The accepted accounting rate of return definition is a ratio of profit to employed capital assets calculated before tax and interest and measured for a fixed period of time. Many financial analysts prefer the accounting rate of return method over other methods since it provides a useful basis for comparison of profitability and risk of various investment options. For this reason, a more pragmatic accounting rate of return definition includes reference to its utility in capital budgeting; the accounting rate of return is often used by companies to determine which of several competing projects is likely to offer the highest reward-to-risk ratio.

Accounting Rate of Return Formula

While a number of different variations on the basic accounting rate of return formula exist, the formula is usually defined as
• ((Total cash inflows) – (Depreciation))/(Initial investment) = (Accounting rate of return) Depreciation is determined by a simple formula as well, usually
• ((Initial cost of equipment) – (Recoverable salvage value))/(Years of useful service) = (Depreciation) The accounting rate of return is expressed as a percentage, and allows direct comparison of profitability margins for disparate investments or projects. For example, if a company were deciding between two different capital investments, it would first determine likely depreciation for each option using the formula for depreciation outlined above. Then, by estimating the likely profit to be derived from each capital investment, subtracting the calculated depreciation, and dividing the resulting figure by the cost of the initial investment, the company could derive a comparable accounting rate of return result for each investment option. While predictive figures are obviously not as accurate as historical results, the accounting rate of return method offers a convenient way to compare capital investment options that cannot be compared directly with one another.

Accounting Rate of Return Advantages and Disadvantages

By comparing the predicted accounting rate of return for each investment under consideration, companies can assess which of competing purchases would offer the best financial return on investment; this adds a modicum of predictability and control to the decision-making process. After the purchase has been made, companies can use the accounting rate of return method to track the profitability and cost effectiveness of the capital investment. This can help companies plan more effectively and improve future decisions with regard to capital expenditures. Because the accounting rate of return method is relatively simple, it can be used for quick on-the-spot estimates, allowing companies to take advantage of immediate opportunities as they arise.

While listing accounting rate of return advantages, it’s essential to point out a few disadvantages to this useful accounting tool. The accounting rate of return method does not factor in the time value of money; this means it fails to account for the likely return on money invested through normal means, and thus renders an artificially high level of return for capital investment over traditional financial investment. Additionally, the accounting rate of return method uses income data rather than general cash flow information; this limits its accuracy for capital investments with high upkeep and maintenance costs, among others.

In many situations, the accounting rate of return method offers unique advantages to business owners, providing a useful way to compare capital expenditures and allowing them to act rapidly in response to opportunities while remaining financially responsible. The accounting rate of return offers ease of use and a basis for comparison for disparate capital investments; its utility and convenience make it a preferred quick accounting method for most corporate analysts and decision-makers.

In the world of stock market trades, the accepted abnormal return definition is the financial performance by a single stock or portfolio of stocks that varies from the market average. An abnormal return can be positive or negative, depending on whether the stock outperformed or underperformed the average market performance. This abnormal return definition refers to financial gains and losses measured against an actual index, rather than an artificial or hypothetical measure. The market average is usually defined as the performance of a broad-based index; the Standard & Poor’s 500 is an example of a widely-followed index in the United States, while other areas may index their market average to their own national markets for purposes of determining abnormal returns.

Abnormal Return Calculation

Initial abnormal return calculations are deceptively simple, and consist of subtracting the index performance (usually expressed as a negative or positive percentage) from the individual stock or portfolio’s performance. This provides a crude measure of the stock’s performance at a specific time, but does not take into consideration fluctuations that naturally occur over a given period. To account for these normal variations, the cumulative abnormal return calculation is defined as the percentage sum of all abnormal returns over a defined period of time. Thus, the simple abnormal return formula can be expressed as • (performance of individual stock or portfolio) – (index performance) = (abnormal return) And the cumulative abnormal return formula is expressed as • (sum of all daily abnormal returns of individual stock or portfolio) – (sum of all daily index performances) = (cumulative abnormal return) In practice, several other factors are used to derive the cumulative abnormal return result; these weighting factors are used to eliminate statistically insignificant results and gains or losses clearly derivative of outside market factors.

Importance of Abnormal Returns

Abnormal returns are usually associated with an event or market change that directly affects the stock or portfolio in question. Mergers, initial public offerings, and other major news or market events often provide the impetus for abnormal returns. For instance, news of a major legal action against a company can drive its stock downward significantly, causing its losses to far exceed the general market performance as measured by one of the leading indexes. This significant loss is an abnormal return, and a negative one; if the company’s stock loses 10% of its overall value, while the market index increased by 5%, then we can determine the extent of this abnormal return by use of the abnormal return formula explained above. The losses sustained by the company are 10%, and the market improved by 5%; thus, negative 10% minus the 5% positive gain of the market index produces an abnormal return calculation of negative 15%, an even more significant loss than it first appeared. By factoring in the market performance, the true extent of losses and potential losses can be more closely determined by market analysts and investors, allowing a more accurate picture of the stock’s worth and current viability. Cumulative abnormal return calculations are usually intended to provide analysts with longer-term information about the effects of a major event on a stock’s price, and can also serve as a measure of the stock’s overall stability, allowing a more accurate assessment of the stock’s true worth.

The CAGR is used by investors to understand what an investment has historically yielded on a yearly basis. Obviously, this formula can’t predict what the future yields of a particular investment will be, but it can be used as a barometer to gauge the investment's future viability within the market. This number can also be used to calculate an investment's average growth-rate over several years.

Compound Annual Growth Rate Formula

The formula for calculating the compound annual growth rate of an investment uses the number of years in an investment period and the nth root of a growth rate’s total percentage. The formula is fairly straight-forward.

CAGR = ((ending value / beginning value) ˆ 1/compound period) – 1

Using this formula, we can create an example of a compound annual growth rate based on an amazing fictitious stock offering. As we research the stock, we see that it has solid annual growth and is probably worth purchasing. In the year 2006 our amazing stock had a beginning value of $1000. In 2007 the stock jumped to $1200. Then in 2008 the stock ended at $1500 and by 2009 was a hefty $2500 per share. If we place these numbers into our formula, it will look something like this:

((2500 / 1000) ˆ 1/3) – 1 = 0.3572

The amazing stock that we purchased back in 2006 had an annual return rate of 35.72%. Not bad!

Using the CAGR formula allows us to take an investment's measure by eliminating the volatility, or the up and down changes that occur during the fiscal year. Overall, this gives us a much better impression of how the investment is actually performing than if we looked at it month-by-month or even week-by-week. CAGR is especially helpful when you are making decisions on long-term investments.

One very common use of the compound annual growth rate of investments is to compare two investments side-by-side. This allows you to get a feel for how they are performing over a long period of time. This formula can also be used to determine the growth of your own personal portfolio.

The CAGR is a handy formula for calculating the value of investments and there are actually calculators available on the Internet that can compute your CAGR if you’re uncomfortable using the given formula.

An accurate accrual rate definition is essential for understanding salary-based pension schemes. Generally speaking, the accrual rate for defined benefit plans (where payment amounts are specially defined) is the rate at which employees can accumulate retirement benefits. This rate is usually referred to in fractional terms and indicates the number of years necessary to receive full benefits; a percentage cap is sometimes included, which is also expressed in fractional terms. For instance, if pension benefits are capped at three-fourths of the final salary at retirement, and the accrual rate is 1/12, then after nine years of employment, the employee is considered fully vested and will be able to receive the full pension benefit of 75% of their end salary. This, of course, is a highly optimistic scenario; most pension plans offer accrual rates from 1/30 to 1/45, and pension caps can range as low as fifty percent for privately-offered plans. Companies are required to provide yearly accrual rate pension information, including the creditable years of service and years until full vesting. This ensures that employees always have the most accurate and up-to-date information to allow for supplemental retirement planning.

Understanding the fully indexed accrual rate

The prevalent variety of pension scheme in Europe is the government-administered fully indexed accrual rate pension. Also provided by a few large companies in the U.S., fully indexed accrual rate pensions are tied to leading economic indicators and provide a measure of protection against inflationary trends. While private pension plans cannot guarantee to match the rate of inflation with their monthly payments, companies employ several methods by which the costs of inflation can be partially or mostly defrayed by higher pension payments. Performance indexing is one of the most widely-used and popular methods to compensate for the effects of inflation over time. Because most pension funds are based at least in part on investment earnings, pension payments can be tied to the rate of earnings for these funds. This tends to mirror the inflationary pattern, since investment earnings are typically higher during inflationary periods; especially in the 1970’s, short-term Treasury bills were an excellent guide to the inflation rate.

Accrual rates: percentage vs. fractional rates

Some companies determine pensions based on a percentage of total contributions; especially for defined contribution plans, this allows more flexibility in how and when pension payments are made. Unlike defined benefit plans (discussed above), defined contribution plans generally have no pension cap; companies contribute annually for each year of continuous creditable service, and payments are determined as a portion of this final sum. Employees are still required to work for a certain pre-defined number of years in order to achieve full vesting in the pension.

Social Security and government-run pension schemes

Social Security is the only true fully indexed accrual rate pension scheme in the United States. Since payments are tied directly to the prevailing economic conditions, the national Social Security program often operates at a loss, something private pension plans cannot afford to do. Many private companies incorporate some form of indexing to ensure the welfare of their retired employees, but fully indexed accrual rates are not commonly utilized by private companies.

Companies are required to make an annual report to their employees detailing the health and activity of their pension plans, including accrual rate pension information, years until full vesting, and an estimate of the yearly amount to be paid upon retirement. By examining these figures carefully, employees can better understand their retirement benefits and plan more effectively for their financial future.

401a Plans and 457 Plans

When combined with an existing 457 plan, a 401a plan offers unique advantages to participants. The 401a plan is designed to complement the 457 plan by providing a way for employer to match a percentage of employee contributions, an option not generally available with 457 plans.

401a Plan Contributions and Limits

While state laws vary, most 401a plans feature either mandatory or voluntary employee contributions. These contributions may be matched by the employer partially or fully. For employers with a pick-up provision in their retirement plan, contributions are made on a pre-tax basis; otherwise employer contributions are made after-tax. All employee contributions to a 401a plan are made on an after-tax basis. Employee contributions are subject to the 401a limits, defined as 25% of the employee’s salary. Some attractive 401a plans are directly funded by the employer and do not require employee contributions; employers may designate either a set percentage of the employee’s annual income or a specific dollar amount for these direct contributions.

401a Rollover

One major advantage of 401a plans is the ability to roll over the retirement savings if the participant changes employers.  401 withdrawals before retirement are subject to 20% mandatory withholding by the federal government; a qualified rollover plan avoids this penalty. Early withdrawal may attract an additional 10% withholding in addition to the 20% in certain special situations. In all cases, participants pay taxes only on funds received; investment earnings and principal funds for 401a accounts remain tax free until they are withdrawn.

401a Plan Participation

Depending on the plan, employees make either mandatory or voluntary contributions which are then invested. Employers pay into the plan, matching or supplementing the employee’s personal contributions. The 401a plan’s earnings are reinvested, providing additional income and supplementing the employer and employee contributions. Some plans are designed to offer considerable flexibility in investment options, putting control into the hands of the employee and allowing them to decide among various investment options. For participants with expert knowledge of investment options, this enhanced level of control can be a significant advantage.

For employers, the 401a plan offers an additional benefit for attracting and retaining employees; participants enjoy its flexibility and personal control. As a result, 401a plans continue to grow in popularity with employers and employees alike.

In its simplest form, benefit cost ratio is a figure that is used to define the value of a project versus the money that will be spent in doing the project in the overall assessment of a cost-benefit analysis. This ratio provides a value of benefits and costs that are represented by actual dollars spent and gained. By definition the benefit cost ratio should be expressed using present values that are discounted.

Benefit Cost Ratio Formula

The benefit cost ratio formula is fairly simple. The basic formula is the cost of development of a project or proposal divided into either money saved by the project or money earned from the project. If we use D as a value for development and R for the return on the project the formula would be as follows:

R/D=BCR

Benefit Cost Ratio Example

To create a benefit cost ratio example we’ll use Widget Corp. as our fictitious business. Widget Corporation’s top account executive has an idea for a new widget that will revolutionize the widget industry. The total cost to plan, develop and produce the widget is $55,000. Once the production line has been set up, the revolutionary widget sells like hotcakes and produces record net profits for Widget Corp. of $500,000 for the year. Using the formula listed above, we can figure the benefit cost ratio.

500,000/55,000 = 9.09

The final outcome of $9.09 is the dollar representation of a $9.09 return for every $1.00 invested in the revolutionary widget. After one year of sales, the revolutionary widget paid for itself almost ten times.

Benefit Cost Ratio Analysis

Using the benefit cost ratio allows businesses and governments to make decisions on the negatives and positives of investing in different projects. In other words, using benefit cost ratio analysis allows an entity to decide whether or not the benefits of a given project or proposal outweigh the actual costs that go into the creation of the project or proposal.

Benefit cost ratio is simple enough to figure out, however, there are benefit cost ratio calculators available that take into consideration other factors that make the calculation a bit more complex. Factors such as actual employee production or production line breakdowns can cause the benefit cost ratio to change dramatically and so they must be accounted for when delving into the details of a particular proposal or project.

Businesses and governments can benefit greatly by figuring out the cost of a project versus its returns. For this reason alone, the benefit cost ratio is an important formula to be used in the decision making process for any project that might be presented.

Book to Bill Ratio Definition

The book to bill ratio definition is fairly simple. The book to bill ratio compares the total amount of orders received to the total amount of orders filled. More simply, it’s the ratio of demand versus supply on a particular company’s ledgers. If a company has more orders than it can deliver, this ratio shows that the company is healthy. If the company has the same amount of orders as it can deliver, it is still healthy, but obviously has room to grow. Of course, if the company has fewer orders than it is able to deliver, this shows negative growth.

Book to Bill Ratio Example

The book to bill ratio calculation will end up being a number that is either greater than 1, equal to 1 or less than 1. The following is the basic book to bill ratio formula:

OR/OD

OR is the number of orders received and OD is the number of orders delivered. A very simple book to bill ratio example would be as follows: The XYZ Semiconductor Corporation has orders on their books of 100,000 units to be shipped during one month. The actual amount of units that they are able to ship during that month is 85,000.

100,000/85,000 = 1.18

So, the book to bill ratio is 1.18, which for the XYZ Semiconductor Corporation is a very good thing. If their ratio continues to stay greater than 1 each month, they will have a healthy bottom line going into the next year. The ABC Semiconductor Corporation, however, has a problem with some of their chips, which results in bad publicity and lower than average orders. The amount of orders they have per month is 85,000, but the number of orders they can fulfill is 100,000 per month. Using our formula:

85,000/100,000 = .85

We can see that ABC Semiconductor can supply more units than there is actually demand for, which is a bad combination in any economy.

The book to bill ratio as measured in the United States is released by semiconductor companies on or about the 20th of each month by the Semiconductor Equipment and Materials Institute and it is based on the average of bookings versus billings over the previous three months. Similarly, the Semiconductor Equipment Association of Japan releases a comparable book to bill ratio for the semiconductor businesses located in Japan.

While the book to bill ratio serves as a quantitative measure of how the semiconductor industry is doing, this simple formula can also be applied to any number of businesses that sell an actual product as opposed to a service.

