Current Trading Signals for Three Major ETFs

08/17/2010 12:01 am EST

Focus: ETFS

This 60-minute chart below shows gold getting hit hard last Wednesday morning. Investors and traders around the globe were closing out positions and moving to cash. This high-volume dumping of positions pulled virtually all investments lower and was the first tipoff that the market was in panic mode.


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One the dust settled and investors regrouped, we saw money surge back in to gold, creating a nice pop the following day. The problem I see is that gold is now trading at a key resistance level when reviewing the daily chart. And if you take a look at the 60-minute chart, you can see the price of gold sold down in the morning on August 13 and drifted up into the close on Friday, forming a bearish wedge. Also, there was some very strong selling just before the market closed, which is also a concern.

United States Oil Fund (USO)

Both times oil has fallen we have seen the price pierce key support levels where the bulls would have the majority of their stops placed. The intraday pierce causes the stops to be triggered, washing the market of long positions while the smart money loads up, accumulating everyone’s sell orders. This is something that happens with virtually every type of investment and the main reason traders get shaken out just before the market goes in their direction. Anyways, running of the stops is something I will cover in a future report.

Looking at the chart below, you can see oil trading at trend line support. Each time the key support levels (blue arrows) have been pierced, the market has rocketed higher. Just from looking at the chart from August 9 forward, you can see that this move down is overextended and visually looks ready for a pause or bounce in the coming days.

Trading Tidbit: When trading trend lines, it is important to try and play the third test. Reason being is that the first two pullbacks create the trend line and the third test is when active traders generally jump on board, causing a sizable bounce. With each test of a trend line, it becomes weaker and the probability of a breakdown is more likely.


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S&P 500 Depositary Receipts (SPY) 

The S&P 500 chart shows last week’s breakdown on the fifth test of the trend line. The market is oversold here and ready for a bounce, which I hope we get this week. My concern is that the downward momentum is too strong and a bounce will be negated.


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In short, I feel there will be a relief bounce in oil and equities, while the dollar and gold will have some profit taking and trade sideways or down at the beginning of the week. After that, it looks as though stocks and oil will head lower while the dollar and gold rally.

By Chris Vermeulen of TheGoldAndOilGuy.com

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