Thursday, May 29, 2014

Early Signs of Complacency

A couple notable (in my opinion) technical signals of market sentiment have occurred recently.

Recently the VIX closed below its lower daily bollinger band.  While not a cause for immediate selling, this gives us some indication that shorter term volatility is possibly out of balance, and so depending on your time frame of trading you can use that information to adjust stops or make exits or exit plan contingencies.

Also, the VIX/VXV ratio recently closed below its 126 day lower bollinger band.  Again this mostly indicates a strong market that has some room to move up left in it.  Prior signals have occurred 1-2 months before the major corrections of 1+ month duration in stocks.

The 5 day average of the total put/call ratio has been neutral for some time with respect to its bollinger bands, but over the last week, it has moved sharply lower and close to its lower bollinger band.  If it moves outside the lower band, then that has been an excellent signal in the past to sell positions near the top of a major leg up in stocks, and await a new intermediate term buying signal.

So to sum my analysis of these real money sentiment measures, stocks likely will move somewhat higher for at least a few weeks.  If you are long, use this information simply to determine stop adjustments and plan ahead for possible exits on your positions if/when the market moves higher and we see an appropriate signal.

Wednesday, May 14, 2014

Keep Alert For Precious Metals Turning Up - Silver/Gold Ratio

 Click on Chart to Enlarge

This chart shows the silver/gold ratio and shows that it has been hitting multi year lows and is near its half year bollinger band.  When bull markets take effect typically the silver outperforms and we would expect to see this ratio rise.  Also, just from a statistical standpoint, when these strongly correlated metals show a ratio far from the mean, it may be a time to consider a pairs trade - in this case long silver, short gold as a conservative speculation.

However, in context it appears that this is further confirming evidence that the precious metals as a whole may be forming a bottom and be ready to turn up very soon.  Historically June is the seasonal low time frame for gold, and with all factors taken into context, from my perspective, we could be seeing the seasonal low here now.
Click on Chart to Enlarge

This chart shows July silver futures and shows a move below the winter lows and now a reversal higher.  This type of stop running happens frequently before major advances.  Even going back a year, the July contract just slightly broke below the June 2013 low, but the cash silver and SLV etf have not.  These types of non-confirmation between futures and cash or near and distant futures contracts also can be flags that trends are about to shift.

Whatever, your trading methodology is, my suggestion is to keep GDX and SIL on your near term watchlist for longs and also look at other individual stocks in those sectors, or even just stick with GLD and SLV etf for speculative trades.