Prior to the crash, the market was riddled with instability. Real estate values had been steadily declining and the market began to see periods of high selling volume. It was also during this time that the Smoot-Hawley Tariff Act was being debated in the U.S. Congress. It was suggested, in hindsight, that this act might have been part of the catalyst that started the crash due to fears of retaliatory tariffs being placed on U.S. goods being exported to different parts of the world. In fact, many prominent economists and businesspersons including Irving Fisher and Henry Ford visited with U.S. President Herbert Hoover and requested that he veto the act, calling it “an economic stupidity.”

The initial sell-off that began the crash started on Thursday and Friday, however, it wasn’t until Monday and Tuesday that the catastrophic damage was done. Initially, Richard Whitney, the President of the New York Stock Exchange, with the backing of several of the most prominent banks, purchased large amounts of U.S. Steel stock at higher than market value. He then proceeded to purchase smaller amounts of other normally stable stocks. The hope was that by showing faith in these industries, that the sell-off would slow down and perhaps even halt, much like it had during the Panic of 1907.

The gamble might have worked, however, over the weekend, the press had time to cover what was happening on Wall Street and more people were able to see events unfold. The availability of this information caused people to panic and begin selling off their stocks over the course of Monday and Tuesday. After Black Tuesday, the world saw a continued decline in the market that finally reached its lowest point on July 8, 1932. Recovery took over 20 years, during which time the world became embroiled in another World War. The market did not see pre-1929 levels again until November 23, 1954.

Black Tuesday, 1987, was surrounded by similar circumstances and took place on October 19th and 20th in 1987 when worldwide markets crashed and saw a record decline that took several years to recover from. Both days are called Black Monday and Black Tuesday, respectively. The disparity in the dates actual dates is due to time zone differences in New Zealand and Australia. The market in New Zealand was hit especially hard and lost nearly 60% of its value. Australia was a bit more fortunate, however a loss of nearly 42% should certainly not be considered small. Black Tuesday, facts surrounding it and the ensuing depression in 1929 and recession in 1987, remain a dark spot in the world’s economic past.

An Elliott Wave five count down to the March low shows the bigger trend is down.  The direction of the true trend goes in an Elliott Wave five count and consolidation goes in a ABC (or three count).  Currently XLF is working on the ABC consolidation up and once completed should start the next impulse wave down.  The ABC count up is taking the form on a bearish “Rising Wedge”.  We have identified two previous “Rising Wedge” pattern, one in 2007 and the other in 2008.  “Rising Wedge” have minimum downside targets to where they began and therefore it appear the March low of 2009 will be visited again.  However, “Rising Wedges” can go much lower then the previous low like the ones in 2007 and 2008.  First support come in near 11 on XLF and next support down is the March low near 6 and beyond that who knows.  The “C” leg should end near current levels.    We are short the XLF today at 14.30.

Below is the Bullish Percent index for The Gold Miners index.  Reliable tops in the Gold Miners have formed when the RSI reaches above 70 and turns down and with the Bullish Percent index has a bearish crossover of it’s 10 Moving average.  This conditions was triggered yesterday.  This potential pull back could push GDX down to the apex of the Triangle (near 40 on GDX) it broke out of in early September. We will look for a buy signal in GDX on the next pull back which could come in near 40 and at 960 on gold.  We are very bullish on the bigger timeframes for Gold stocks and we will keep our core positions. Bought GLD on 4/24/09 Sold 8/14/09 at 93.78 gain 5.4%.

Related Stocks:  GDX, GLD, SPY, XLF

I mainly focus is on trading the daily chart but I always refer back to the longer time frames which are the weekly and monthly charts. Knowing the momentum and trend on these long term trading charts allow me to identify the strength of the rallies and sell offs on the daily chart. I use this analysis for determining how large of a position to take, and where to place profit targets and stop loss levels.

Trading gold stocks does provide explosive opportunities when the price of gold moves. The past couple years I have only been focusing on trading gold to the long side because the overall long term trend is up. Trading with the longer term trend always improves the odds of winning the trade. I will short GLD or GDX funds for an intraday trade using my simple Kitco gold overlay Day Trading Strategy. I have posted this strategy a couple of times on the internet, if you want to read more about it.

Below is my analysis explaining the price action of gold stocks on the daily, weekly and monthly charts. I also a listed the US and Canadian funds which I trade.

HUI Gold Stocks Index - Daily Chart – Short Term

The daily chart of the HUI clearly shows buy and sell signals, which were generated in the past 2 months. Using resistance trend lines for breakout levels is very important. I also use pivot lows to draw and connect my support trend lines, which allow me to calculate down side risk and buy signals. The recent breakout is very strong and that is because the weekly and monthly charts are showing a breakout to the upside triggering longer term traders/investors to buy.

Daily chart buy and sell signals are for short term trades which last between 2-20 trading days. My focus is to lock in 1-5% gains but in a strong trend I can pocket 10-20% return in a short period of time.
 

HUI Gold Stocks Index - Weekly Chart – Intermediate Term

Weekly chart patterns and breakouts provide a much larger move in general so watching this chart is crucial for long term success. Following the weekly chart goes for trading every investment vehicle whether you are trading stocks, futures, FOREX etc...

This chart generated a buy signal in December of 2008, which we took advantage of. And just 2 weeks ago it gave us another buy signal. Again using my simple trading strategy which involves trend lines and the MACD momentum indicator, we are able to establish clear buy and sell signals.
 

HUI Gold Stocks Index - Monthly Chart – Long Term

Long term investors will use the monthly chart for timing their buy and sell signals because once the momentum has shifted direction it tends to last for several months if not years. I do not focus on trading these long term signals but I use them to help me know the momentum (power) of the next possible breakout. This also helps me in deciding whether to scale out on rallies with some of my position locking in some profit and buying back on dips, while leaving a core position incase the price continues to rally.

The monthly chart of the HUI shows a breakout this month and if the price can hold until Oct we will have a complete long term buy signal. I use the MACD for momentum and the HUI:GLD ratio to confirm the breakout which puts the odds more in my favor.
 

Precious Metals Funds for Trading Gold and Silver Moves – Daily Chart

Here is a list of the precious metals funds I trade on a regular basis. I trade both US and Canadian funds. Because I am based in Canada I focus on Canadian gold stocks and gold funds when there are intermediate/long term signals which I trade in my retirement account.

The funds I trade are GLD (gold bullion), GDX (gold miner stocks), SLV (Silver Bullion), XGD.TO (Canadian Gold Stocks), CEF/A.TO (Canadian Gold & Silver Bullion). If you look at a comparison chart you will see some funds provide much larger moves than others. In general I like to own a bullion fund and a precious metal stock fund so that I get the best of both worlds.
 

My Gold Stocks Newsletter Trading Conclusion:

In short, Gold and gold stocks are on fire. The next 13 trading days are very important for gold as it battles to breakout above the $1000 - $1033 level which is the 2008 high. With gold trading at this MAJOR resistance level also known as a "Pivot Point", the risk level is higher for traders. The odds are pointing to higher prices but we must recognize that price action becomes volatile and fast moving. We could see the price breakout and rally to the $1500 level within months which is what are currently positioned for. But we must realize that gold could create a double top and sell off very quickly which is why we have stops in place to protect us.

So those of you who are long be sure to lock in some profit and be ready for some wild price action in the coming weeks.

If you would like to receive these Free Weekly Reports please Opt-in to my newsletter at: www.GoldAndOilGuy.com

Chris Vermeulen

Related Stocks:  GDX, GLD, SLV

Gold is once again the hot commodity, as the price rises to the $1000 per ounce level. This $1000 - $1033 is a technical pivot point for gold. One of two things is going to take place in the coming weeks.

If the price of gold can move above $1033 then I expect to see a lot of traders and investors buying gold, as they panic into the position because they do not want to miss another gold rally. Also traders who are short gold will be forced to cover their positions and this will send the price of gold rocketing higher towards the $1200- $1500 area.

On the other hand, if gold fails to break higher, we will see a swift sell off, as everyone sells their position.

HUI – Gold Stocks Index – Monthly

I like to use this chart for timing longer-term gold investments. Gold stocks tend to lead the price of gold on a percentage gain/loss basis and so far this month, gold stocks are on fire. This bodes well for gold.

When I see breakouts on this monthly chart, I tend to take larger positions in gold and gold stocks because rallies tend to last 2-6 months. I like to take profits, as the price rises, so that I am locking in gains while still taking part in the continuing move.

The gold stocks (Golden Rockets) we purchased 2 months ago are now up 45% and 100% from our entry point and they still look very strong. Taking some money off the table is a great idea. Gold could go either way fast and it’s better to sell some of the position to lock in profits and let the balance of the trade run. Too many traders swing for a home run and never take profits on winning positions. Winners eventually turn into losers if you hold on to them long enough. Money management is the key to successful trades.
 

Price of Gold – Gold Bullion – Weekly Chart

This chart clearly shows the breakout last week from the pennant pattern. The price of gold is nearing resistance. This week will be exciting as gold tries to breakout.
 

Price of Silver - Silver Bullion – Weekly Chart

Silver is not as close to the 2008 high like gold is, but is still performing well. Silver is trading at a short-term resistance level and I expect to see higher prices this week.
 

Silver and Gold Newsletter Conclusion:

Gold and silver are starting to run higher and with all the media coverage I expect to see money moving into precious metals for a couple months. This is an exciting time for precious metal investors and a lot of money is going to be changing hands once these metals pick a direction and start moving.

I will be sending out my energy report for oil and natural gas tomorrow. If you would like to receive my trading reports please visit my website at: www.GoldAndOilGuy.com

Chris Vermeulen

We are short the SPX at 883.92.
 
We have updated this chart from Monday. The top window is the “Percent Volume” indicator, which measures the up volume to total volume on the NYSE in a 30 day moving average.   We have marked with blue arrows where this indicator triggered sell signals.  This indicator triggered a sell signal yesterday.  The bottom window is Percent Down Volume indicator that measures the down volume to total volume on the NYSE and is a mirror image of the “Percent Volume” indicator.  These two indicators check one another.  Last Friday the Percent down Volume indicator gave a sell signal for the SPY and yesterday the Percent Volume indicator triggered a sell signal.  We have been short the market for awhile (should have covered and re-shorted) and with the evidence of the divergence of the Baltic Dry index and the SPY suggests an intermediate term decline is in the making.  The top may be in at the 8/28 high at 104.35 on the SPY.  Since there was a “Sign of Weakness” through the lows of 8/24, 25 and 26 then those lows should act as resistance which is near 102.50 and may be a good place to add to short SPY positions.  The next downside target is the July low near 87 on the SPY.  Also the Financials sector (XLF) looks toppy here and may decline with the SPX.

 
Gold and GDX rallied strongly today and broke out of its Triangle pattern.  Of all pattern the Triangle patterns are the least reliable in that there are more false breakouts then any other pattern.  However today’s pattern breakout may be legitimate but we are not chasing it, at least not right now.  Above is the Silver/Gold ratio.  When the RSI of the Silver/Gold ratio reaches above 70 then Gold is usually near a high.  When the RSI reaches below 30 then Gold is usually near a low (see chart above).  Today the RSI of this ratio closed at 65.72 an nearing the area where Gold could form a high.  However, The RSI of this ratio has not reached that level and gold for near term can move higher.  For now we are going to set on our hands.  Today’s volume did show a huge spike and could be an exhaustion type move, but we are not sure.  We will wait gather more evidence and will not add any new position for now and keep our core positins. 

Long GLD at 89 on 4/24/09, Sold 8/14/09 at 93.78 gain 5.4%.Long KRY at 1.82 on 2/5/08. We are long PLM at 2.77 on 1/22/08. Holding CDE (average long at 2.77 (doubled our position on 9/12/08 at 1.46, Sold 5/13/09 at 1.55=6% gain). Bought NXG at 3.26 on 6/4/07.  We doubled our positions in KGC on (7/30/04) at 5.26 and we now have  average price at 6.07.  Long NXG average of 2.26.   For examples in how "Ord-Volume" works, visit www.ord-oracle.com.

Related Stocks:  GDX, GLD, SPY, XLF

Because this report has weekly charts, which are a slow and dull time frame to follow, I have added another one of my Kitco Spot Gold Overlay trades, which is a short day trade to liven things up.

GLD ETF - Gold Bullion Price Action – Weekly Chart

I spoke with a few members last week, who wanted me to change my analysis for gold, which I agree with. So I would like to address this now to keep everyone on the same path.

In previous reports I have pointed out the reverse head & shoulders pattern in this weekly chart below. But to be honest, it is not a reverse head & shoulders, which everyone is saying it to be.

Why is gold not in a reverse H & S pattern? Because a reverse H & S pattern is just that, it means the price will reverse from the previous trend. A reverse H & S happens after a downtrend, which forms a bottom and the trend is not moving higher.

Gold has been moving higher, which you can see in 2007 and this large pattern is more like a Cup & Handle pattern - extremely bullish.

SLV ETF - Silver Bullion Price Action – Weekly Chart

Silver is trading a little different than gold. As you can see the price is trading much lower than the 2008 high. There are also two small patterns forming, which are a small head and shoulders top or a bullish pennant.

Last Friday we saw gold and silver prices jump, but until we get a low risk entry point, I continue to watch these commodities move inside their large weekly price patterns.
 

US & Canadian Gold Stock Funds

These small charts show how bullish the price action is this year for gold stocks. But the exciting part, which is tough to see here, is that the Canadian fund is starting to show bullish price action. When both the US and Canadian gold funds are moving together, it means there will most likely be some tradable moves in the near future. Let’s keep focused and ready to take action in the coming weeks, as these bull flags near the end of their cycle.
   

Day Trading Spot Gold – Day Trading GLD ETF

Day trading spot gold using the real-time kitco overlay chart is what I use to identify a possible day trade. The shaded box below shows a simple waterfall sell off and when I see that price action, I will generally take a position the next day around that time for a short trade in GLD.

I did not think to save this kitco chart until the following day so the waterfall price action was miniaturized because of Fridays rally. Also I would like to note this waterfall pattern happened 3 times in a row last week and I took advantage of them.

My Basic Strategy

Gold tends to move similar to what it did the previous day and traders know this, which is why the patterns starts 5-30 minutes earlier the following day, as we anticipate the move. Moves tend to repeat for up to 3 days. So you identify a sizable move and take action on it the following two days, as long as the rest of the day trades similar to the previous days. I like to scale into positions and once I see it going my way I add one final position to increase my exposure.

I am sure some of you are wondering how I traded GLD at 8am ET?

I trade with an online broker that allows me to trade pre-market and post market hours. Not very often these setups happen before 9:30am ET but last week it did.

Important note:

Once you see the price of gold making opposite moves of the previous day, minimize your position or don’t take the trade. As you can see in this chart below, the red line is starting to move the opposite way of the previous day (baby blue line) and later in the afternoon it was completely the opposite. This is a warning that there is a shift in the buyers/sellers and you can see the next day prices spiked higher in the opposite direction.

Technical Gold Trading Conclusion:

Overall precious metals are trending sideways in their bullish patterns and we are waiting for some low risk entry points.

