| The Intermarket Report December 28, 2007 |
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| Written by Matt Caruso CMT | |
| Sunday, 30 December 2007 | |
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The Futures / Inter Market Report Trading the World's Markets December 28, 2007 Matthew Caruso, CMT If you have any questions, send them to: e-mail: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
S&P 500 under pressure – Gold/Silver index to bottom On November 16 I stated a strong probability for the S&P 500 to bounce and after a retracement, eventually lead to a greater decline (http://tradesystemguru.com/content/view/118/58/). After one more week down the S&P 500 found support and climbed higher, retracing about 60% of the fall from its all-time highs. It appears that there is a strong probability that the S&P will have another leg down as was initially described in the November report. There are several signs of a top forming on the S&P, which would mean that there is a lower high forming which invariably would lead to another move down. Smart money activity as shown by the net position of commercials in figure 1 (blue line) shows that the smart money is leaving the market. Commercial traders are more bearish than they have been for several months. When commercials increase there selling and there is little or no price advance it indicates their strong need to exit stocks. As well, there is a continued divergence between price and the MACD. Despite the recent price bounce, the macd has stayed flat showing little in the way of a real increase in momentum along with price. As well, the stochastic in the same chart is now also turning down indicating exhaustion of the recent price climb.
Figure 1 chart by genesisft.com Taking a closer look at the S&P in figure 2 with a daily chart, we can see that prices are in a triangle formation. It is my expectation that price will penetrate the lower side of the triangle. A move below the triangle and below the 1146 swing low would be in my opinion a strong indication that the correction is once more underway. As well, the DMI minus has crossed above the DMI plus and the daily stochastic has turned down. These two indicators increase the likely hood that the top has now been put in place.
Figure 2 chart by genesisft.com Gold/Silver XAU index bottom When studying a stock chart there are two variables that we see. One variable is price and that is what gets most people’s attention. The other variable which slips most people’s attention is time. In order to draw a bar chart we need both time and price, therefore in my opinion it is important to study both. In the following $XAU gold/silver chart in figure 3 I have highlighted the strong tendency for prices to bottom every 75 days. In order to highlight the cycle I have changed the chart so that every bar represents 4 days and placed a stochastic at the bottom of the chart. Practically every time approximately 75 days had passed (18 bars in the chart below – each bar is 4 days, so 4 X 18 = 72) and the stochastic turned up from an oversold level there was a cycle bottom. To add even more bullishness to this chart, prices are testing the support at the breakout line. Therefore we are in time for a bottom, at a support, and momentum is turning higher. It is very likely that prices will have strong climb from here and likely exceed the recent 52 week high. To follow up on a past report made on December 14, 2007, silver looks to have finished its correction and further downside prices do not seem likely. The bullishness seen in the Aussie, and Canadian dollar as well as the bullish picture this week on the $XAU present the situation in which commodity and commodity related markets look like they are once again set to rally.
Figure 3 chart by metastock ---------------------------------------------------------------------------------------------------------------------------------DisclaimerTradeSystemGuru.com obtains information from sources deemed to be reliable; |
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| Last Updated ( Wednesday, 09 January 2008 ) |
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