Although I am critical of classical chart patterns for various reasons detailed many times in this blog and I had criticized last year’s call by Peter Brandt for Dow 4,000 solely on technical grounds, I also want to be fair in this blog and mention his excellent call for a (major) top in Russell 2000 he made last Monday. I think the timing of the call could not be more precise but I am still questioning whether this is a major top.
Before the open of last Thursday I wrote in this post that “Gold and silver are way oversold… some type of a rebound is expected from these levels.” GLD and SLV rebounded during the last two trading sessions and gained 3.4% and 5.32%, respectively. Will this move continue?
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This alert is about a signal in SPY for entry at today’s open and exit at the close and also about short signals in a Dow 30 stock.
Gold and silver are way oversold. The charts for GLD and SLV show levels of relative strength index not seen for years. Although markets can stay oversold for extended periods of time, some type of a rebound is expected from these levels.
After a 38.2% retracement of the trend that started last December and a closure of the gap left open from the beginning of March of this year, it is quit possible that a massive short squeeze will take place before a decision for the final direction of the market for the rest of this year.
Chart analysis can provide a context for experienced discretionary traders for coming up with subjective probabilities, which are then updated by proven, high expectation methods. Chart analysis alone is a negative expectation trading method because charts nowadays are available to everyone with access to the Internet.
A 38.2% Fibonacci retracement of the uptrend that started during last December was completed yesterday. A closure of the gap left behind in the beginning of February of this year is still pending but not necessary. In addition, most of the “sell in May and go away” effect is already factored in. More importantly, if the situation in Europe stabilizes, we could see an explosive rally and a short squeeze of recent technical short signals.
Is the trend in gold down as some analysts have already declared it? I know a few people who would deny that the trend is down, a few more who would claim that the trend is sideways and even some that would insist the trend is up. I even know some people who belong in the category “I don’t care since a trend is only defined in hindsight”. These differences arise from the adoption of different timeframes, trading styles and/or investment horizons. Thus, defining the trend without defining those other things is like showing an equation without defining its variables.
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