Stock Market Update

Based on my most recent post mentioning US stocks and the elevated VIX/VXV ratio, the 1-16-15 reversal was a potentially significant bottom reversal.  Given the overall bullish trend, it would make sense to be long with a stop below the Jan 16th low.  However, given the position of elevated volatility and a multiday attempted rally so far, a break below the Jan 16th low may lead to significant continuation to the downside.

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This chart of QQQ has the general appearance of a descending triangle, which most often is a bearish chart pattern, but not confirmed until a close below the lower boundary line.

There is a downward tilt to the pattern that makes it possibly a falling wedge, which is typically a bullish pattern in an uptrend.  So the key here from a charting perspective is whether the top boundary or bottom boundary trendline is broken on a closing basis.  The assumption at that point will be that the trend will continue towards the next support or resistance area.  In this case that would be the all time highs as resistance, and the October lows as support.

Pete

AAPL Descending Triangle

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AAPL looks to be forming a descending triangle which projects a move down to $425 if completed.

The daily chart of AAPL above shows a horizontal support line at roughly $500 where 3 recent swing lows occurred on the price chart.  The lower swing highs over the last few months create a descending triangle formation on the chart.  A close below the lower boundary would trigger the pattern and project a move to about $425 based on textbook projections of the widest leg of the base of the triangle projected down from the breakout point.

Also of note is a large unfilled gap up from earnings in Jan 2012.  The descending triangle projection ends near that gap up, so that area seems to be a likely next target for AAPL if it breaks to lower boundary of the triangle.

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Continue monitoring the Nasdaq for a head and shoulders top formation.  The look and volume pattern is roughly correct at this point.  It would take a close below the neckline (the upsloping line drawn on the chart) to trigger the pattern.  The minimum price projection would put the price back near the Oct-Nov 2011 lows if completed.

It will be interesting to note large trader response to last Wednesday's price jump when this weekend's CoT report comes out.  As of last week's report, the "smart money" is at a record net SHORT position on the Russell 2000 contract, and the major index combination still showed smart money heavily net short near multi year extremes.

The smart money has tried to compress the market between the Sept high and the Nov low.  A break of either price level is likely to lead to a continuation move in the same direction.  If prices on the Dow and S&P 500 move above the Sept high, then it could lead to a rather extended period of short covering by the smart money.  Such occurrences tend to lead to low volatility price advances for several weeks.

Gold Update - Likely Major Top Nearly Confirmed Complete

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Gold prices have been contracting into a symmetrical triangle over the last 1.5 months.  These can be continuation or reversal patterns.  Waiting for a breakout of the contracting trendlines will provide the best confirmation of the next price move.  If it breaks to the downside, the red line shows the minimum projection down based on the widest leg of the triangle which is the standard measurement.  The green line shows the same for an upside breakout.

If prices break to the downside, based on the chart support I think we will likely see downside follow through as I have projected in the past.

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This chart is gold daily prices with a parabolic SAR study which are the dots.  Also the bollinger bands are overlaid and are channeling sideways in a relatively low volatility squeeze.  This is coupled with the ADX study below the price chart.  The ADX shows readings below 20 continuously for the last month.  I have talked about these set-ups several times before.  But the low ADX for a long period can be thought of as a low volatility basing period before a major directional price move.  Which ever way the Parabolic SAR triggers could lead to a sharp price move as shown with green arrows in a couple prior instances.

Currently the Parabolic SAR has triggered a sell signal.  So unless it triggers a new buy, expect a downside breakout of this pattern.  But strength next week that triggers a buy on the SAR, would be indication of a likely rally for gold.  Seasonally gold tends to make lows in the early summer and rally into the late summer or fall.  So that would argue the bullish case, but the market would need to show strength soon to give some weight to that view.

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To put gold into longer term context this chart should be very helpful.  First the current top formation has taken the form of a large descending triangle.  The standard chart interpretation and measurement would suggest a likely downside breakout through the support at 1530.  And the measurement would suggest a move down to 1200ish as a minimum move.

The pink boxes show the 2008 bear market in gold and place that same box off the 2011 highs.  Here is what is significant.  The move from the 2011 highs has taken more time than the 2008 bear market.  So if prices break to new lows for the move, it would make this move more time consuming than that bear market.  This would imply a likely larger scale correction than any in the last decade long bull trend in
gold.  So I can't understate the importance of the 1520-1530 support line holding for the bullish gold case.  If it fails, it looks like a major bear market in gold will be confirmed.