The roller-coaster that was last week is, thankfully, behind us. In last night’s audio update, we discussed the range-bound aspects of these markets and where we would turn bullish on the $SPX.
Until we see these numbers exceeded on volume, we remain in a market that begs to buy pullbacks to support and sell rallies into resistance. While there are individual opportunities (both on the long and short side), trading is for the very nimble only, and cash is a very good position right now unless one is highly skilled at daytrading or scalping.
This is a reversal-based market rather than a momentum-based market.
This means that the markets can move in one direction for a few days, then reverse and move in the other direction. In this environment, momentum traders are getting whipsawed and buy and hold investors are getting increasingly depressed, anxious, angry and physically or mentally ill. Whenever we hear people say things like “Don’t worry—you’re in it for the long run,” we shake our heads wondering asking “Approximately how long is the long run? What about the unfortunate people who are still holding and hoping now that their portfolios are down over 50%? How long is it going to take for these portfolios to gain 150% in order to break even?”
Is there any light at the end of the tunnel? Or, is that light just another oncoming train? Perhaps a little of both is in order.
Digging deeper into the activity of last week, several things caught our attention. Our proprietary indicator of the so-called “Professional Money” shows a “stop-advance-stop-advance” pattern of accumulation since late October. This is bullish, but it is good to remember that this money has deep pockets and patience to ride out market swings.
Other indicators that we watch are showing signs of relative strength indicating that we could see a rally that sticks begin late this week or early next week. When and if this rally occurs, we will be watching the levels, leading sector groups, and the way that $VIX, $TRIN, sentiment and Professional Money behave to give us clues if there will be another test of the Oct. lows later this month or in December.
Until the markets show their true intentions, this remains a short-term trading market where positions can be taken at pullbacks to support and sold at runs into resistance. This continues to be a "buy and sell" market that is range-bound until proven otherwise.
A few words on gold: The $XAU is already up nearly 50% in the past seven trading days, so it is due for a little basing here before it decides what to do. The next short term move looks to be higher. However, we are on alert for a move up for the next few days and then failure. Gold futures and certain top tier gold stocks remain a daytraders and scalpers dream.
For those asking about the discrepancy between the prices on electronic gold and the physical markets, it is to be remembered that electronic gold traded on COMEX is subject to varying degrees of manipulation, similar to the gold stocks. Although there are those who disagree with us, we consider both COMEX and gold stocks to be fiat.
In contrast, physical gold is a hard asset that one is able to touch and feel. Several newsletter writers are encouraging traders to “stand” for physical delivery of any positions that they have on COMEX in December. We can only imagine the impact that would have if this actually came to pass.
Janice Dorn, M.D., Ph.D., is a financial psychiatrist and chief global risk strategist for Ingenieux Wealth Management in Sydney, Australia. She also offer trading consulting and coaching services via her Web site, TheTradingDoctor.com.