During slow trading times, which we are currently in, I like to look for other profitable positions to satisfy my need to trade. As a full time trader, it is important to have a few styles of trading, which allow you to profit in any market condition. My main focus is on the commodity ETF’s, with low risk setups, but I also day trade GLD when opportunities arise and I also trade extremely over bought/oversold index plays using the leveraged ETFs and focusing on my Active Trading Partners stocks trades, which provides profitable trades week after week. Combining these trading styles allow me to pull money from the market week after week without forcing any positions. I just let perfect setups unfold and I take advantage of them.

Soon I will be providing these gold day trades and index trades for members, which I think is very exciting. If you would like to receive my free weekly trading reports please visit my website at: www.GoldAndOilGuy.com

Chris Vermeulen

Related Stocks:  GDX, GLD, SLV

Precious metals like gold and silver appear to be forming a bullish pennant formation, which generally leads to higher prices. Currently the US dollar is hovering around a support level, which is the 76- 79 range. Only time will tell if the US$ breaks down sending gold to new highs in the coming months.

Below is a 4 month spot Gold chart

You can clearly see the pennant formation with gold nearing is apex. Soon enough spot gold prices are going to Blast off or Drop off. I continue to follow the charts closely as we near the apex for a low risk buy signal.

Below is a 4 month spot Silver chart

Spot silver price is forming a similar price pattern. Because spot silver is much more volatile the pennant is a little taller. Again we wait for a low risk setup.
 

Precious Metals Trading Conclusion:

Precious metals are slowly working their way to the apex of their large multi month pennant formation. In the coming weeks or months I expect to see prices spike much higher with everyone dumping their money into the safe haven GOLD & SILVER.

OR

When spot silver and gold prices start to break down from these multi month pennants we investors will start withdrawing our funds from precious metals at a very fast rate sending prices down.

As always, I keep focused using my low risk-trading model, which helps to alleviate the emotional part of trading during a time like this. Knowing that my down side risk is generally under 3%, this allows me to stay calm and focused. When a trade goes against me, it is not damaging to my account and I review what I have done to be sure I followed my trading system as planned. Losing trades happens all the time in trading, as it’s just part of the game. Knowing this, accepting it and keeping losses minimal is what separates profitable traders from the not so profitable traders.

The Energy sector seems to be a mixed bag. The weakness of the US dollar has help to boost the price of oil. Currently crude oil is threatening to break above the June high which will most likely trigger a surge of speculate traders/investors for buy crude oil. If the US dollar does find support in the coming weeks we should see the price of oil slide back down to the $60 per barrel level.

Natural gas as most of you know from my weekly writings is not something I am drooling over yet. It was every exciting two months ago with the bullish breakout but we avoided getting caught in the whipsaw action because of my low risk entry rules which confirm short term strength before we put our money to work.

Below is a 4 month chart of the Crude Oil price

This chart clearly shows momentum is up and the price of oil trying to move higher as it trades at resistance of the June high. We are close to a possible low risk buy signal but depending on the price action this week will dictate what happens.
 

Below is a 4 month chart of the Natural Gas price

Natural gas I will say has on ugly looking chart. The only observation I can really get out of this is that gas is trading at the bottom of its trading range which is $3.30 area, and the top of the range is $4.20. This is a 27% trading range and could be a great small spec trade at this price level. This type of trade is for a high risk taking trader. I would like to see the price move sideways 1-2 more days here so I know its not making another leg lower from here.
 

Energy Trading Conclusion:

There are several things which could happen here for oil and gas but in short my thought is if the US dollar continues to slide lower we will sell oil continue to rise and this will help boost natural gas prices some what. Because Nat Gas is at the low of its trading range there is a better chance we will see a higher price in the coming days for a small bounce. Natural gas has been underperforming the price of crude oil for 8 months which has happened in 2006 as well.

I continue to sit on the sidelines and watch the market unfold. Waiting is not the most fun but it is much better to wait than lose money on a bunch of high risk trades repeatedly.

Crude oil could have a low risk setup this week if all things work out. I am neutral on natural gas and not willing to jump on that rollercoaster.

If you would like to receive my Free Weekly Trading Reports please visit my website: www.GoldAndOilGuy.com

Chris Vermeulen

 
The below chart is the weekly NYSE McClellan Summation index with the Slow Stochastics of 5x3.  The top window is the weekly RSI of the NYSE McClellan Summation index and the bottom window is the SPX.  When the RSI reaches over 70 and the Slow Stochastics has a bearish crossover (like now) then a sell signal by this method is triggered.   This method has picked out important tops in the past and currently it gave a sell signal last week.

 
On Tuesday report we said the follow and seem to be on the money. “Below is the bullish percent index for GDM.  The bullish Percent index RSI hit over 70 a few days ago and suggested the upside was becoming exhausted.  When the Bullish percent index crosses down through the 10 day MA a bearish signal will be triggered and over the last couple of days this condition was met and a bearish signal was triggered.  Yesterday the MACD turned down which implies the momentum has turned down.  In general we expect the Gold stocks to pull back with the SPX and the next significant low may not show up until November.   We do have core position is some gold stocks and will keep them and may add new ones on the next significant buy signal.  GDX could reach near 27 at the next significant low.”     

Related Stocks:  GDX, MA, SPY

Everyone is anticipating a market correction, which is identical to what everyone thought back in March, yet prices continued to rise for two more months (June).  I am anticipating a sharp 1-3 day pullback but that is just what happens during rallies. Sellers are quickly met with buyers and the rally continues.

Take a looks at the index DIA back in April and May, you see sharp pull backs then big bounces higher. I think we are at this point now. Also small cap stocks are still holding up better than large cap stocks. This is important because I look at small cap stocks as a leading indicator for the broad market.

HUI – Gold Stocks Index – Daily Chart

Gold stocks have been on a buy signal since the middle of July and are currently testing our support trend line. Let’s see if prices hold up this week. I do expect to see this trend line penetrated but with any luck it will be an intraday dip in price.
 

GLD ETF – Gold Bullion – Daily Chart

Gold is pulling back as also. We want to see prices reverse back up without our trend line support level penetrated.
 

GDX ETF – Gold Miner Stocks Fund – Daily Chart

Gold mining stocks sold down today and are testing support. Let’s watch and see what happens. We will be either taking out of our position for a small gain or get a bounce tomorrow.
 

SLV ETF – Silver Bullion Fund – Daily Chart

Prices are still way over the support trend line so a deeper correction could be just a around the corner still. This type of price action today could be a “shake” to get traders out of their positions before prices rally again. Shake-Out’s happen all the time and very easy to see on small cap stocks intraday as well. This will be explained my trading report in a few weeks.
 

USO ETF – Crude Oil Prices – Daily Chart

Crude oil broke out last week and is now taking a breather as it moves sideways. Oil could quickly go either direction from here. Could be a double top in crude oil prices or it could be a large bull flag which points to much higher prices. We continue to watch as it unfolds.
 

UNG – Natural Gas – Daily Chart

Natural gas is not to exciting at this time. It still needs 1-3 week of price action before I will be looking to enter into a position.
 

Commodity Trading Conclusion:

Overall the entire market is unstable. The US dollar looks ready for a big bounce or a big breakdown, same with Precious Metals, Oil and the broad market. Times like this become very difficult to trade because so many investments are at extremes. They are either way over bought or way over sold. I have really tightened up on my trading in the past 2 weeks because of this situation. My position sizes are small and I am taking profits quickly. Until we get some type of pullback/profit taking in the market I do not feel comfortable putting much money to work. I think this is how most traders are feeling right now.

I would not clear the slate and sit in cash though, as I mentioned at the beginning of the report we could see prices claw their way higher for some time so.

If you would like to receive my Free Weekly ETF Trading Report visit: www.GoldAndOilGuy.com
Or if you would like my Free Weekly Stock Trading Report visit: www.ActiveTradingPartners.com

Chris Vermeulen

Related Stocks:  DIA, GDX, GLD, SLV, UNG, USO

Gold & Silver Sector 

Below is the monthly chart of the HUI index (gold stocks). With the recent move in precious metals we are seeing gold stocks surge higher. The monthly chart generates long term buy signals. We are looking for a breakout above the red resistance trend line and if we get a breakout then I expect prices to surge higher for gold stocks, gold and silver bullion. 

Gold Miners Index – GDX ETF – Daily Chart

Here is a chart of the gold miners exchange traded fund. This chart generated a low risk buy signal for us last week and looks to be setting up for another move higher. The reason I think we will see prices move higher tomorrow is because the intraday price action was bullish for both gold stocks and gold bullion. The red candle shows a long lower wick. This shows prices sold down and buyers stepped in buying up gold stocks. If we get a rally this week and make a new multi week high then we are able to draw a new support trend line. We will use this level as our stop (exit point) if price breaks below.

Gold Bullion Fund – GLD ETF – Daily Chart

Gold has similar price action and we hope to see higher prices.
 

Silver Bullion – SLV ETF – Daily Chart

While gold and gold stocks have been moving sideways for two days silver continues to rally. Silver can act as a leading indicator for gold so it is exciting to see prices rise.

Crude Oil – USO ETF – Daily Chart

Crude oil; broke out above our resistance trend line this week and has been moving sideways since Monday. This fund could pop up or down quickly here. I do not think it’s a good idea to be chasing it here.

Natural Gas – UNG ETF – Daily Chart

Seems like everyone wants to trade natural gas. I actually think more people are watching it than gold. Which is understandable because I too think Nat Gas has huge potential in the mid – long term time frame. This commodity/fund has chewed up more traders than any other fund. Maybe USO sucked as many people in; either way people are losing their shirts or already lost them with UNG!

It’s amazing how well some traders can buy at the high and sell almost at the very bottom when trading on emotions (fear and greed). That’s exactly what happens to traders when they see something with so much potential. Traders are thinking price could spike 50- 75% so they buy UNG because they are scared to miss out on the rally. Then greed sets in, they either buy more than they should have (large portion of their portfolio) or they buy more when the price drops a little. Eventually when prices break down and start to free fall all the weak hands bail out of their positions taking a nasty loss.

All this started because they think natural gas has HUGE potential and did not want to miss out. I do like natural gas but until I get a setup I keep my powder dry. If there is half the potential everyone is talking about then why is everyone so persistent at trying to pick the exact bottom? I do not bottom pick in a bear market, it’s not what successful traders do. Wait for the momentum to shift and jump on board when risk is low. I just want the low risk middle section between the bottom and the top.

TheGoldAndOilGuy Trading Conclusion:

The monthly hui chart is getting close to a long term buy signal. With any luck our recent buy signal in GDX will have us in early for the big breakout and multi month rally. I do not forecast but technically speaking the charts are looking bullish for precious metals. It is time for commodities to shine as they pause to take a breather. We could get a sharp drop or a nice pop higher in the next couple days only time will tell so be ready to lock in some gains if things start to slide.

The energy sector had some nice price action this week and with any luck we will have a low risk buy signals for our funds in the coming weeks.

Receive my Free Weekly ETF Reports at: www.GoldAndOilGuy.com

Chris Vermeulen

Related Stocks:  GDX, GLD, SLV, UNG, USO

Above chart is courtesy of sentimentrader.com.  Trading bands surround public opinion sentiment.  When sentiment reaches the upper band then market (in this case the US dollar) may be near a high and when sentiment reaches the lower band then market is near a low.  Notice that the sentiment has reached the lower band and the dollar could be near a low.  Also notice that and Elliott wave five count down is in progress and the dollar is working on the 5th and final leg down with the sentiment at the lower band.  This chart was put out last Friday and the dollar has dropped more since then and may have pushed sentiment at a more extreme level.  Don’t know where dollar will bottom but may not be far from current levels.  If the Dollar turns up then the stock market should turn down.

 
There could be a Head and Shoulder pattern developing on GDX,  To confirm this Head and Shoulders bottom, GDX should show a “Sign of Strength” through the Neckline (at current levels) and so far not Sign of Strength is being produced.  If the Sign of Strength (SOS) is going to show up it should do it at current prices. If the SOS does not show up in the next day or so then the Head and Shoulder pattern will be in question.  The bottom window in the chart above is the Bullish Percent index for GDM gold index.  In mid July it did have a bullish crossover and has market modestly higher and is a bullish sign for the short term.  The third window up from the bottom is the GDX/Gold ratio.  When this ratio is rising then gdx is outperforming gold and is a bullish sign for gold stocks. This ratio broke down through the uptrend line from the November lows and has since been trending sideways and not showing strength in GDX.  For now we are not chasing gold stocks and volume is not showing up and the GDX/Gold Ratio is not showing strength.  However, we still like GLD. 

We are Long GLD at 89 on 4/24/09. Long KRY at 1.82 on 2/5/08. We are long PLM at 2.77 on 1/22/08. Holding CDE (average long at 2.77 (doubled our position on 9/12/08 at 1.46, Sold 5/13/09 at 1.55=6% gain). Bought NXG at 3.26 on 6/4/07.  We doubled our positions in KGC on (7/30/04) at 5.26 and we now have an average price at 6.07.  Long NXG average of 2.26.   For examples in how "Ord-Volume" works, visit www.ord-oracle.com.

Related Stocks:  GDX, GLD, KGC, LEG, QQQQ, SPY

We are short the SPX at 883.92.  We Bought ASTM at 1.92, Biotech group.   Long POWR at 13.70 on 12/14/07.
 
The pattern forming may be a bearish “Broadening Top” or five point reversal.  Today’s rally tested the previous swing high of 11/5 (11/5 had 390 million shares) on volume of 221 million shares and then closed below the 11/5 high and triggered a bearish light volume re-test.  Today’s candle stick pattern drew a bearish Shooting Start.  A lot of the time a bearish shooting Start high is tested.  The advancing volume on advancing stocks is showing a bearish divergence like it did back at the January high and gives the VIX bearish signs company.  To cancel out our bearish view is for volume to pick up substanously to 300 million shares or more.  However volume has been decreasing since April from 300 million down to near 200 million shares now.  Our view is that A broadening Top is on the five reversal and once completed should break below 87 and head to 80 range or lower. 

 
We wanted to show a short term picture on what the market may be saying.  Instead of commentary on GDX (which we still remain neutral) we will show the QQQQ.  The QQQQ tells a better story of what is going on then the SPY because the QQQQ tested it’s gap where SPY was shy of the gap.  Above is the QQQQ hourly chart.  This morning the QQQQ gapped up strongly on fair volume then traded sideways rest of the day and then sold off hard near the close on higher volume then the volume when the gap formed this morning.  A test of a gap level on higher volume suggest the gap does not have support and at some point the gap will be exceeded to the downside.  A good signal to say the final high has been seen is that today’s high be tested again on 10% lighter volume and then closes below today’s high.  Since the gap has already been tested on high volume it would suggest the gap will not hold as support on the next pull back.  Another sign that a top is in would be for the SPY to close below Wednesday low (96.98) on higher volume.  We decided to hold our short position in that the larger pattern forming was bearish.  Its evident that we should have covered our short and re-shorted.  However this pattern is very near to completing and we will hold our short.

We are Long GLD at 89 on 4/24/09. Long KRY at 1.82 on 2/5/08. We are long PLM at 2.77 on 1/22/08. Holding CDE (average long at 2.77 (doubled our position on 9/12/08 at 1.46, Sold 5/13/09 at 1.55=6% gain). Bought NXG at 3.26 on 6/4/07.  We doubled our positions in KGC on (7/30/04) at 5.26 and we now have an average price at 6.07.  Long NXG average of 2.26.   For examples in how "Ord-Volume" works, visit www.ord-oracle.com.  

