Everything that was “down” is “up.” Will it hold?
As a trader and/or investor you need to be paying close attention RIGHT NOW (!!!) to see what happens next. Because what happens next may determine the overall trend(s) of things for some time to come.
Where We Stand
In an nutshell, many, many market that recently flipped in to a “downtrend” (i.e., price fell below a long-term moving average and/or a shorter-term moving average such as the 50-day average recently dropped below a longer-term moving average such as the 200-day average) have rallied sharply in the last week or so and are now “overbought” (based on any number of standard and not so standard overbought/oversold indicators).
This includes – but is not necessarily limited to:
*The major U.S. stock market averages (SPY/DIA/QQQ/IWM)
*A host of non-U.S. stock market averages (
*Energies
*Metals and mining stocks
A variety of charts appear at the end of this article so please be sure to scroll to the end. WAIT!!!!! What I meant to say was “please keep reading to the end” (Thank You!).
So one of two scenarios is most likely about to unfold:
1. The “bottoms are in” and the recent upside reversals will serve as a “launching pad” of sorts for future gains in the months ahead.
2. Everything (figuratively speaking) is about to reverse back to the downside
Most of the charts below highlight the:
*Current overall trend (mostly “bearish” based solely on moving averages)
*The current “overbought status” (with an indicator or bearish Elliott Wave count highlighted)
*The “line in the sand” (i.e., the recent low)
What to Watch For
So here is what you should be watching for:
*If markets DO NOT reverse back to the downside soon then it is likely that some major bottoms are in place (particularly in the stock market where the seasonal calendar tells us that from late October into January is the most bullish time of year for the stock market).
*If markets do start to reverse back to the downside:
1.Traders may consider short-term bearish trades intended to make some money if recent lows are retested and/to make a whole lot of money if recent lows do not hold
2.If markets reverse to the downside from here and take out recent lows then:
3.A serious bear (global) market will be confirmed and investors must be doing something besides just “holding on and hoping for the best”.
Summary
So to sum up what I basically have said so far:
“Either things will go up or they will go down”
So you’re thinking “Thanks Jay”. Now this is the point where as a “professional market analyst” I should insert my “prediction” as to what I expect will happen and why. And I would love to but the truth is that I am not too good at predictions. Hence the reason I focus on trying to:
A) Respect the major trends (i.e., not just “holding and hoping” when a potential downtrend begins to unfold)
B) Trade the shorter-term trends – be they bullish or bearish
Lots of opportunities are setting up at the moment. I will be watching closely to see which scenario plays out and will act accordingly.
I suggest that you do the same.
Charts
U.S. Stock Indexes
Figure 1 – SPY (Courtesy: ProfitSource by HUBB)
We see that:
- The price trend is “bearish”
- The Elliott Wave count is “bearish”
- The 3-day RSI reached “overbought” territory
According to “classic technical analysis” this market “should” reverse to the downside and retest the “Line in the Sand”
Whether it “does” or “does not” do what it “should” do will provide incredibly important information going forward.
Non-U.S. Stocks
The same holds true for many foreign stock indexes. See ticker EFA in Figure 2.
Figure 2 – Ticker EFA (Courtesy: ProfitSource by HUBB
Crude Oil
Crude oil (using ETF ticker USO) is rallying sharply and is about to test a key resistance level at $16.50 a share.
Figure 3 Ticker USO (Crude Oil) (Courtesy: ProfitSource by HUBB
Silver
Silver has rallied strongly and the ETF ticker SLV has moved slightly back above its 200-day MA. Watch closely to see if this holds.
Figure 4 – Ticker SLV (Courtesy: ProfitSource by HUBB
Gold Stocks
Gold stocks (using ETF ticker GDX) may have already reversed to bullish (see Elliott Wave count in Figure 5). In the short run beware of potential seasonal weakness between now and late October
Figure 5 – Gold stocks (Ticker GDX) (Courtesy: ProfitSource by HUBB
Jay Kaeppel
