Be Aware of a Potential Bottom in Gold and Silver

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Gold and silver prices appear to be completing relatively large scale patterns that I think will resolve to the upside.  I would anticipate gold to bottom somewhere between today and the second week of May and with not much more downside (either today being a low or next support at $1250 on the gold chart.

I would estimate that the next leg up would carry gold to the $1500 range if this scenario plays out.  Timing entry off of a 4 hour chart may provide a nice reward to risk opportunity.

Another way to possibly profit from this potential move would also be to purchase long call options with 4-5 months until expiration.  This may allow for a significant move with a reasonable risk to reward and limited capital outlay.

Dual Time Frame Volatility Analysis

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I have shown charts like this in pats videos to The Trader's Crystal Ball mailing list, but I thought I would share this one today with everybody.

This chart shows the VXN which is like the VIX but for the Nasdaq 100 stocks.  And the specific set-up here is that the dark blue standard bollinger bands have expanded so that the top band is above the 126 day 2.0 standard deviation bollinger band.

What does this mean??  It basically is just telling us that the short term volatility is far from the average longer term volatility.  And this is a condition that often precedes significant lows in stock prices.

We did not see this happen in the VIX on this pullback, but the chart above of VXN very clearly shows the spike in the VXN and now a reversal back inside the bands which has corresponded with a hammer type candlestick in QQQ prices on Tuesday.

So for now, it looks like a significant low may be in place in QQQ.  My suspiscion is that we will see a significant rally, but this one might fail to make a new high in QQQ, and then we see a larger scale correction.

For now I am bullish as long as prices are closing above Tuesday's low in QQQ.

VIX/VXV Ratio Is Spiking Again

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The chart above shows the last 2 years of VIX/VXV daily closing ratios.  I have discussed this many times on this blog, but when the ratio exceeds 1.00, that is basically a theoretical imbalance in the market, and it usually resolves to the upside before too long.

However, I have also discussed the fact that while it may be a short time until a relative low occurs, these increasing volatility environments can lead to dramatic price declines in that short period of time until a price low occurs.  So I don't suggest necessarily just buying with no further confirmation that price may reverse or with no defined risk.

With the current set-up in the stock indexes I believe there are a couple highly probable scenarios:

1) Prices sell off sharply, maybe VERY sharply for a few days, and then we start a significant multi day rally

2) We see a brief lower daily low within the next couple days, followed by a rally attempt 

Currently, my analysis is that we are nearly 100% certain to see a lower daily low than Friday's, but we should be aware of the buying set-up with this volatility imbalance.

The intermediate term price logic has been behaving in downtrend fashion off the recent highs, and so for short-term traders the play is to look to short rebounds until a buying signal occurs.

If I had to take a stand on the larger market direction from here, I would say that I think this market has seen a more significant high than the others over the last year and a half.  However, objective signals are the key to success, so I could change my mind at any time when those occur.

Brief Stock Update

Hourly chart technical analysis suggests a possible long set-up for tomorrow, but the daily and weekly current are down and so what often happens with the intermingling of the cycles is that the shorter term set-up will have a more muted effect than it would if the larger currents were up.

Panic levels are still a ways off on the put/call ratio and VIX, and so despite the increased price volatility here, my outlook remains bearish for the intermediate term until further notice.

As a side note, for those who follow gold and silver, I would suggest that you be tracking those markets closely for long trade set-ups.  There may be some lower lows for the recent decline to set-up a bullish divergence, but my take is that a buying opportunity is potentially near.

Top Warning For Stocks

This is just a written heads up that Friday was a bearish engulfing pattern on SPY with weekly, daily, and hourly bearish divergence at the high.  So there is a major multiple time frame divergence here, a wide range reversal bar, which is typical of past major highs, and there really really sharp bearish divergence in VIX and total put/call compared with price.

Additionally, the Russell 2000 and Nasdaq 100 did not confirm new highs this week and so now the leaders have become the laggards.  All of these things would indicate to me that despite the sell offs in many stocks, the real meat of this sell off only may just have begun.

I remain bearish until further notice unless there are closes above Fridays's highs in the stock indexes.