Related Stocks:  GDX, GLD, KGC, QQQQ, SPY

For those who are just beginning their foray into the investment world of gold, answering that question correctly is going to determine whether you’re the hero or the goat.  While I will not argue the merits of each side, is it possible for one to determine whether he wants to live in an inflationary or deflationary world?  Obviously perspective can mean a lot, but I think we can make the case that if one would rather live in a deflationary world where prices go down over the long term he can do so by simply choosing the correct vehicle to maintain his purchasing power. In fact with good timing he/she can even enhance that power.

For those of us on the fence in the inflation/deflation debate let’s take a peak back and re-visit the events leading to the day the dollar died. Then let’s see if we can tie it into what is going on today.

It was the late 60’s and Woodstock nation was approaching its zenith, and yes, John, Paul, George and Ringo were still Beatles then. Little did anyone realize that the dream would soon be over by the early 70’s.  But while that dream was still being lived in the 60’s, and we were spinning Sgt Peppers on our turntables in June of 1967, behind the scenes there already were international monetary crisis’going on even then. The pound Sterling, the French Franc, the German Mark were being devalued and this crisis made its way eventually to the United States dollar.  (Sound familiar?)

Faced with no other choice, central bankers came up with the “two tier” system for gold.  In other words, the “manipulated” price of $35 dollars per ounce for gold would be maintained for international balance transfers but gold would be allowed to find its own price in the marketplace.  But the Vietnam War and the great society welfare reform of the 60’s was quickly emptying our gold vaults.  The printing press had caught up with the masses and dollar runs and demand payments in gold overwhelmed the system.

It was August 15, 1971 and Richard Nixon was president at the time.  The nation was enthralled in war with Vietnam, and LBJ’s great society welfare program had been fully implemented.  Inflation was raging, the economy was a mess, and losing ground fast.   (Sound familiar?)  A televised presidential speech was set for that evening entitled “Outlining a new economic policy: The Challenge of Peace.”  (Sound familiar?)

To paraphrase that August night in 1971, Nixon explained that the “success” in Vietnam would soon add 2 million new job seekers to our nation and that we needed to “create a new prosperity without war.”   (Telling in itself).  Then he went on to say, “this requires action on three fronts.”  “We must create more jobs.”  “We must stop the rising cost of living.  And thirdly, “we must protect the American dollar from the attacks of the international money speculators.”  “In the past 7 years there has been an average of one monetary crisis per year.  Now who gains from these events? Not the working man, not the investor, and not the real producers of wealth.  The gainers are the international money speculators.  Because they thrive on crisis - they help to create them.”   “In recent weeks, the speculators have waged an all out war on the American dollar.  Accordingly I have ordered Secretary Connally to suspend the convertibility of the American dollar.”  “The effect of this action will be to stabilize the dollar.”  “Now this action will not win us any friends among the international money traders.  But our primary concern is with the American workers, and with fair competition around the world.”  ( Yeah….right.)

And with those words it was a done deal.  And it all happened in one evening.  The rest of course is history.  Gold embarked on a rally that took the price from $35 to $850 within the span of 8 years. In essence, August 15, 1971 was the day that the dollar died, but the “two tier” decision to let gold float freely in the marketplace also gave a REBIRTH to gold.  It would no longer be suppressed in price.

Now we flash back to today some 38 years later.  What can we infer from this event?

First, whatever the government or the feds tell you about monetary policy, and its effect on us is usually the opposite of what they say it will. 

Second, whenever something is manipulated, the consequences usually catch up.

Third, government and the feds are not the defenders of inflation. They are the inventors and the cause of it.

Fourth, wars and huge social programs during economic downdrafts and deficit spending have grave implications for the value of the “fiat” currencies countries employ.

Fifth, the only real money that has existed on earth is gold and silver.

Lastly, let us consider if Richard Nixon was correct……that the beneficiary would be the American worker………..and not SPECULATORS.

How Much things cost on Aug 15^th,1971                              Today
                                                                                    
Dow Jones Industrial Average 890 or 25 oz gold           9000 or 10 oz gold
Average Cost of new house $25,250 or 721 oz gold      250k or 277 oz gold
Average Income per year $10,600 or 302 oz gold        70K or 77 oz gold
Average Monthly Rent $150.00 or 4.3 oz of gold        $824 or 1 oz of gold
Datsun 1200 Sports Coupe $1,866 or 53 oz gold        $28,400 or 31 oz gold

Conclusion:   If your money is dollars, you live in an inflationary world.  If your money is denominated in gold, you live in a deflationary world.  In other words if your purchasing power is dollar denominated, costs have exploded upward.  But if you maintained your purchasing power in gold, costs have decreased by almost 2/3rds of their original price from 1971 !!!!!!!!!!!!  Check out the table below.  Using the price data from above lets construct a table measuring cost in percentage terms from 1971 to 2009.

Now I know many of you will say that $35 dollars was a “suppressed” price by the government and it skews the outcome and I am taking the absolute low in gold and the absolute high to measure and make this comparison.  I’ll give you that much, but right now………………IT’S REALITY.  Also, I want to point out that our Gov’t still is using either $35 or $42.50 per oz (depending on your source) as the stated price of gold per oz.  And while gold is above 900 today, it was almost exactly that at the 1980 high of 29 years ago.  The point is that if you took an average price of gold from 1980 to today, and you did this exercise, you’d still be WAY ahead if you maintained your wealth in gold.

So while the world lives in an inflationary environment it does so because it is denominated in “fiat” currencies.  That is what people keep their purchasing power in. 

For those who hold gold, they actually need LESS gold today to purchase the same thing as in 1971.  So can we say they live in a deflationary environment? Ah…….perspective is everything isn’t it?  It is obvious that cars are better, houses are bigger, etc etc.  But there can be no denying the cost of living has grown exponentially.  And over the long run, gold has maintained it’s purchasing power better than anything else.  When timed correctly, it has even enhanced that purchasing power.  The last 8 years are living proof of that. Gold has almost quadrupled in this decade alone!  With the dow off 50% that means that gold has outperformed the Dow Jones eightfold this decade. Just off the top of my head a $250 investment in the Dow at the turn of the century is worth about $160 or so dollars today. (Dollars that only buy ½ of what they did !!).  A 250 dollar investment in gold at the turn of the century is now worth about 900 dollars.  So there you go. Starting with the same amount the Dow Jones person has $160 bucks left and the gold bug has about $900. 

So why don’t more people own gold then?

Obviously many people are not aware of gold’s history as a monetary instrument.  But what about the other people that should know better? Why do they consider it such a barbaric metal still?  Perhaps they have not had a good experience with gold?  Did you know that the last 8 to 10 weeks of the gold rally in 1980 saw gold go from 400 to 800 ?   Now I haven’t looked back in a while so the number may be off a bit, but the point is that LAST SPIKE was a very brief time.  Therefore, with the exception of about 10 weeks in 1980, the price of gold was below the 525 dollar area for its entire modern history up until about 2005.  In other words, up until 2001, gold has only really witnessed ONE BULL MARKET run in modern times.  And you know what?  A lot of people who did invest then got burned and bad.  So bad that they will probably be the last ones on board again this time when gold makes its peak.  But don’t worry, just like the stock market of the last 20 years, the real public won’t join the party till its almost over.

In the 70’s gold was artificially set in price.  The reason that we had to get off the gold standard was because our government could no longer suppress the price of gold.  There is growing evidence that gold and silver prices might well be under suppression again.  Many of us have written about it.  Jim Willie’s recent article on the internet combines and articulates what is mounting evidence that gold is being suppressed again by forces that do not want another spike like 1980.

The best evidence we have that something fishy might be going on is the price chart of gold for the last 3 years.   Pull it out and have a gander at the four times it has been halted at the 1000 area over the past 18 months.  And how it just continues to meander under that magic number.  The evidence is out there for those who seek it.

Just as in the 70’s the suppression of gold at some point in the cycle will be overwhelmed and something will have to give.  One of the clearer signals that the suppression is no longer working is when gold vaults above the 1075-1100 area.  That will be the confirmation that the suppression is losing control.

It will also be the signal that the word is getting out to the masses. In technical terms I think they call it “the jig’s up.”   Odds suggest that the move in gold could be just as dramatic as in the 70’s.  I’ve been told in the total gold universe there is only like one ounce for every person on earth.  In a perfect storm scenario a gold bull market could be the mother of all bulls.

So where does that leave the average and yes even the above average investor?   

Let me say this. I’ve never met an investor or trader who disagreed that having an investment plan is a bad idea.  Most would agree it is paramount.  Yet herein lies the paradox.  Most investors and traders do not have a plan.  There are a lot of reasons why, but I think what it comes down to is if they had a plan they would have to take responsibility for its outcome.  Those that do have a plan must do something even harder.  They must have the discipline to execute the plan.   The ability to execute a plan is a lot harder than writing it. 

Do you have a plan or strategy?  How well have you fared in the gold bull market thus far?  How well did you do during the stock market heydays of the 90’s.  In other words……………have you kept up and are you making any money so as to maintain your purchasing power?   If you’ve been a participant you know that to make money in these markets is no longer a dart throw.  We are in the age of statistical modeling and technical analysis.  Fundamentals will play out in the long term but if it were that easy economists would be stock traders.  The truth about trading is its not as difficult as it looks.  That is until you try it.  You see the success lies in DISCIPLINE.  Show a 4^th grader a 10 year chart of gold and ask them which way the price is going.

The past few years has shown that the markets of today do not act like those of yesteryear.  What would have seemed impossible a few short years ago is bubbler talk nowadays.  If your interested in gold and plan to ride the upcoming waves,  be it UP OR DOWN, make sure your prepared and that you line yourself up with someone who can assist you with a strategy that will FOLLOW THE TREND OF THE MARKETS and not just someone who is trying to pick tops and bottoms.  Its not that tops and bottoms can’t be picked once in a while they can.  The question is can it make money in the long haul?

Of all the investment vehicles out there right now, Gold seems poised to have a lot of action in the coming months and years.  I believe little by little is it going to be recognized for what it really is.  Real money.  Gold is not an “I owe you” (I.O.U).  It is not debt.  It has been real money since the dawn of civilization.

Do you have any real money?  If yes, make sure you’ve got your plan or strategy mapped out.  If no, it’s time to take action. 

For more gold updates please visit my website at: www.TechnicalCommodityTrader.com

May you prosper.

William

Related Stocks:  TIE

My finger is on the trigger for Gold

Below are two charts of gold (GLD fund). The first one is what I would like to see before we have a low risk setup. This chart will not only lower the overall risk but increase the odds that the rally will provide more profit. Buying after a pullback actually helps to lower the down side risk because many sellers have been flushed out.

The chart below shows what could very likely happen tomorrow. If prices move higher and the intraday price action generates a low risk entry point I will be sending out an alert. This type of setup has a lower win rate but many times the rallies from these are quick and powerful. Locking in a profit is crucial when trading steeper trend line rallies.
 

My finger is on the trigger for Silver

Silver has already started to move to the upside but the intraday price action did not generate a low risk buy signal. It was very close on Friday but not enough. This chart below shows what I would like to see happen to silver.

The Silver chart below is currently trying to start a new rally higher and just may happen on Monday. I will be sending out an alert if we get the proper price action tomorrow.
 

Crude Oil

Crude oil has had a solid rally higher and is now trading at both Trend line resistance and price level resistance. Currently we are not near a setup.
 

Natural Gas

Natural gas had my attention several weeks ago but is now an underdog. We need more time for this commodity to bottom before we can get anything good from it.
 

Technical Trading Conclusion:

Overall commodities have made up some lost ground in the past couple weeks but are now trading at short term resistance levels. What does that mean? Well the odds are in favor that we will see some profit taking pulling prices down a little and allowing for a low risk setup before taking another run higher.

Gold and Silver could be exciting tomorrow depending on the intraday price action. I will keep members posted as the day unfolds.

If you would like to receive my Free Weekly Technical Trading Reports or my Trading Setups please visit my website at: www.GoldAndOilGuy.com

Chris Vermeulen

Related Stocks:  GLD

Monthly, weekly and daily charts are all about to move close together and when then happens be ready to buy gold and gold stocks (golden rockets). Technically speaking we are still a long way from the HUI monthly chart breaking out to the up side. But if this bullish price action continues our weekly and daily trading signals will reap big rewards as we enter gold early before the next leg (rally) higher.

Breakout Sequence and Trader Type:

1.    Daily Chart – short term traders
2.    Weekly Chart – intermediate term swing traders
3.    Monthly Chart – long term investors

HUI – Gold Stocks Index Monthly Chart

As you can see from the chart the momentum (MACD) has crossed over which is bullish. The HUI:GLD ratio indicator is moving higher and about to breakout as well. These are very bullish signs for gold in the months to come. I use the daily chart to enter and exit but the longer term charts provide me with the overall trend and momentum (power behind the move).

HUI – Gold Stock Index Daily Chart

The daily chart has a lot more price action which is great for short term traders. As you can see gold stocks broke out last week from the downward trend channel. This is a bullish sign and the first step towards a much larger rally.
 

GLD – Gold Exchange Traded Fund - Daily Chart

Gold is forming a similar pattern to the pre-May rally as noted on the chart. I am looking for a pullback in price which will allow for a low risk setup. I do not like to chase prices higher because risk increases substantially and there is generally a pullback providing an entry point in the following days.
 

GLD – Gold Exchange Trade Fund Weekly Chart

The weekly chart has yet to breakout and the momentum has not turned positive yet. This is one really nice looking chart. It has multiple bullish patterns all converging at the same point which could create an EXPLOSIVE rally higher in the month to come.

On the weekly chart we see these bullish chart patterns:
1.    Large Reverse Head & Shoulders – Very Bullish
2.    Large Cup & Handle Pattern – Extremely Bullish
3.    Bull Flag/Pennant – Bullish

We continue to wait for gold to work out the kinks and provide us with a low risk entry point. From a seasonal stand point Sept, Oct, and Nov are strong months for gold and I expect the move to happen then if it rallies.
 

Gold Sector Trading Conclusion:

It feels as though we are on the verge of a big gold rally. This is if the US financial lords run out of money to short bullion or finally run out of gold to sell. Either way; once gold starts to running I don’t thing there will be much looking back until the $1200-$1500 level.

Gold stocks are now starting to show signs of life and when that happens in conjunction with the monthly, weekly and daily charts are forming bullish breakouts, look for some Golden Rockets which are junior stocks which have good cash flow and a solid management team behind it.

We continue to wait with our finger on the buy button for gold as prices drift sideways on the weekly chart. With everyone so bullish on gold I have to wonder if we are about to get a sharp correction hence the reason I wait for a low risk setup.

If you would like to receive my Trading Signals and Golden Rocket Trades please visit my website at: www.GoldAndOilGuy.com

Chris Vermeulen

Related Stocks:  GLD, LEG, NOV

We Bought ASTM at 1.92, Biotech group.   Long POWR at 13.70 on 12/14/07.
 
