Put/Call Ratios Still Tame

One of the reasons that I feel confident that this correction has more room to fall from here is that the put/call ratios have barely budged from optimistic level despite a couple down weeks.

Click on Chart to Enlarge

This chart of the total put/call ratio shows that the 5 day average of the put/call ratio is still a good ways from the 1.05-1.10 range that has been reached on the minor corrections since Nov 2012.  Despite a couple down weeks in the markets, the equity put/call ratio has peak at 0.65 in the last 2 weeks.  Even in the strong uptrend since Nov 2012, minor corrective bottoms have seen ratios in the 0.74-0.80 range or higher.

Given the seasonal weakness typical in Sept., the obvious technical sell configuration, and the lack of fear evident in either the VIX or put/call ratios, I believe we have a minimum of a couple more weeks of downside here until a multi week rally attempt occurs.

I would warn of the possibility of a swift move back toward or below the June lows from here.  I think we may see volatility jump over the next week or two.

Watching This Volatile Set-Up In Stocks

I have been vacationing for the past week or so and will provide an update soon.

In brief this correction that has begun in stocks looks to be legit and not be done yet.  Short term it is arguably oversold, but any brief rally should be looked at as a shorting opportunity on a trading basis.

There have been 3 consecutive closes outside the lower daily bollinger band on SPY with band expansion which is a volatile set up that will typically lead to one of two outcomes...

1) A bottom will form quickly creating a multi day rebound (or longer) attempt
2) The price losses become increasingly larger with corresponding volatility expansion.

The longest streaks of closes outside the daily bands in recent years is 7.  So we could see a rebound soon, but if we don't understand the possibility of a waterfall type decline from these levels down to the 155 level or lower on SPY.

Bearish Divergence Continuing to Build Here in SPY 8-5-13

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This is a 4 hour chart of the SPY etf which shows the very sharp bearish divergence that is currently present on the MACD indicator.  Despite the typical breakout buy pattern that has developed here, I think the market could certainly still be topping here.  For those long on the breakout, I would suggest a stop below the July 26th low.  Based on the possible pattern structure at play, time is nearing its maximum likely extent for a completion point as indicated in a prior projection for a top in stocks.

The multi time frame bearish divergence on the MACD also continues to persist and has now added a daily time frame mild bearish divergence to the mix.  For multi week trading positions, I would suggest a break of the July 26th low as a possible short entry.  For investment purposes, the move down from May-June was an outright correction and should be viewed as key support for the uptrend in stocks.  A failure of this current breakout to hold followed by a move below the June low (red line and arrows on chart above) could signal the completion of a bull market top.

Commitment of Traders Stock Index Update July 2013

Commitment of Traders Stock Index Update

This video covers the recent commitment of traders report data relevant to the attempted breakout of the May 2013 highs.  I give you an interpretation of what to look for and a brief discussion of possible short entry strategy and initial profit target.  If prices move to new highs basis the S&P 500, then it may be a continuation and force further short covering as the short positions have built substantially between 1653-1697 on the S&P 500.  Further price increases will pressure those newly established shorts to cover which will provide buying fuel for the rally.  This really is a key level for stocks.

A New Market Analysis Video Is Available With Specific Trade Set-Ups

New Market Analysis Video Available

Today I recorded a new video for members of my Trader's Crystal Ball eCourse mailing list.  In this video I update you on the very important message the total put/call ratio is telling us and give you multiple time frame analysis of the MACD indicator for the S&P 500.  The video above gives you a brief overview of the content of that video.

Based on this information I offer you several individual stocks set-up for short selling opportunities and highlight a couple ETFs that have recently completed bullish chart patterns and are beginning to move higher.

At the end of the video I review my Integrative Harmonic Trading course which is a stock market trading course that I developed in order to help individual traders and investors learn to objectively identify and objectively trade the most powerful stock chart pattern in the markets.

The video runs nearly an hour with 40+ minutes of timely actionable analysis.  I hope this information is valuable to you and look forward to helping many of you learn this method of analysis.

All the best to your trading,

Pete

Gold and Silver Rally to Continue? Projections If So

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This is a chart of silver prices going back a few years.  I had recently mentioned in video updates that the smart money commercial traders were buying heavily into this market compared to historical buying/selling patterns.  They have not turned net long yet, but these producer dominated markets rarely get even close to net long.  So the current near net long exposure we are seeing is very extreme in its own right.

Based on seasonal patterns, the common time for gold and silver to form a bottom is the June/July time frame which coincident with the recent swing low in prices.  The leg down since last fall has been tremendous in both % decline and time duration compared to historical precedents.  This favors at least a relief rally in the metals if not a bear market bottom.

The chart above shows some historical comparison projections of the expected price and time of this rally if it is to continue to unfold into a typical bear market rally or even a first leg up in a new bull market.  In either case, we can expect some significant more buying to come in to even reach a minimum expectation.  So this would favor being on the lookout for short term buying patterns or signals to continue to follow this rebound up for several weeks.

Click on Chart to Enlarge

This is a weekly chart of gold showing an extremely oversold MACD.  Obviously with such an oversold environment a multi-month rally should probably be expected.  However, notice that there is no divergence pattern indicating the typical bottoming signal at this time.  At most major market bottoms, we see price make a lower low after a rebound from extreme oversold conditions.  But the technical indicator (MACD, RSI, momentum, etc.) will not make a lower low.  That is our usual tip-off that a bottoming set-up is present.

So given the overall context here, I would be looking for higher prices over the coming weeks, but with the tentative expectation that the rally may lead to another shorting opportunity and move to at least slight lower lows before a possible completed bear market.

Commitment of Traders Stock Index Update

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This week's CoT report includes trader positions through Tuesday as prices approached the May highs on the S&P 500 and the Dow 30, but did not break the old high yet.

There was a pretty large increase in the commercial/smart money short position on the week.  Next week's report will be key for analysis because it will include the push to new highs in the cash indexes on the Dow and S&P 500.  If we see another large jump in the selling and a move back to near record short position, then we could have more evidence of a failed breakout attempt.

As price made new highs in May of this year, the smart money was positioned heavily short, but then covered shorts on the run up in May after the breakout.  So that could certainly happen again.  But what we are looking for here is the sentiment of the smart money.

The CoT rate of change gave a typical minor buy signal in mid June.  That will typically occur in conjunction with the end of a correction in the markets.  Interestingly, the market pushed a bit lower after the signal came, but then has reached new highs.  In sustained trends that signal should maintain price above the corrective low.

So in our case a move below the June lows would be indication of failure to maintain the price trend both on a technical analysis level, and also in terms of the CoT data.  A failed breakout of the May high followed by a close below the June low, would be probable indication of a much larger correction or even possibly a bear market in effect in the stock indexes.

So my suggestion is that the June low be perfectly clear as the make or break line for stock market longs here.  Now it would certainly be possible for a false break of the June low and the formation of a large trading range, but for now, keep it simple and understand the risk if prices are to break that low, especially if it occurs more rapidly than the rally since June took to form.