Du, Du, Du

                Finally got our confirmation today.  We rose from the start and after a short move down from the opening high we moved all the way up clearing multiple levels of resistance.  We cleared the previous highs of the candle pattern confirming a reversal as well as closing above the 10 moving average and the 1200 psychological level (psychological levels of resistance occur at zeros, 10, 20, 30, etc.). 

                The positive and negative di lines continue to converge with the advance decline line remains above the negative.  This indicates that there is likely still more upside to come and continues to be bullish for the moment.  The two di lines will probably touch and reverse when we reach the neck line.

                We had another uptick on the MACD histogram with the fast and slow lines moving closer to a cross.  When the histogram moves above the center line and the fast and slow lines cross, it is widely considered a short term bullish signal.  MACD is widely followed by many technical analysts as it is in “instep” indicator and tells you what is going on not necessarily what is going to happen but it can indicate shifts in momentum.

                The stochastic is moving more toward an uptrend than a cross and advancing towards the 50 line.  This indicates that momentum for the moment is positive.  This may be a little speculative with the volume drying up but the stochastic is usually a pretty good indicator of momentum.  Everything except the moving averages point to short term bullish at the moment.

                From here we can expect volume to pick up in the coming days with an advance to either the 20 day moving average or the neckline of our head and shoulders topping pattern (see my post for more information on head and shoulder patterns http://policonifi.blogspot.com/2011/08/where-it-was-where-it-is-where-its-gona.html ).  We may move past the 20 day and go all the way to the neckline as it is a stronger level of resistance (it has been tested 4 times already with no ability to get through it) but I would advise caution at the 20 day.  Often things will “bounce” off of or around their 10 and 20 day moving averages.  We saw this yesterday when we advanced out of the gate before smashing into overhead resistance at 1190 which was right below the 10 day.  I should note that the moving averages are still in a bearish alignment so this current uptrend will be short lived and the reversal will be harsh.  Watch the 20 day moving average and the 1250 level very closely as we advance and you will be ready for the reversal.

Gold, GOLLLLLD!!!!!!

Most of the analysts I have heard talking about the reason for the rise in gold over the few weeks have been claiming that when volatility goes up so does gold. Others have been saying that it is moving closer to its inflation adjusted high (to about 2500).  Let’s examine that, shall we. 

On this three year chart we can clearly see that gold has been on a steady rise despite the level of volatility.  Each arrow points at peaks in the volatility index and we can see that even in between the 08-09 drop in the market gold was still just chugging higher.  So clearly it can’t be just the volatility.

Versus the dollar, there is no real correlation to the price and inflation either.  It seems that no matter what happens the price of gold just keeps going up.  How high will it go?  I have no idea.  The bottom line is that gold is a finite resource and we are running out of places to look for it.

At present I believe we are seeing a climax top.  The ADX indicator is in extremely over bought territory and the MACD is pointing straight up.  This rarely happens with anything.  I expect that we will see a short term pull back and consolidation before moving even higher.

Keep Your Shirt on or You'll Lose it (for 08-10-11)

                Yet another crazy day of trade in the markets today.  Yesterday I said that I didn’t believe that we needed to wait for confirmation, apparently we did.  We are still showing a potential reversal with the pattern that emerged today. 

The really cool thing about candlestick charts is that they have an additive property.  Basically, if you can’t see a clear pattern in a single day candle you can take the previous two, or three, and combine them to form a clearer signal. 

Don’t forget to mind your indicators.  All three indicators that I use are still saying bear.  What we need to see in order to begin a short term reversal is to get a closing price above the high of the combined pattern (called a doji) which is still at the highs from the past two days (1170ish).  We may see this tomorrow, or we may see another hammer or slight uptick to close the huge distance between wherever we open and the highs of the past two days.  Or, we may continue down.  I’m sorry that I can’t tell you more specifically.  I will update you as soon as I know for sure.

When Fear Takes Over

     When a market undergoes distribution and moves into stage 4 (decline), fear has a tendency to take over.  When fear takes hold of a market fundamentals (balance sheets, eps, sales growth, etc.) begin to give faulty signals or make you think that overall direction has not changed.  When fundamentals break down, in order to place winning trades you have to look to technical indicators and patterns. 
     Technical analysis is all about market psychology.  Most technical "levels" and indicators reflect what people think about the chart they are looking at.  For example, you can look at any candlestick pattern and there is a psychological reason why it forms.  Look at the so called "hammer" formation:

"after a sell-off is abated and the market returns to, or near, its high for the day.  The failure of the market to continue the selling reduces the bearish sentiment, and most traders will be uneasy with any bearish positions they might have."  -CANDLESTICK CHARTING EXPLAINED- Gregory L. Morris.