Below is the ratio of the VIX to VXV.  Readings below .90 have produced tops in the market.  This is evidence that a turn in the market is close.  However if volume picks up here to near 6 billion then we will be forced to cover our short and look to get long.  The market is at the pinnacle of a price move.  If confirmation of a price move up is obtained then we would expect the rally to go to 1150 to 1200 range on the SPX.  If this is a market top like we expect then a pull back to 800 range is likely.  

Below is the weekly chart for GLD (Gold ETF).  The weekly pattern forming on GLD looks like a Head and Shoulder bottom where the October 2008 low is the Head and currently GLD is working on the Right Shoulder. We think eventually GLD will break above the Neckline which is near 100 and head to the H&S target near 130 range.  The Commitment of trader (COT) report show that the commercials are 182 K short Gold.  Commercials are always short because they mind Gold and hedge there product in the futures market.  We they are real bullish they short less. The current position of 182 k short the gold contracts is neutral at best and more back and filling may be needed before the Commercials get down to less then 150 k short.  Support lies near 90 on GLD and we Long GLD at 89 on 4/24/09.

Long KRY at 1.82 on 2/5/08. We are long PLM at 2.77 on 1/22/08. Holding CDE (average long at 2.77 (doubled our position on 9/12/08 at 1.46, Sold 5/13/09 at 1.55=6% gain). Bought NXG at 3.26 on 6/4/07.  We doubled our positions in KGC on (7/30/04) at 5.26 and we now have an average price at 6.07.  Long NXG average of 2.26.   For examples in how "Ord-Volume" works, visit www.ord-oracle.com

Related Stocks:  GLD, KGC, SPY

All our funds put in solid moves with GLD, SLV and GDX all breaking out of their down trend channels which is bullish. While they have generated breakout buy signals we continue to wait for more price action to unfold before putting our hard earned money to work. Each of these funds currently have over 3% down side risk so no position will be taken at this time.

During breakouts is when “Breakout Trader’s” take positions which surges prices higher once the resistance level is broken. While this method can produce big gains, I tend to avoid this method because of two critical points. First, downside risk is generally 8+%, and second breakouts have a high failure rate.

That being said we continue to let our funds/commodities unfold so we can enter when risk is below 3% and the odds are more in our favor.

GLD – Gold Trading ETF

GLD broke out last week generating a buy signal. While this is great to see, I continue to wait for a test of the breakout which should set us up with a low risk entry point similar to the one we had in May. We have 4 Blue arrows and are waiting for my signature low risk setup.

GDX – Gold Stocks ETF

Gold stocks have bounced and are currently out performing the price of gold which is bullish for gold. Gold stocks like the gold miners typically are a leading indicator for gold bullion. We are now waiting for a low risk entry point. 

SLV – Silver Trading ETF

Silver is in the same position as gold and gold stocks. We are now waiting for a low risk entry point. 
 

USO – Crude Oil Trading ETF

The crude oil etf pulled back to the support zone which we expected a few weeks back. We are now seeing a bounce off this support zone but oil is currently trading at resistance which is the 50 day moving average. Momentum is still down therefore we must give this fund more time to fully correct before pulling the trigger and taking a position. 
 

UNG – Natural Gas Trading ETF

Natural gas had a big technical breakdown a couple weeks ago and it needs more time to build a foundation/bottom before a low risk entry setup will be generated. 

Technical Trading Conclusion:

Precious metals broke out to the up side which we have been expecting. Precious metals and PM stocks are now on a buy signal but at the current prices, risk is much too high. We continue to wait for my low risk setup which provides the best odds for the commodity/ETF to follow through with its breakout. We could get a buy signal for these funds within 4 days if we are lucky but I expect it will take longer than that.

Oil and gas are farther away from a buy signal. Both broke down hard in the past couple weeks and a lot of damage was done. These commodities/ETFs need some time to build a new foundation/bottom before we can start looking for a low risk entry point.

If you would like to receive my Free Bi-Weekly Trading Reports or my Low Risk Trading Signals please visit my website at: www.GoldAndOilGuy.com

Chris Vermeulen

Related Stocks:  GDX, GLD, PM, SLV, UNG, USO

We are short the SPX at 883.92.  We Bought ASTM at 1.92, Biotech group.   Long POWR at 13.70 on 12/14/07.
 
Below are a few momentum indicators which are on sell signals. The market could bounce a little for short term but the top appears to be in at the 6/11 high at 939.04 on SPX.

We are very bullish on the gold stocks for longer term and are expecting all gold stock sectors (GDX, XAU, HUI, XGD.TO) to hit new highs at some point.  Above is the Bullish Percent index of the Gold Miners index (GDM). A sell signal is triggered when the Bullish Percent index crosses it’s 10 day moving average.  We have circled in Blue on the chart above when these sell signal where triggered.  In early June a sell signal was triggered and remains on a sell signal and therefore the trend remains down. 

A possible area where support and a bottom may form is near the 30 range on GDX.   We will see what happens if and when GDX gets there.  We are expecting GDX to follow the SPX to the downside and both indexes to bottom together.   A possible low may form in GDX around August. Long GLD at 89 on 4/24/09. Long KRY at 1.82 on 2/5/08. We are long PLM at 2.77 on 1/22/08. Holding CDE (average long at 2.77 (doubled our position on 9/12/08 at 1.46, Sold 5/13/09 at 1.55=6% gain). Bought NXG at 3.26 on 6/4/07.  We doubled our positions in KGC on (7/30/04) at 5.26 and we now have an average price at 6.07.  Long NXG average of 2.26.   For examples in how "Ord-Volume" works, visit www.ord-oracle.com.  

Related Stocks:  GDX, GLD, KGC, SPY

The chart below is courtesy www.sentimentrader.com.  We mentioned in the first paragraph there is a chance that the market could start a bounce now.  This chart above is a host of short term indicators and when they become oversold at the same time then this chart will reach to an oversold area and the chances for a bounce increase.  Since today is Weird Wally Wednesday and you should expect the unexpected then this would be a good time for a bounce to start.  If the bounce does start, watch the gap level near 91 for a low volume test.  
 

The chart below is courtesy of www.ETFinvestmentoutlook.com.  You are probably getting tired of looking at this chart but this chart says it all.  The GDX McClellan Summation index is moving down which implies most stocks in GDX is moving down and therefore the trend remains down for now.  We are very bullish on the gold stocks for longer term and are expecting all gold stock sectors (GDX, XAU, HUI, XGD.TO) to hit new highs later this year or early next year.  A few weeks ago the McClellan Summation index gave a sell signal by crossing the 20 EMA and remains on a sell signal to date.   In general we expect the GDX to move lower. A possible area where support and a bottom may form is near the 30 range on GDX.   We will see what happens if and when GDX gets there.  We are expecting GDX to follow the SPX to the downside and both indexes to bottom together.   A possible low may form in GDX around August and possibly as late as September.   Physical Gold may hold up well and we will hold our position in GLD.

Related Stocks:  GDX, GLD, SPY

While there are hundreds of indicators, I focus on a handful which has proven to work extremely well together. The fewer the indicators the more simple trading becomes, allowing me to focus on money management and my trading psychology instead of the charts.

Indicators I focus on in order of importance for ETF trading only:

•    Price action (Candles Sticks)
•    Trend lines
•    Momentum (MACD)
•    Price performance (against the underlying commodity & its stocks)
•    Stochastic Indicator
•    Volume

Ok, let’s get to the charts. When I look at charts I can see these patterns naturally. The reason I draw on them is to show you what I am seeing. This is the best way for learning to become a technical trader. You should read some books on chart patterns and Japanese candle sticks but after that, it comes down to watching charts unfold in real-time.

Dow Jones Industrial Average – US Stock Market Index

This is a chart I put together which clearly shows that we are still in a bear market. Nothing on this chart is bullish for the intermediate term view (2-8 weeks). Short term we are near support and we could see a bounce Monday, but overall we are seeing bearish price action. The high volume selling and low volume rallies are warning the technical trader to protect his positions with hedges or stops.

Also you can see the stocks have formed a short term head & shoulders pattern which is pointing to much lower prices on the Dow (DJIA). This is a very reliable chart pattern which is why I am pointing it out to you.
 

GLD Fund – The Technical Trader Price Action Chart for Gold

Gold looks to be setting up for another move higher, if all goes well. Currently the price broke its blue downward trend line and now we are waiting for the momentum to turn up which will put the odds more in our favor. Gold stocks are performing well and with any luck the drop in the stock market will send buyers into gold. I continue to wait for a low risk setup before taking a position in gld (gold bullion).
 

SLV Fund – The Technical Trader Price Action Chart for Silver

Silver continued to slide lower last week and that is because it is not seen as much as a safe haven like it’s big sister GOLD. While informed traders know its value the average Joe does not think to buy silver, they focus on buying gold simply because of the lack of education on their end. Silver can provide massive gains but it does require more risk and skill for locking in gains because of it’ volatility. It does not always move with the price of gold.

Currently we are waiting for silver to reverse and generate a buy signal.
 

USO Fund – The Technical Trader Price Action Chart for Oil

Oil is sliding lower technically speaking. Support trend lines were broken a few weeks back taking us out of any energy trades. Last week I pointed out the testing of the $39 level at which point sellers stepped in and pointed out that oil was going to have some downward pressure in the near term. The following day oil dropped like a rock as expected.

I did not point out the head & shoulders pattern in oil. If you look at the Dow chart’s head & Shoulder and then back to his chart, you will see the pattern clearly. The neckline was broken on Thursday and that is telling me we could see $33 as the next major support level.
 

UNG Fund – The Technical Trader Price Action Chart for Natural Gas

Natural gas broke down last week on rising volume. This is telling me that the traders who bought early anticipating the reversal to the upside are bailing out to cutting their losses. This is the exact same thing which USO did before it reversed. I provided the charts last week on this if you want to read more about it.

Anyways this breakdown will flush out the majority of traders and once that is finished prices will reverse and head higher in my opinion. We could see prices drop substantially from here which you can see from my chart below. Traders, who are long, hold on tight!
 

The Technical Trader Conclusion:

From looking at the Dow chart, stocks are at a short term support level. We could see prices put in a small bounce and trend sideways for a week or two still. But overall it looks like stocks are headed lower. I do not predict price, but I like to point out which way the odds are headed and what to expect if prices follow through with current supply and demand levels. I am very cautious on my long trades at this point moving my stops higher to lock in gains incase the market tanks again this week.

Gold is finding support at the current level but until we get some upside momentum I do not want to take a position.

Silver is still under pressure but looks ready for some sideways price action at this level as it decides which way to go.

Oil appears to be starting a waterfall sell off. Because so many traders are watching and playing oil now, I figure this breakdown will send oil plummeting quickly. At this time I see the $33 level as my first down side target which is a measured move from the head & shoulders pattern and also a previous support level.

Natural gas looks to be starting another leg down. I continue to wait for buy signal for this commodity as I am not jumping on the short side at this time. I may take a short position if I get a nice short setup in the near future.

If you would like to receive my Free Weekly Trading Reports or my Trading Signals please visit my website at: www.GoldAndOilGuy.com

Chris Vermeulen

Related Stocks:  GLD, LEG, SLV, UNG, USO

After rising to 21 dollars in 2008, Silver had a tremendous setback during the market meltdown witnessed in almost all markets.  When it finally bottomed in November of last year, silver traded as low as 8.60 per oz.  The winter rally of 2009 retraced all the way back to the 16 dollar area having recently peaked at the beginning of June.  The chart below is a 60 minute chart of July Silver. 

Those who are familiar with my work know that price channels play a huge role in my analysis.  Of particular note is the intersection of two channels (Red and White Channels).  The white channel is a momentum channel, while the Red channel is the trend channel.  Notice that price peaked right at the top of the intersecting channels providing a good opportunity to spot a trend change.  The confirmation came when price broke thru the bottom white trend line.  This signaled a loss of momentum which usually ends up in correction.  We can see how the first price breakdown out of the white channel initially supported on the medium term (green line) moving average (June 5th timeframe). Of particular note is the price failure when it tried to move above the fast (yellow line) moving average and failed (June 11th).  Notice how price came down and went right thru the medium term (green line) moving average (June 15th).

 
Look at the break in price and gap after failing that green moving average.  This was the exact “sweet” spot of the move.  The combination of dual channels and the use of good moving averages can provide the trader or speculator a basis in which he can measure strength or weakness within a market and where the potential pressure points/resistance might be.  

Silver has now reached another important area on the price charts.  This 60 minute view above provides a little deeper insight to the short term.  Notice how price is now perched directly on the larger trend channel (red line) at around the $13.30 area.  This is an important short term support area.  The initial drop on June 30th was within a whisker of the trend line.  The bounce back up during July first and second encountered resistance right at the fast (yellow) moving average and the subsequent drop of July second has price right on the trend line.

You might observe that price indeed does penetrate my channels.  Look at the spikes on April 25th, on May 2nd, May 17th, June 3rd, June 5th and 8th.  All of these spikes penetrated the channel.  But the penetrations are brief and the re-entry back into these channels provides opportunity for speculation and catching the bottom and/or top of short term trends.

What next?

There are two potential things (besides go sideways) that silver can do right now.  Each has opportunity to speculate.  The first scenario would have silvers price hold the current red trend line at the 13.30ish area and embark on another leg of an uptrend from here.  The way to play this one would be to watch for a penetration of the channel and a reverse rally back into the channel.  Once in the channel place a stop about 15 cents below the penetration price in case silver falls out of bed.   The moving averages will provide initial resistance and the barriers that silver will need to overcome to sustain the new uptrend. 

Thus expect resistance in the coming month at the 13.87 – 14.06 area initially at the fast (yellow) moving average.   Secondary resistance will be the 14.32 to 14.45 area where the medium term (green) moving average exists and finally the 14.67 to 15.03 area.   This last area encompasses the slow moving (Red) average, the price gap on the chart, and the area in which the huge drop in June initially occurred from.   Should silver hurdle these resistance areas, then the top of the red channel line would be the ultimate target above the 20 dollar area. 

Depending on your style and risk/reward tolerance, there are a few ways to play this should this uptrend scenario unfold.  For the more conservative player who seeks more confirmation, he/she could wait until silver vaults over the fast moving average (yellow trend line) at the 13.87 – 14.06 area before initiating a position.   Use a stop below the channel line.

Should the rally unfold, one might move their stops up under the moving averages as each new resistance/moving average is overcome.  At some particular point the rally will end and you will be stopped out with a nice profit.

The second scenario that can develop from this price point would be for silver to not hold the red channel line and breakdown to its next support area.  This is the same 60 minute chart of July silver from the winter rally.  This is also a good snapshot so you can see where my channels were first constructed. 

In this timeframe we can see the February top and the subsequent sell off in silver during this spring.  As you can see below, 11.80 – 12.00 was a major price support area from which the rally into June was launched from.  This area is the biggest support area of 2009.

This price area should also be a consideration for silver bulls.  Whether you’re a short term trader or an investor, these areas are price points that can be exploited.  If you’re averaging in for the long term small purchases in this area are excellent targets.
 

The chart below is a three year chart of silver courtesy of Stockcharts.com.  It is a telling picture of a market that is at a very important juncture in price. 

