Gold and Oil

Click on Chart to Enlarge

Gold has reached the upper boundary of its 80% probability price retracement reversal zone for a bear market rally.  So it is sensible to start taking technical signals for short/inverse trades and take them again if stopped out.  Only a break of the Nov high, would suggest that an historically unusual move is taking place and that the bull market may continue.

The daily stochastics has been overbought, but the weekly could use another week or more to cycle back up to give a better multiple time frame momentum set-up.  The red arrow on the chart above represents a swing high from the last leg down which could provide an ideal reversal area.  More often than not the market will run the stops at a swing high like that before reversing.  So given the technical indicator set-up, it would be ideal for a brief pullback to occur, followed by a break to new rally highs and slightly exceed that swing high at the red arrow and then reverse lower to confirm a top is in place.  That would also create bearish divergence on the daily stochastics which would be nice for a short/inverse trade entry and the next sell signal.

Click on Chart to Enlarge

Oil is showing a beautiful trade set-up to go short/inverse.  The market has a very low ADX for an extended time creating a long basing pattern for a large move.  There has been a distribution type top here which the smart money has been selling.  Now there is a tight bollinger band squeeze providing a low volatility put option trade entry, and a short to intermediate term trade confirmation if the market closes below the lower band with bands expanding.  Watch for that tomorrow or before week's end.  The best patterns gap down and then close lower in the range with a fairly nice real body.  Once the breakout occurs the price won't come back above the high of the break down candlestick in most successful cases.


I have talked about these set-ups before.  Check these posts and see how a couple turned out.

 http://stockmarketalchemy.blogspot.com/2011/08/usd-update.html

 http://stockmarketalchemy.blogspot.com/2011/09/us-dollar-and-silver-update.html

 I already have long positions in DTO with a stop corresponding to the Jan highs in oil and also USO puts.  I plan on adding more puts on a confirmed break down like just mentioned.  I will add some further analysis soon.  But this should be a large and dramatic move down in oil according to my analysis.  My analysis is for oil to be in the $60 by early this spring.  More details to follow......