This summer is shaping up to be different from most. It may actually be interesting!
Many professional traders are all feeling the tension building and we think some big movements are just around the corner.
Some view the recent market action as the beginning stages of a bear market (major sell off). The fact that stocks have moved lower for almost six weeks straight is a sign we may not be out of the woods just yet. The recent price action and negative sentiment has been harsh enough to make 99% of traders bearish.
In contrast, some see this market as an oversold dip preparing for a bounce/rally in the bull market which we have been in since 2009.
I have mixed thoughts on the market. I am a shorter term trader catching extreme sentiment shifts in the market with trades lasting three to 60 days. I feel as though stocks and commodities are going to bottom and start to head higher for a 2% to 6% bounce. At that point we need to regroup and analyze how the market got there — Was the buying coming from the herd, institutions, or was it just a short covering rally? Additionally, where are the key resistance levels and did we break through any?
During extreme sentiment shifts in the market we tend to see investments fall out of sync with each other for a few days. I feel the attention will be on stocks and we get a bounce this week. I am expecting commodities to trade relatively flat during the same time period.
OK let’s take a quick look at the charts …
US DOLLAR
I feel as though the US Dollar is trying to bottom. It is very possible that we test the May low at which point I would expect another strong bounce and possible multi-month rally. So if the dollar drops to the May lows then we should see higher stocks and commodities, but once the dollar firms up and heads higher it will be game over for risk assets.
SILVER
On a technical basis silver is pointing to sharply lower prices. The fact that silver bullion went from an investment to a speculative trading instrument within the past eight months makes me think it could test the $25 area. The one thing to remember here is that silver is still overall in a bull market. This is a 50/50 guess in my opinion as it nears the apex of this pennant pattern.
S&P500 FUTURES – 10 Minute Chart Going Back 8 Days
Last week the S&P 500 continued to show signs of weakness. Any bounce in the market was on light volume and that occurred when sellers took a break and let all the small traders buy the market back up. Once the market moved up enough the sellers jumped back in and unloaded their shares.
Last Thursday I sent out an update to members pointing out that lower prices were to be expected. I came to this conclusion because of many data points. Looking at the chart you can see sellers are clearly in control. The S&P 500 bounces high enough that it reached a key resistance levels going back a week. Also the 200-period moving average was at that level. To top that off my sentiment reading for the herd mentality was at a point which sellers like to start dumping their shares again.
Weekly Market Trading Conclusion:
In short, I am getting more bullish for a bounce as the market falls. But once we are into day three or four of a bounce we must be ready to take profits and/or look for a possible short setup.
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