For starters, look at the moving averages.  The fast moving average (blue) and the slow moving average (Red) are converging right where price is.   These moving averages are not your typical 50 and 200 day averages, but rather one’s I use based on a precious metals cycle. 

There is also a trend line that connects the November and April lows (dotted line).   Observe how price is sitting right on this trend line as well.  Thus we have a confluence of support and price converging at this 13.40 price area in silver. 

Recall the other support that I listed at the 11.40 – 12.00 area.   I have drawn two red arrows on the chart.  The arrow pointing to the right is drawn above the first resistance area from the November 2009 rally.  The second red arrow that points to the left is the spot where silver last supported during the correction in April.  This is where the 11.40 to 12.00 support area comes from and how I derived it.  This leads me to conclude that this particular price area is the most important area on the chart.  This is where silver needs to hold to maintain its upward trend.

Should the dotted support line break, then the odds strongly suggest that silver is heading for the 11.40 – 12.00 area where a major test of this rally will occur.   I would allow about 15 cents of penetration from the channel.   Here’s what to look for.

If the channel is penetrated, first look for it to try momentarily to get back above it.  A subsequent failure and a move below 13.20 should be enough to confirm silver is heading towards 11.40 – 12.00 range.

Odds strongly favor that price range.  RSI has broken down, so has my own trend indicator (green oscillator), and MACD looks like it’s in trouble also.   I use these as coincident indicators.  The bottom line is PRICE itself.  

Conclusion:  

Silver is either going to hold this 13.40 area, and begin another up leg, or a drop below the 13.20 area will heavily tilt the odds towards silver moving to the 11.40 – 12.00 area.

If your accumulating long term, set your next purchase when silver touches the 12 dollar area.

Should we get a cascade effect like last year when all markets collapsed, the potential for silver to visit below 10 dollars still exists.  From a technical perspective, should silver break the 11.40 area I would look for a move somewhere to the 8-10 dollar area.

Impossible you say?  Never say impossible in the world of commodities.  For now, the silver price chart looks vulnerable if we crack below that 13.20ish area.  The technicals are also looking bearish.  Its technical’s have broken down further than gold due to the fact that silver is also and industrial metal and is reacting to the global recession as well. 

For gold bulls, silver can be a great leading indicator for gold as well.   Bulls take heed. 

Finally, we get to the seasonal factors.  The most likely timeframe for the metals to bottom is usually in late summer or fall.  October seems to have spawned many bottoms.   Thus far this year, the metals have pretty much followed the seasonal script pretty much to a tee.  Therefore the odds favor that silver should move in a sideways to lower fashion over the summer.  Should we hold the 11.40 area, then most likely a trading range between there and the spring highs would be in order.  However, should we break the main channel on the daily chart in this report then the odds will increase that silver will not bottom until this fall or until we penetrate the 10 dollar area, whichever comes first.

During the summer then, we have a couple of key areas.   11.40 -12.00 and 13.20 -13.40 are the two support areas to keep in mind.   As far as resistance goes, it’s the 13.87 – 14.06 area initially,   followed by 14.32 to 14.45 and finally 14.67 to 15.03 area.  Keep these areas in mind over the coming month as one of these areas will probably define both a top and/or
a bottom.

May you prosper
Bill Downey

Related Stocks:  KEY, LEG

GLD Gold ETF Trading Chart

Gold has provided us with two great trades this year. Both trades lasted only a few weeks and we locked in profits on technical breakdowns. Many of you have been asking when we will get a short signal (make money in a down market). Well, I don’t like shorting a commodity that is in rally mode. KISS is my mentality and trading only with the major trend is what I focus on.

For those of you who want to short gold (DZZ Ticker) may do so at your own risk, I recommend waiting for an extended rally of 10+ percent in price before you start looking for a technical breakdown to short. The quicker prices rise, the higher chance that a technical breakdown will provide a quick shorting opportunity. Locking in profits within a few days is crucial. In a bull market pullbacks in price are generally quick and short lived.
 

SLV Silver ETF Trading Chart

Silver and gold generally move in the same direction. These precious metals are looking ripe for a low risk setup. What I am looking for is momentum to turn up along with a reversal candle pattern. We continue to wait.

USO Oil ETF Trading Chart

Oil has had a solid move the past 2 months. This chart is starting to look a little bearish and if what I am seeing is correct for the short term then we could see oil slide lower this week. But in the event prices rally we could get a buy signal within 5-10 days if all goes well.
 

UNG Natural Gas ETF Trading Chart

Natural Gas has been drifting sideways for over 2 months now. Everyone is excited to catch this reversal when prices start to head north again. Seems like most people are long UNG already from what I gather because of the fear of missing the next big rally.

To be honest I have that fear as well but I do not let it control my trading. As usual I follow my simple trading model and trade when risk is low and the odds are on my side. One thing that traders should remember is that UNG (Nat Gas) looks to be bottoming from a very big sell off. If in fact prices are reversing there will be plenty of opportunities to buy it still. Even though I am really excited for this trade, I continue to wait for my time. I would like to see the momentum breakout and start moving higher before I buy anything.

Commodity Trading Conclusion:

Looks as though money is starting to flow back into commodities. With any luck we could have some buy signals this week. GLD and UNG have the best looking charts for a buy signal currently.

As usual I wait for the trades to unfold and come to use. Keeping risk low, scaling out of trades to lock in profits where there is a technical breakdown and allowing our core position to run for larger gains is my focus. I don’t forecast prices I just analyze prices and prepare for what two scenarios will most likely occur within a couple days.

If you would like to receive my Free Weekly Trading Reports or my Trading Signals please visit my website: www.GoldAndOilGuy.com

Chris Vermeulen

Related Stocks:  GLD, SLV, UNG, USO

We will be using in this example the free technical tools to help time a position. The number one tool we will be using is the Fibonacci retracement tool which just comes in beautifully in this example.

The second tool we are using is the Welles Wilder parabolic SAR. This tool is very useful for confirming entry and exit points when combined with our Fibonacci retracement tool.

The last tool is the MACD or as it is commonly called the MAC-D. This tool once again can help in timing the entry point using an intra-date chart.

Enjoy the video.

The video is free to watch and there is no need to register. I would love to get your feedback about this video on our blog.

All the best,

Adam Hewison
President, INO.com
Co-creator, MarketClub

Related Stocks:  BLOG

Gold was the first commodity back in 2002 which really made traders and investors want into the commodity market. Silver was followed shortly after in popularity, then crude oil and natural gas. While most commodities were on fire these are the ones that the media took a hold of and make them well known to everyone as prices soared month after month.

Commodities should have a place in everyone’s portfolio in my opinion. And a simple way of doing that is through the use of etf’s. Below I provide some of the most popular commodity funds known today. I have provided my simple analysis to each fund so you can see how commodity trading is like if you know what you are doing or have someone help you along the way.

I have provided two charts of each fund so that you can see the difference between trading a weekly chart and a daily chart. In short the weekly chart moves at 1/5th the speed of the daily. This is a great time frame for most investors if they want to actively manage their accounts catching market trends. The daily chart requires more analysis and trading because the chart provides several opportunities on a monthly basis. This is geared toward a much more active type of trader/investor.
 

USO Fund – Crude Oil Fund – Weekly Chart

As you can see from the weekly chart below this fund trends very nicely. I focus on price action, support & resistance levels, volume, trend lines and chart patterns to trade these funds. 

Back in March there was a breakout to the upside, then a reversal bounce in April providing another excellent point to enter the oil market. Using my analysis I can locate low risk entry points for oil. This chart provided a trade which lasted several months. The exit point was signaled after there was a trend line break this week.

USO Fund – Crude Oil Fund – Daily Chart

The daily chart below shows a close up of the price action and how to take advantage of these funds. Trading the daily chart allow you to really fine tune trades so that you can squeeze out as much profit as possible. Profit taking is generally done on a daily chart trend line break and the core position will be exited on a longer term trend line break such as the weekly chart. This is shown on the chart below.

UNG Fund – Natural Gas Fund – Weekly Chart

Here are two charts of natural gas. This chart shows the longer time frame and overall interest in the commodity. Volume has picked up as traders anticipate a reversal to the upside.
 

UNG Fund – Natural Gas Fund – Daily Chart

This daily chart is a little tough on the eyes because of the recent volatility. But you can see the price broke out of is pennant pattern 8 days ago and is now testing support again. I expect this fund to move higher but there are several rules and price patterns which must confirm before any money would be put to work. Just because it looks like it’s going higher does not mean its going right now.

SLV Fund – Silver Fund – Weekly Chart

Silver made a nice breakout back in December. We can see that it had a controlled pullback for a couple months earlier this year. The recent rally is now pulling back and testing the support trend line. This has been a 6 month trade if you were trading the weekly chart.

SLV Fund – Silver Fund – Daily Chart

This is another good example of trading the daily chart because it shows all the noise and opportunities for the short term trader.

GLD Fund – Gold Fund – Weekly Chart

The gld gold fund is my favorite to trade out of them all. While is moves the slowest I find it the most accurate. Gold looks to be setting up for a nice breakout later this year if prices hold up and the US dollar continues to collapse.

GLD Fund – Gold Fund – Daily Chart

Short term traders like myself enjoy trading this fund. While gold looks like a buy at this level I do not risk any money until I have a low risk entry point which is calculated buy price action, momentum and volume. Waiting for the setup can be a painful process but not as painful as losing a lot of money on a trade which had a higher risk level.

Commodity Fund Trading Conclusion:

Trading with etfs and other funds really do make investing much easier for individual traders. Not only can we trade commodities but we can rotate from sector to sector or trade indexes if we feel the broad market is going to rally or sell off. There are always trading opportunities available some where. The key is finding a strategy that works with you’re personality type and staying disciplined enough to follow your trading plan.

If you would like to receive my Free Trading Reports or Trading Signals please visit my website: www.GoldAndOilGuy.com 

Chris Vermeulen

Related Stocks:  GLD, KEY, SLV, UNG, USO

The stochastic indicator turned up in the lower reversal zone this week providing more power to Wednesday’s reversal candle. We could see the price bounce here, but until momentum turns back up I will be watching and waiting for a proper low risk setup.

Silver Trading Chart

Silver pulled back just as we expected it would. The stochastic indicator is starting to turn up and the price of silver is near support. I think we will see some sideways/bounce at this level. Again I am not jumping on the train yet. I prefer to wait for the downward momentum to shift to the upside before putting my hard earned money to work.

USO Oil Trading Chart

Oil has been on a crazy run since the breakout back in May. The oil price is currently at a pivot point and could go either way quickly. A break of this support trend line will trigger speculate traders to sell and that will sent oil tumbling quickly. Those of you long oil should be ready to jump if we see continued weakness. If you are a long term oil bull, then taking some profit at this level and still holding a core position could be a good idea. You can always buy back the shares you sell and if we see lower prices you will benefit even more.
 

UNG Natural Gas Trading Chart

UNG made a breakout this week from its pennant formation. Volume is telling us that this could very well be the start of a trend reversal (higher prices). This trade setup carried a high risk level which was 12% on Monday. I focus on trades with 3% or less so I was not buying on this breakout. Instead I am waiting for a consolidation which should provide us with a low risk setup in the near future.
 

Trading Conclusion:

This month commodities are under selling pressure along with most stocks. I continue to wait for the charts to generate low risk buy signals for these funds. On a side note we may get some trading signals for some other sectors which are becoming hot like the biotech and health care funds. I will keep you posted.

If you would like to receive my Free Weekly Trading Reports or my Trading Signals please visit my website at: www.GoldAndOilGuy.com

Chris Vermeulen

Related Stocks:  UNG, USO

I have just finished a short video that details many of the key concerns that we have for this market. If you have not seen our videos before you may enjoy this one. This video does not require a plug-in.

The video is free to watch and there is no need to register. I would love to get your feedback about this video on our blog.

Click Here to Watch Video

All the best,

Adam Hewison
President, INO.com
Co-creator, MarketClub

Related Stocks:  BLOG, KEY

We showed this chart last week and have updated it to tonight’s close which is the ratio between the Nasdaq Volume to the NYSE volume.  When this ratio reaches this high intermediate term tops have formed in the past and we think it is telling the same story now.  The second window from the bottom is the RSI.  We have drawn blue trend lines on this chart.  When the RSI falls below 50 it implies a top was seen.  Today the RSI closed at 48.41 and has triggered a bearish sign. Bottom window is the 20 EMA of the Tick index.  Normally the Spy follows the direction of the ticks.  The ticks have been moving lower for the last month as the SPY moved modestly higher and did show the buying interests were leaving the market.  Over the last few days this indicator hit new recent lows and suggests the buying interest is turning into selling interests and a bearish sign. Today’s push to new recent lows on the Ticks suggests the market has topped out.   When the Ticks get below “0” then a bounce could occur.  Today’s 20 day EMA of the tick closed at 124.50 and not below the “0” line yet.  In general we expect the Market to work lower into July or August. 

Below chart is courtesy of www.etfinvestmentoutlook.com.  The McClellan Oscillator is an Advance/decline line indicator.   Yesterday it hit a new recent low and is showing most stocks in GDX are declining.  Also the McClellan Summation index had a bearish crossover yesterday and triggered a sell signal and implies a consolidation that may last several weeks.  Previous sell signal by bearish crossovers of the McClellan Summation index with the 20 EMA appeared at the July 2008 top and the February 2009 high (see chart above).     This pull back could last in July and maybe August.  Physical Gold and the Gold ETF (GLD) may find support near 900 and 90 respectively and we will be holding our GLD positions that were bought at 89. 

Long GLD at 89 on 4/24/09. Long KRY at 1.82 on 2/5/08. We are long PLM at 2.77 on 1/22/08. Holding CDE (average long at 2.77 (doubled our position on 9/12/08 at 1.46, Sold 5/13/09 at 1.55=6% gain). Bought NXG at 3.26 on 6/4/07.  We doubled our positions in KGC on (7/30/04) at 5.26 and we now have an average price at 6.07.  Long NXG average of 2.26.   For examples in how "Ord-Volume" works, visit www.ord-oracle.com. 
 

Related Stocks:  GDX, GLD, KGC, SPY

Gold – GLD Fund – Daily Chart

The GLD fund has been drifting lower towards my support trend line the past two weeks. I figure we will have some action as we wait for a bounce off support or a break down through the blue support trend line. Looks like we are a few weeks away from any possible setup in gold/GLD.

Silver – SLV Fund – Daily Chart

The Silver SLV fund has been moving lower in a controlled manor. We could see prices pull back to the $13.50 level this week. It looks like we are weeks away from any possible setup is silver as too.

Energy Sector – Crude Oil & Nat Gas

I have put together three charts to show you what I think is very possible in the near term for Nat Gas prices. The USO (oil fund) and the UNG (Nat Gas fund) have similar price movements. In short these funds move with the price of their underlying commodity (oil or gas). Because these funds must purchase futures contracts which allows the fund to move with underlying commodity there are some issues with price performance. The funds are affected buy Contango (search “What is USO contango” for more info). In simple terms it means the price of the fund loses value over time and does not track the exact same price performance as the underlying commodity.

These funds must purchase futures contracts and because of the popularity of these two funds they are now large enough to move the commodity price when rotating from one future contract to the next on a regular basis. This helps boost the price of the commodity when the fund rolls over to the next futures contract.

