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« Gold prices at $10,000? | Main | Gold prices: A bad day at the office »
Monday
Jul052010

US Stocks: Down, Down, Deeper and Down



After an impressive rally of over 80% from the lows made in March 2009, the US stock market looks ripe for another plunge south. This rally was never sustainable, rather than being built on solid fundamentals and a genuine economic and business recovery, it was merely the result of multi-billion dollar bailouts, near zero interest rates and the feeling that no matter how bad things get, the government will save the day and stop any Armageddon scenario.

Although this may be true, the government may indeed be able to prevent the apoplectic scenarios many feared would eventuate during the financial crisis, this does not mean that the governments and central banks of the world can conjure strong, consistent, sustainable growth in the global economy, nor a permanent bull market in stocks. Sure pumping trillions into the system and slashing rates to zero is bound to have some effect and give markets a boost, but what now? The markets have had a shot of adrenaline, but it now appears there isn’t much else to get excited about from a bullish perspective.

In fact it is those who are short the market that should be getting excited, especially when one examines the technical position of the S&P and Dow at present.



spy 040710  2 July 2010.jpg


As the chart above shows, there is a clear head and shoulders pattern on the S&P 500. This is a bearish formation and often considered one of the most reliable trend reversal patterns, so in this case the pattern suggests the trend is changing from up to down. The key points of the head and two shoulders are marked on the chart, but attention must also be paid to the neckline. This acts as a support level until broken, when it then becomes a resistance level. Also a neckline with a negative gradient, as is the case above, can be considered a more bearish formation than one with a flat or positively sloping neckline. The fact that the neckline is broken was the last confirmation we needed to become bearish on the S&P 500 and equivalent stock indices.

Looking to a shorter time frame, the green circles highlight the semi-bullish technical signals; the RSI is at 30.28 which is nearly in the oversold zone and the Full STO which is oversold and may give a bullish crossover. There is always conflict between technical signals, however the skill to executing a successful trade is in the trader’s ability to weigh up the different indicators and come to a conclusion on the direction of the market.

Another technical factor that contributed to our conclusion that US markets are heading lower is the “Death Cross” and appears to have just occurred, or is in the process of happening. This is when the 50 day moving average comes down and breaks down through the 200 day moving average and it is a bearish signal. We do not have to look far to find a case where the Death Cross worked out exactly how it was theoretical meant to.



spy death cross 040710  31 Dec 2008.jpg

Although we do not foresee a decline as rapid nor as severe as that in the chart above, we do see a decline worth trading, so we are currently short on the S&P 500, and we will continue to build our short position on any mini rallies in the market.

Our premium options trading service OptionTrader, is currently averaging a return of over 40% per trade, in less than 40 days per trade. The service only costs $99, so one trade of $1000 at the average return of 40% bags a $400 profit, paying for your subscription more than four times over!

We aim to optimize our returns using options to limit our risk and maximise our returns, and anticipate great returns from this upcoming decline in the US stock market. Get on board now by visiting our website www.skoptionstrading.com for more information and to sign up now!









Have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.



Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg

Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per trade. Click here to sign up or find out more.


www.silver-prices.net have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

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Reader Comments (5)

Your article was good

however, wave 2 down I predicted in Mid April when everyone was bullish. My targets then were 92-97 on the SPY ETF from 121 at the time of my article. This is a normal wave 2 correction after a 13 month bull run, need about 5 months to correct sentiment and price. 942 on the SP 500 would be a 50% Fibonacci re-tracement, everyone will be off the bull then. That should be done by mid September per my April forecast.

I also recently called a top in Gold on June 29th, it dropped $50 1 day later. Looking for $965 minimal there, with 800 possible.

Human behavior dictates the highs and lows, the under and overvaluations... so far the SP has re-traced a 38% Fibonacci of the 13 month rally.... its about 2/3 of the way done.

The market will be at new highs by next spring...

July 6, 2010 | Unregistered CommenterDave

Sounds like the information is saying to get out now including PM mining stocks for repurchase at a later time. I started to lighten up a short while back but am caught with a sizable loss in FCX. Have to decide whether to take my lumps or ride it out hoping for a recovery in copper later on.

July 6, 2010 | Unregistered CommenterJohn Ell

John,

We would rather not comment on Copper as we don't spend enough time trying to understand it, hopefully some of our readers who are better informed can throw in their two cents worth.

At the moment we prefer to ride it out with the PM stocks as we would probably be buyers in August anyway, is it worth coming out for a month or so, it might be, to close for us to call.

July 7, 2010 | Unregistered CommenterGold Prices

I think that these "HS-formation" now is well known amongst several technical analytics. These article says in the start: "After an impressive rally of over 80% from the lows made in March 2009".

Ater such a huge up-trend, a correction in 14-15% is not unnormal. Look back in 1975, when the dow was off 14,5% and then bottomed. Look back in 2004, then Dow and SPX gave a lot of false bear signal, such as lower lows and lower highs. Also we got that false death cross. After a huge rally of 80%, I think the signal we now see is false.
Different these time? I think not.

July 7, 2010 | Unregistered CommenterNorway

New QE by the Fed should boost the stock markets for awhile. Too bad about gold. Short selling on the Comex will kill it every time(like its supposed to).

July 7, 2010 | Unregistered CommenterP

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