The Divergences Are Now Appearing

08/11/2017 2:55 am EST

Focus: STRATEGIES

Chris Vermeulen

Founder, TheTechnicalTraders.com

Active traders should be defensive over the next few days as we could have one more bout of selling in stocks and a spike in the VIX.  The best plays right now will be short metals, short oil, long dollar, asserts Chris Vermeulen, of Active Trading Partners.


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The loss, of the leadership of the banking and financial sector, KBW Bank Index (BKX) is now a major warning signal which is what is required in order to move the S&P 500 (SPX) much higher, at this time.

chart 1

The divergence which is currently being seen between the Dow Industrials (DJI) and Dow Transportation (DJT) indexes will be coming into play in the upcoming weeks.

chart 2

The U.S. dollar has declined to a 52-week low. When stocks have been at a high and the dollar at a low, historically, the SPX showed a positive return within six months to one year, almost without exception.  I see support in the 92.50 area.

chart 3

I would expect to see a very quick “oversold” bounce in SPDR Gold Trust (GLD), then a correction to the 105 to 107 areas as the final “washout bottom” is put into place.

chart 4

My approach to the markets is to be flexible enough to handle the possibilities of much stronger and weaker sustained trends than what we have seen in our investment lifetimes.

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Conclusion:

In short, active traders should be defensive over the next few days as we could have one more bout of selling in stocks and a spike in the CBOE Volatility Index (VIX)  I feel the best plays right now will be short metals, short oil, long dollar.

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