That being said we are now seeing the same issues and price pattern we saw in USO happening in the Natural Gas Fund UNG. Check out the charts below.

USO Oil Fund – Before the Rally – January Chart

The USO fund started to become very popular back in January and volume surged to new highs. This was an early indicator that the trend was getting close to reversing. The increase in demand for this fund became so large that it was actually moving the price of oil as it rolled from one futures contract to the next. 

UNG Nat Gas Fund – Current Price (Before the Rally)

By simple looking at this chart of gas and the USO oil chart above you will see the similarities. Demand for the commodity fund is incredibly high indicating a change in trend is getting close. This increase in UNG demand forces the fund to buy more Nat Gas futures contracts and the price of gas becomes much more volatile when the fund buys the new futures contract.

It is important to notice what USO (oil) did after this surge of volume and price pattern was broken. This is provided on the next chart of USO.

USO Oil Fund – The Rally – Current Chart

The price of USO dipped one last time breaking down from its pennant sending price sharply lower only to reverse the following week which was the start of this powerful rally we have been enjoying for several months now. I expect we will see something like this happen with the UNG fund as well.

Gold, Silver, Oil and Nat Gas Trading Conclusion:

Stepping back and taking a simple glance at these commodities we are able to tell if we should be taking action or sitting back and waiting for some low risk/high probability setups.

I do like each of these commodities and investment vehicles for short term trading. But I must resist buying them because I like them and stick with my plan to only enter a position when I have a low risk/high probability setup available.

It is easy to create a trading strategy/plan but following it is a completely different story. Once you can follow your strategy, then you’re ahead of 95% of other traders. I will admit, I’m really excited about this UNG setup which looks to be forming, but I am not jumping in and buying it yet. I follow my trading strategy/rules very closely and because of my strict rules and 3% risk style it’s some times painful waiting for an entry. But I have mastered the way I trade and my yearly goal is to have 10-25 trades yielding 2-10% profit each.

If you would like to receive my Free Trading Reports or my Trading Setups please visit my website at: www.GoldAndOilGuy.com

Chris

Related Stocks:  GLD, SLV, UNG, USO

With so much happening in the market, emotions flying high and from being blinded by fear and greed many investors are wondering What do I do now?

I have put together some of my trading charts to help keep the overall picture clear for us commodity traders. My approach is very simple and effective when proper trading/money management is applied. FEAR and GREED are the two most powerful forces in trading and if you cannot stomach your trades when they go south, you most likely are trading to large of a position for your account size. Ok, I will try to stay on topic and not get into the education side of things 

The US dollar has had a massive rally considering the United States is in serious trouble. My thoughts are investors bought the USD as the entire planet started to crack thinking it was a smart investment. Which is could be a great play for the long term but I plan on covering that next week with monthly chart analysis for all these commodities.

I have heard a few analysts on CNBC say the US Dollar has broken its down trend. The question I am wondering is: What time frame are they looking at? The daily chart looks strong but if you zoom out and look at the weekly or monthly chart, we have not even made a higher high yet. Everyone sees the market differently that’s for sure.

The US Dollar – Head & Shoulders, Knees then Toes

This chart shows a perfect head and shoulders pattern which made a text book breakout. To keep this report short and to the point, the USD is at support and I expect we will see a rally higher to the 84 – 88 levels which would complete a larger head and shoulders pattern on the monthly chart. A breakdown from the monthly head and shoulders would most likely start the next major leg lower. The USD could rise here, thus pull the price of gold and silver down temporarily and that is why I have locked in some profits on these commodities.
 

The Price of Gold – Daily GLD Fund

Gold is currently pulling back from resistance and in my opinion forming the right shoulder which will complete this reverse head and shoulder pattern. Last week I took some profit on my gold position and currently hold a core position hoping prices will hold at my next support trend line. If prices breach that level ($91) then I will exit the balance of my position and wait for the next low risk setup.
 

The Price of Silver – Daily SLV Fund

Silver is in the same position as gold. I am expecting a pullback for a re-entry.
 

The Price of Oil – Daily USO Fund

Oil has been on the run since May. Oil had a near perfect breakout/buy signal (Risk was over my 3% risk setup) but many traders took advantage of this signal and are now experiencing massive gains. Tighten stops to lock in some profits and let the rest ride until the next support trend line is breached which will provide more wiggle room for oil to take a breather before moving higher again.
 

The Price of Natural Gas – Daily UNG Fund

Last week I provided the weekly charts with analysis of all these funds. UNG was the one that really looked exciting. On the weekly charts its very similar if not identical looking to the price action that oil had before it sky rocketing. This chart looks like a spring coiling tightly and getting ready to explode. Only time will tell but keep it on your trading platform!
 

Trading Conclusion for Gold, Silver, Oil & Nat Gas

In short, the US Dollar is trading at support and could be starting a nice rally to form the second shoulder which can be seen on the monthly chart. If this happens I expect gold and silver will have some selling pressure.

Oil continues to rally and short term traders should be thinking about tightening their stops to lock in some gains on the first sign of a reversal.

Natural Gas looks locked and loaded for a big bang. I’m waiting for my signature setup before jumping onboard as it helps improve the odds of the trade going in my direction after I enter a position.

If you would like receive my Free Weekly Trading Reports or my Real-Time Trading Signals for these funds please visit my website for more information: www.GoldAndOilGuy.com

Chris Vermeulen

Related Stocks:  GLD, LEG, SLV, UNG, USO

Sometimes we look at other index in the same family to see if the picture is the same.  Above is SSO which is an ETF and is the ProShares for double long the SPX.  On 6/1 SSO broke above the 5/8 high on reduced volume and implied a false breakout which implies at some point the market will fall back.  A close below the 5/8 high will imply the top is in.  On the rally above the 5/8 high on the SPY, MACD is making a lower high and showing a negative divergence.  At the bottom window is the RSI and it is also making a lower high and is also showing a negative divergence.   The NYSE Summation index turned down on June 8 and with today’s negative advance/Decline line, the trend remains down, which implies the SSO is in a downtrend.   With negative divergence in RSI and MACD and a low volume break above the 5/8 high, a bearish outcome is expected.  I might add that the SPX is running into the 200 day moving average, which is resistance. 

Below is the Gold Buy Index (HUI).  HUI has been trading in a rising channel since late December 2008.   The bottom of this channel may act as support which comes in near 320.   Currently the HUI is on a sell signal by the indicators of “10 day MA of RSI”, MACD and “Trend line break of Price Relative to Gold”.   We will watch how the 320 level is tested and to see if the MACD, RSI or Price Relative to Gold indicators give bullish signs.  Physical gold may pull back to near 900 range and may be a good place to add long positions.  

Long GLD at 89 on 4/24/09. Long KRY at 1.82 on 2/5/08. We are long PLM at 2.77 on 1/22/08. Holding CDE (average long at 2.77 (doubled our position on 9/12/08 at 1.46, Sold 5/13/09 at 1.55=6% gain). Bought NXG at 3.26 on 6/4/07.  We doubled our positions in KGC on (7/30/04) at 5.26 and we now have  average price at 6.07.  Long NXG average of 2.26.   For examples in how "Ord-Volume" works, visit www.ord-oracle.com.

Related Stocks:  GLD, KGC, MA, SPY, SSO

Quick Over View

Commodities are on the run. Gold is forming an amazing reverse head & shoulders pattern and is about to test resistance. Silver is shining bright as it continues to surge higher out of a solid bull flag pattern. And crude oil continues to make new multi month highs after breaking out of its cup & handle pattern.

GLD ETF Gold Fund - Weekly Chart – Intermediate Outlook

Gold looks to be nearing the end of this very large reverse head and shoulders pattern which is bullish. I have a feeling we could see gold trade in the upper levels of this chart until August which is generally a very strong time for gold bullion prices. At that time we may see gold surge past $1000 and rally towards the $1200-$1300 mark.
 

GLD ETF Gold Fund - Daily Chart – Short Term Outlook

The daily chart provides a much closer look at price action. As you can see gold is starting to reach the upper resistance level. I figure we will see selling at that level. I have drawn a dotted blue trend line allowing those with long positions to lock in some profits if we get a technical break down. Personally I like to lock in some gains after a large run. I can always buy it back later and hopefully at a better price with one of my low risk setups.
 

SLV ETF Silver Fund - Weekly Chart – Intermediate Term Outlook

Silver is on the run with lots of room for growth before reaching major resistance at the $19-$20 level. Chasing the price of silver here is a very risky position. Silver can correct extremely fast. Waiting for a pullback is crucial.

SLV ETF Silver Fund - Daily Chart – Short Term Outlook

As you can see on the silver daily chart, silver is a very fast moving investment vehicle. I expect we will see a pull back to the $13.50 -$14.50 level on a dip.
 

Crude Oil - Weekly Chart – Intermediate Term Outlook

Oil continues to push higher and looks to be building up speed. I figure we will see $70-$75 per barrel with any luck in the near future.

Crude Oil - Daily Chart – Short Term Outlook

The daily chart is showing we are getting very close to a possible pullback. From looking at the daily chart I see a measured move to the $67.50 level and at that point we may get some type of profit taking/pullback before moving higher.
 

Gold, Silver & Oil Trading Conclusion:

All three commodities are on fire and will most likely be in favor for some time. We will see pauses/corrections in price along the way. I would like to mention how important it is to trade with the trend (The Trend Is Your Friend). This is because strong trends will continue to trend until demand wanes. During a powerful move trends can last for months before a sizable correction may take place.

All of the technical buy signals for these commodities have performed very and the trends look strong at this point in time.

If you would like to receive my Free Weekly Trading Reports or my Trading Signals Newsletter please visit my website:
www.GoldAndOilGuy.com

Chris Vermeulen

Related Stocks:  GLD, SLV

Below is the weekly SPX.  Weekly RSI normally stays above 50 in bull runs and stay below 50 in bear runs.   The direction of the 200 day moving average defines bull and bearish markets and currently the 200 day moving average is moving down and therefore the weekly RSI should find resistance near 50 and right now the weekly RSI is at 50 range.  The 43 week moving average of the SPX normally find support in bull runs and resistance near in bear runs.  Right now the weekly SPX is testing the 43 week MA at the same time the Weekly RSI is testing 50.  The weekly Slow Stochastics is starting to roll over but has not turned down yet.   We where looking for the SPX to re-test the recent highs and that has been accomplished today.  The next thing that is needed to complete the top is for the momentum indicators to turn back down.   We don’t thing the market is started on an extended move to the upside but rather forming an “Upthrust”.    If the SPY fails to hold the 5/8 high at 93.22, it would imply the top may have been seen.

Below is the daily GDX chart.  The RSI is over 70 with volume declining and is a bearish combination.  GDX did jump through the channel line which we were not expecting but it’s unlikely GDX will move much higher with an RSI over 70.  A close below the channel line ( near 44) will imply the top was seen.   Over the last couple of days “On Balance Volume” (OBV) surged and previously when OBV surged the market was near a high.  We are looking for a pull back in GDX over the next several weeks that could retrace back to the 29 area. 

Related Stocks:  GDX, MA, SPY

Candlesticks have become very popular in the West during the last 25 years.  The irony in this recent fame is taht the East had already been successfully using cnadlesticks to determine future price movements over the last couple hundred years.  Candlesticks were oringally used by Japanese traders who were looking to profit in the rice market.  The most renowned trader of his time was Homma Munehisa (aka Soky Homma).  Homma like many wealthy entreprenuers thourhgout history had a good mix of smarts with the right timing in order to amass a signifcant fortune.  When Homma entered the trading business, the secodary or futures market for rice was still in its infancy.  Many traders at the time would use various methods to anticipate future price movements, tracking of the weather was often their favorite.  Homma quickly realized this form of trading with the crowd was never going to lead to real success. So, Homma began tracking four key elements of the rice futures contract: (1) open, (2) high, (3) low, and (4) closing price.  From this Homma used these four data points to construct a visual depiction of the trading day's action.  Unlike traders of today where everyone is able to see candlesticks and react to them accordingly, Homma found his edge and was able to make enourmous gains by staying one step ahead of the crowd.  Beyond these four price points Homma also named many of the candlestick formations with war time overtones.  This is because the 200 years leading up to his trading activity, Japan was a developing nation with numerous conflicts throughout the region over terroritory and politics.  This sort of military environment, transferred over into Homma's interpretation of the market where it was you the trader versus your enemy the market.  The close kinship of the candlestick terms and the military can be seen in the title of formations like belt-hold lines, counterattack lines and three white soldiers.  The work that was done by Hommas during the mid to late 1700s was the foundation for the current candlestick methodology used by traders all over the world.

Related Stocks:  KEY

Silver had an incredibly positive up move since mid of april. After establishing a low around $11.60 over 6 weeks ago it´s up more than 31% as I write this. Gold only went up around 11.5% during the same time.

The Gold/Silver Ratio is now close to 63. Before the credit contraction last summer we normally saw the ratio moving between 44 and 60.

Looking at the charts we can see that silver is running into heavy resistance around $15-16 level. The upper Bollinger Band is currently at 15.04US$ and is a warning sign that the rally might soon be finished. As well silver is approaching the 61.8% recovery retracement of the complete downmove since last summer at $15.20-15.30. RSI is not yet in extremly oversold territory but close to. The flat 200MA is more than $3.00 away, while the disctance to the 20MA as the next possible support exactly $2 away.

On top seasonality is another factor that makes me favoring the downside right now. Sell in May has always been a wise recommendation during this ongoing longterm bullmarket in precious metals.

And finally Silver is an industrial metal. Any sell off in the broadmarkets should trigger a sell off in silver too.

To summarize, my analysis clearly points out that log positions should be tightening exit points which will allow us to lock in maximum profit from thsi current rally. If you want to short this market you should use wide stopps (e.g. above $16.01) since silver is very volatile.

You can always reenter your long position later this summer when we get a new batch of buy signals for the precious metals market which will most likely be after the typical weakness in july and august.

If you would like to receive my Free Weekly Trading Reports or Trading Signals please visit my website at: www.GoldAndOilGuy.com
Chris Vermeulen

Sogotrade account

Opening a sogotrade account is much like any other broker. New clients have the option of opening an account directly on the Sogotrade site, mailing in the documents, or faxing them. There is also a $500 dollar minimum to open a standard Sogotrade account. The standard platform has real-time data, but has very basic functionality. Some of the basic capabilities are: (1) market screener, (2) etf center, and (3) market research center.

Sogoelite

Sogotrade has followed the lead of many retail brokers and offers a standard platform for investors, while offering a Sogoelite platform for active traders. Sogoelite provides (1) real-time charts, (2) technical analysis tools, and (3) time and sales data. Sogoelite is a downloadable application, while the Sogotrade standard is a web based application. A Sogoleite account requires a minimum $2,500 deposit, as well as a $10 monthly data fee for tick data.

