buys within a few weeks time.

Jerome "Mel" Hickerson, On Momentum Shift to Bears (MarketsPath.com)

The week began with the usual Monday buying pressure from the futures. The futures were up high overnight but gave back half their gains before the regular session opened. The session then opened, gapped upward, looking strong until just before 10:00. The housing data was a negative and the indices quickly filled the opening gap. From then until the intraday low of the day was set at 11:37 (the low of the day was at the open) the indices traded in three waves downward. From the lows, the SPX worked its way slowly upward setting the high of the day at 3:01, but then couldn't hold a large part of the gains, selling sharply into the close. While the major indices closed green, the underlying tenor of the market did not feel positive. The SPX closed more than two points lower than it was one minute after the open.

At the risk of really annoying my friends the permabears, let's take a look at the daily chart of the SPX. We painted a low range inside bar on the chart today. A bar such as this is typical at turnaround points on the chart. Not always, of course, but commonly a low range inside day will precede a short term direction change.

Our System 1 two day swing signal has not fared well the last few days; this typically is a sign of a weak market. A failure to see something more significant than a five point bounce tomorrow certainly should suggest that we are likely to see a more significant down trend. After hours today AAPL released their quarterly earnings report. It was not received particularly positively by the market; it matters not what the numbers were, it is how it is received that matters. (Although AAPL did close the after hours $1.00 higher than the regular session close.) The market is vulnerable and weak at this point; momentum has switched to the bears and without a quick game changer that seems likely to continue for a while.

Published on  Wed, Jan 27 2010, 06:01 GMT

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