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Gold & Dow Trading In a Congestion
by Chris Vermeulen
Last week the general market
continued to grind its way higher for yet another week. Overall I feel the
market is very much over bought. We all know the market can stay in extreme
overbought levels for extended periods of time making it very difficult to pick
This is the reason I do not try to
pick tops, but rather wait for a top to form before putting my money to work.
While a bottom can be made in 1 day, tops tend to take days and some times
months to complete.
A few things really stood out to me
when looking back on last week’s price action.
1. Gold (GLD Fund) was only up 0.29%
for the week while the gold mining stocks (GDX Fund) was down over 3.5%. This
strong divergence really has me concerned about the price of gold in the near
term. Gold stocks generally lead gold and if they are down 10x more than gold
last week we better watch out…
2. The US Dollar broke out and started to rally posting a gain of 1% for the
week. It is definitely weird to see gold move higher when the US dollar is
Gold GLD Daily Chart
Gold has been trading sideways/down since December. I see this large 5 month
pullback as bull flag and expect to see much higher prices for gold long term.
But I don’t count my eggs before they hatch so I continue to focus on the daily
and intraday chart patterns for low risk trading opportunities.
Friday we saw gold close very strong
for the day. It looks very much like a reversal candle but with the price
trading under the mini head & shoulders neck line and with the US Dollar in
rally mode again I don’t think the stars are aligned enough for me to put money
to work just yet.
Gold is currently trading in a major
congestion zone. Until there is a breakout of this zone I think setups will not
be very accurate.
Dow Jones Industrial Average vs.
NYSE New Highs Divergence – JANUARY
This chart shows the January 2010 peak in the stock market. As you can see
prices became choppy with strong up and down movements before we saw the sharp
Also note the NYSE new highs line.
As the market became choppy new highs began to drop quickly. This indicated the
market internals were weakening and lead to an 8% drop over the next couple
Dow Jones Industrial Average vs.
NYSE New Highs Divergence – MARCH
This chart in my opinion looks much the same as January. You can see the
Reversal candle from the Feb lows and the strong rally to the current price as
Notice how the market is getting
choppy. Also last Thursday the Dow gave us a reversal candle. But this time the
reversal candle is to the down side.
Also note the NYSE New Highs line.
It has dropped sharply indicating the market internals are weakening once again.
This is what trading is all about…
finding things that are out of whack and waiting for a low risk setup in order
to make a profit.
Weekend Trading Conclusion:
In short, the stock market is over bought and about to roll over. I do
understand that this grind higher could last another week or so which is why I
am focusing on short/quick intraday movements like Friday’s SP500 Intraday Low
Risk Setup, and not buying etf funds to hold for a few weeks. Most of you know I
do not chase prices higher simply because down side risk increased when buying
into a over extended rally.
I feel gold, silver and oil will
move together and at this time I don’t like their charts for trading. With any
luck we could get some setups this week but not counting anything just yet.
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This article is
intended solely for information purposes. The opinions are those of the author
only. Please conduct further research and consult your financial advisor before
making any investment/trading decision. No responsibility can be accepted for
losses that may result as a consequence of trading on the basis of this