Sogotrade commissions

Wasn’t too long ago that placing an order regardless of the size could run an investor $20 bucks each way. These high commissions and the fact you had to phone in your order did not foster an environment for active trading in the 80s and early 90s. However, with the Internet and fair market competition, active trading his now become a reality for many investors. This race for cheaper commissions has somewhat flat lined over the last couple of years as many retail brokers have fallen in the $7.99 - $9.99 flat commission range. Unlike retail brokerage houses, many direct access brokers provide both a flat trading fee and a per share model. So, if a trader knows they will be trading in small lots, this provides the ability to avoid costly commissions on the per share model. But if the trader will be trading in huge blocks, say 10k shares or more, the flat rate would be their best option. Now, what Sogotrade has been able to do is to merge the best of both worlds. Sogotrade commissions are so low, that in essence it allows both active traders and investors to enjoy low cost trading. To put this in perspective let’s say a trader is using a per share model where each share is $.01 in trading commission. This means that for every 1k shares it will cost the trader $10 bucks. So if the active trader were to purchase 1k shares it would cost them $10 dollars to open the position and $10 to close. So we are talking a total of $20 in commissions. Now if the day trader is only using 10k and buying a 10 dollar stock, this would represent .2% of any potential gains. Which in the day trading world is huge. The structure for Sogotrade commissions would allow the day trader to reduce their trading costs on the same trade down to $6 bucks for the round trip. This now cuts down the percentage cost from .2% down to .06%.

Below is a screenshot of the trading commissions which can also be found directly on the Sogotrade website.

Sogotrade Elite Commission

Sogotrade Elite provides a different commission structure. Since Sogotrade Elite is an active trading platform, it is on a per share model. The cost is .004 per share with a minimum of $1.00. So based on this schedule, 300 shares will cost $1.20, while 1000 shares will cost $4. Depending on your trading capital the standard Sogotrade account may prove more beneficiary if you are using large funds per trade. There is also a Sogotrade platinum account which costs $10 per month but has a $1.50 commission structure for trades that are smaller than 5,000 shares.

Sogotrade Review

Pros

There are a number of pros for using Sogotrade to conduct both long-term and day trading activities. Below are a list of the positives:

1. Great customer service – placed a call to their 1-800 number and received a real person on the phone in under 45 seconds
2. Low Cost – regardless of if you go with the standard Sogotrade account or the Sogotrade Elite, these are the lowest commission structures in the trading world
3. There are no maintenance or inactivity fees for Sogotrade standard or Sogoelite

Cons

All is not great in the land of Sogotrade. Below are some of the negatives:
1. Unable to make pre-market or after market trades in the standard Sogotrade account
2. Unable to place OTCBB trades in the standard Sogotrade account

Sogotrade Review Summary

Sogotrade like any other broker has its ups and downs when it comes to using their platform. The one thing however that is tough to argue is the relatively cheap commission structure. During a time where the U.S. Government is considering increasing taxes on active traders and also with the pain of the economic recession, it is hard not to see the value in these low trading commissions. Time will tell if Sogotrade will become the new leader in the discount brokerage arena. For more information, please visit http://www.sogotrade.com.

Related Stocks:  UPS

While there are some traders who make money on the gift of touch. The vast majority of professional traders have learned to develop a winning trading system to achieve success. Now there are some free trading systems on the Internet, but far too often these are just up selling techniques, hoping to draw a person into the big purchase of the premium strategy. Now while there probably is a solid free trading system out there, odds are if it’s free you are going to get what you pay for.

Auto Trading System

Auto trading allows the professional trader to look at the market objectively. Since the market is nothing more than the emotional sum of its participants, an auto trading system will allow a trader to separate themselves from the noise. This is the power of trading systems. The system will execute a trading signal regardless of what the investor may be emotionally feeling at the time the trade is initiated. There were probably a number of traders during the internet boom that wanted to stay long because they had made so much money. But any good automated system would have had a number of protective stops in place, which would have placed the trader in a cash position.

Auto trading systems are a core component of direct access brokers. Most retail shops will only offer buy and sell orders, but not fully automated trading. The direct access broker TradeStation Securities, allows a trader to develop strategies utilizing TradeStation’s coding script - easy language. Easy language allows a trader with little to no development experience to write complex buy and sell strategies. These systems can then be used to execute live trades in the market. Most trading platforms will allow the trader the choice of the orders being sent to the market immediately or user authorization prior to execution. Order authorization allows a trader to apply some sense of subjectivity to a trading system. Requiring authorization can also be a dangerous game as a trader never knows when a trading signal will work in their favor. This is why it’s best to all the trading system to execute all trading signals, versus trying to pick and choose which signals to take.

Trading System Review

Before using any trading method, there must be a thorough examination of the trading system. While there are a number of services that offer a trading system review, it is ultimately up to the individual investor to perform his or her due diligence. The key thing to remember is to not only focus on the gains over a specified period of time, but also the maximum drawdown and risk exposure of the system. For example, if a bearish system is up huge during a bear market, this doesn’t mean much. The system should also be judged during a time of market strength as well.

Remember, its not the system, but rather your blind belief in the strategy which will ultimately lead to success. For a list of trading systems visit http://tradingsystemreviews.net. The site trading systems reviews has posted user feedback and cost information for many of the trading systems available on the Internet.

Related Stocks:  KEY, PAY

Some market technicians like myself, that follow cycles, were looking for a rally in the market in the month of March. It is very common to see major reversals or turning points in the months of March and October. Even last March (2008), as Bear Stearns collapsed it was the buying opportunity of a lifetime. The S&P bottomed at 1256 and rallied into May 19th, hitting a high of 1440. This current rally has been much greater in price and about average in time. The difference with this rally is that this market has not had much of a pullback off this meteoric rise. What is making this rally so much different from last year? Obviously stimulus and government intervention.

In 2001, the Federal Reserve lowered rates to 1% as the market was in a deep bear market from the tech bubble and the 911 tragedy. This sparked a housing boom that created countless jobs. The jobs created were in construction, banking, real estate sales, home flipping, and even trickled down to the local sandwich shop. This also spurred the home owners to use there home equity like an endless ATM machine. The bubble created was most likely the biggest created in over 100 years. The bust now is mirroring the Great Depression.

Many traders know that the markets are ruled by emotion. The late Jesse Livermore used to say that there are four main emotions that control the markets. They are fear, greed, hope, and ignorance. In October 2007 when the market was at its all time high, it is safe that we saw a lot of greed and a lot of ignorance. In 2008 we did see a whole lot of fear as the markets fell off a cliff. Fear is the strongest of all the human emotions and that is why markets drop so quickly as opposed to moving higher. Then, there is the emotion of hope. Could this market now be in hope mode?

The Fed has lowered the fed funds rate to 0-1%. They are also buying almost a trillion dollars worth of mortgage backed securities. Working with FRB, the U.S. Treasury has created the Toxic Asset Relief Program (TARP). The accounting rules such as 'mark to market' accounting have been changed giving the banks profitable earnings instead of massive losses. The SEC has changed many rules regarding short selling and regulation. All of this and more has been done giving the markets hope. Hope has stocks up huge since the lows in March.

In 1930, during the Great Depression, many similar rules and efforts took place as well. At that time, the market bounced for six months off the lows retracing about 50% of the total fall made from the 1929 high. However, soon after, the market collapsed again. It made new lows and did not bottom until mid 1932. The irony is back then, the Republican party was completely swept out of office as is the case this time around. Can the U.S. re-inflate the markets or just create another commodity bubble? Are the job losses going to stop? Will new jobs emerge to replace the lost ones? Will it be different this time around? These are questions that still need to be answered. As for now there is just hope. My bet is with history.

Source: Nicholas Santiago
www.InTheMoneyStocks.com
The Leader In Market Technical Guidance

Below is our trend model of the S&P.  When the majority of these trend following indicators turn down then a top in the market is expected.  The top window is the Cumulative of the Advance/Decline line.  When this indicator is rising then uptrend is in tact and right now this indicator is rising still.  The next window down is the Cumulative of Up/Down volume and the same rules apply here and so far this indicator is trending up.  Bottom window is the Tick index and this indicator rises and falls with the market.  Notice that Tick index is showing a negative divergence and a bearish sign.  Second Window from bottom is the Summation index and this indicator is starting to bend down.  Any weakness in the A/D line will turn this indicator down. Third window from bottom is the RSI and the RSI rises and falls with the market also.  It is starting to bend lower but has not had a bearish crossover.  Our %volume indicator is still rising and not bearish sign here yet.  It appears that an intermediate term top is not far off but so far not bearish signal has been triggered yet.  Any weakness in the A/D line, price or volume will turn down some of the indicator above and trigger a sell signal.  There is still a possibility the S&P may rally to January high (943.85) before sell signal get triggered.  We are still flat for now. 

Below is GDX.  We have been expecting a pull back in GDX to near 27.  The pattern forming in our view was “Three Drives to a Top”.   What appears now to be forming is a bearish “Rising Wedge”.   This pattern makes three higher highs and as the market works higher volume gradually decreases which is what is happening with the current pattern on GDX.  Rising Wedge pattern have downside target to where the pattern began and for GDX that would imply a pull back to 29.  Previous we had a target to 27.   There is also a negative divergence in the MACD where MACD is making lower highs and GDX is making higher highs.  We are noticing that the Small Gold stocks are showing strength compared to the large gold stocks and we expect this relationship to continue.  We pointed out this relationship on our 5/5/09 report.  We will look to buy some small gap gold stocks on the next pull back near 29 on GDX.   Also Gold stock should outperform silver stocks on the longer term and will not be looking to buy silver stocks. 

Related Stocks:  GDX, LEG

Weekly Gold ETF Trading

Gold closed on Friday at a 5 week high, breaking above its resistance trend line on the weekly chart. Weekly chart pattern breakouts carry much more momentum behind a move, than daily charts. This chart of gold (GLD fund) clearly shows a weekly breakout in the price of gold.

Also, I have drawn what appears to be a very large reverse Head & Shoulders pattern. It is this pattern, which is pointing to a much higher price for gold. The measured move for this pattern is the distance from the Bottom (head) to the top (neckline), which is about $300 per ounce. If we see this chart break above the neckline over the next few months, then most technical traders will be buying gold up to $1300 per ounce, which would be the next major price target.

Weekly Gold ETF Trading – GLD ETF Fund – Price of Gold

Daily Gold ETF Trading

The daily chart breaks down the price action even more, allowing us to see the price movement for each day. This chart looks to be very strong, generating a buy signal for gold.

The $HUI:GLD indicator shows gold stocks are out performing the price of gold, which is very positive. The MACD and stochastic indicators are currently on a buy signals as well. When we combine these indicators with current price action, trend lines and risk management, we can find low risk entry points for trading in and out of gold.

Daily Gold ETF Trading – GLD ETF Fund – Price of Gold

Weekly Silver ETF Trading

Silver has much of the same price action as gold. Both are considered a safe haven and seem poised to move higher over the intermediate term. The weekly chart below shows silver breaking above its resistance trend line and surging higher in price.

Sometimes I see silver as a leading indicator for the price of gold. Gold only moved higher by 3.5% on Friday while silver surged over 12%. I expect to see gold catch up over the next week as new traders/investors see these clear breakouts.

Weekly ETF Trading – SLV ETF Fund – Price of Silver

Daily Silver ETF Trading

The daily chart for silver looks strong as well, but could be a little ahead of its self. We may see is pause for a day or two before continuing its move higher.

Daily Silver ETF Trading – SLV ETF Fund – Price of Silver

Crude Oil Trading

The last week in oil was exciting with prices breaking out and starting to run higher.  The cup & handle pattern for oil can be seen best looking at the daily chart. The measured move for the price of oil looks to be around the $75 level and then $85 after that. The cup & handle pattern is one of most powerful bottoming patterns and I expect oil will trade higher for some time.

Weekly Oil Trading – How to Trade Oil (USO, USL) – Price of Oil

Daily Oil Trading

The daily chart shows a clear picture of the cup & handle pattern. During this pattern, we have had two buy signals. I like to wait for low risk entry points when risk is under 3% and currently downside risk for trading oil at this level, is around 8%.

Waiting for low risk entry points with clear exit points is critical for trading commodities. Every one can buy gold, silver and oil but most don’t know when to cut losses, take profits or when to add to a winning position. That is what I focus on when trading these volatile commodities.

Daily Oil Trading – How to Trade Oil (USO, USL) – Price of Oil

TheGoldAndOilGuy’s Trading Conclusion:

The commodities market has been extra volatile the past 9 months making it difficult to have low risk setups. We have been getting several buy signals but not as many setups to actually put money to work because risk has been over 3%.

I think these commodities gold, silver, and oil are poised for a nice move higher. I just want to mention I am not a gold or silver bug always thinking they will rally to ridiculous prices like $8000, which several forecasters are shouting out. I like to follow the price one - two moves at a time then review the current situation.

That being said, with the global economy not looking to hot, it puts gold and silver in a great situation. Countries, and private investors and traders are accumulating precious metals, as protection from falling currencies and will most likely continue doing this for some time, which will continue to push gold and silver higher.

If the broad equities market rolls over, I expect to see gold move higher with money moving into these safe havens. So, I think the odds are good for prices to rise over the next 4-8 weeks.

Oil appears to be in a similar situation. If oil prices continue to climb, I expect it will put a damper on the equities market, which will help push gold and silver higher.

While I would like to see prices move higher for all investment types, it’s important that traders and investors protect themselves from substantial loses. I focus on following price action, volume, momentum, risk management (Low Risk Setups), portfolio allocation and some fundamental data, but in my opinion most fundaments have gone out the window.

If you would like to receive these free trading reports or my trading signals please visit my website at: www.GoldAndOilGuy.com

Chris Vermeulen

Related Stocks:  GLD, SLV, USO

GLD - on buy signal

SLV - on buy signal

GDX - on buy signal

XGD.To - on buy signal

We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.

Check out our website for our performance in 2008 and subscription info: www.simplyprofits.org

Related Stocks:  GDX, GLD, SLV, UPS

The pattern that may have formed over the last three weeks on the SPY is a bearish “Rising Wedge”.  This pattern develops when the upper and lower boundary lines meet out into an apex and the volume gradually decreases as the apex is approached.   The SPY is also near trend line resistance near 85 and today’s high tested last Thursday’s high on lighter volume and suggests the upside is meeting resistance.  The momentum indicators such as MACD, Bullish Percent index and McClellan Summation index for now are still trending up and suggest the uptrend is still in force.   Either market shows a “Sign of Strength” through the blue trend line to resume the uptrend or “Rising Wedge” becomes in play and pulls back to 76 range.

Below is the 60 min. chart of the SPY.  Top window is a 100 period moving average of the tick index.  Tops normally form near +100 on this indicator but need to turn down from above +100 to confirm the top and so far this indicator has not turned down.  The Tick index can remain overbought for an extended time like it did back in April and May of last year (see chart above).   To help confirm the potential for a top the put call ratios for both the equities and indexes need to turn up (see chart above) and so far that has not happen either.  The tick index and the Put/Call ratios so far have not triggered a sell signal. Still flat for now.

We still own ASTM a biotech stem cell reach company (but does not do stem cell research on embryo’s).   Long POWR at 13.70 on 12/14/07.
 
The “Three Drives to Top” pattern may have been completed on GDX.  This pattern has a downside target on GDX near 27.  Notice on the chart above of the McClellan Summation index for GDX that the McClellan Summation index has turned down, which implies that GDX has also turned down.   The timeframe for the next significant low may show up in the late May or June period.   We went back to Flat on the XAU on 4/3 and may go long again near the 27 area on GDX which equates to 100 area on the XAU.

Related Stocks:  GDX, SPY