Now that’s what I’m talking about!

I went long EUR/CHF near the end of August based on several factors that showed it was ready for a nice rally. Since then, market action has unfolded quite nicely, and I am happily sitting in my long position. My original exit conditions remain in play (2 monthly closes below 1.28.

You can see on the monthly chart above that EUR/CHF held at the strong support that I identified in the initial post. In fact, on a monthly basis, EUR/CHF essentially reversed August’s losses. This is a very bullish Piercing Line pattern, and it strengthens my confidence in being long. However, 1.36 should be major resistance, and I am awaiting price to break clearly above this level.

BIDU goes Parabolic

I think the stock market is topping out. Blogger sentiment is extremely bullish and stock market sentiment is relatively very bullish. In the midst of these sentiment extremes, BIDU is going parabolic. I think this stock is a good short bet, though it could have a bit more upward thrust before reversing.

You can see in the daily chart above that since consolidating after it’s split in May, 2010, BIDU has rallied in a parabolic trajectory. The fact that 5-waves can be traced out tells me that this rally is near an end. Furthermore, when sentiment is bullish and individual stocks are going parabolic, I believe it’s a safe bet to short.

Stock Market Near a Peak

Today I’m revisiting my thesis from a few months ago that the stock market is in a bearish formation. Though it has rallied quite strongly over the past month, I think this strength is nearly exhausted. This is confirmed by technicals as well as sentiment.

 

First, check out the SP500 E-mini chart above. I see a very clear 5-wave leading diagonal, followed by a very clear 3-wave upward correction. At a minimum, we need to see a drop below 1,000 to complete this pattern.

Meanwhile, sentiment is very bullish. I have seen many bloggers commenting about the Head and Shoulders formation above, but everyone keeps talking about them and nothing ever follows through. Also, bloggers are very bullish in general, and bullish sentiment is at multi-month highs!

Conditions look ripe for a decline!

Reshorted Gold via DZZ

Reshorted gold circa 1286 by purchasing DZZ. Mental stop @ 1291-92.

Stopped out of my Gold short… will consider trying again soon

Fool’s Gold?

Once again, I’m talking about Gold. A few months ago, I was expecting a sharp drop, which did occur. However, the subsequent bounce has been stronger than I expected. I still believe that gold will weaken soon, and if it does make a marginal new high, it won’t be sustained very long.

In the first chart above, the 3y weekly chart, notice that gold broke a multi-year supporting trendline, and is not in the process of retesting this trendline from below. Second, notice the MACD divergence that has not yet fully resolved. Third, notice that in every other major rally prior to latest one, volume expanded heavily on the upswings. This time, volume is absolutely meager, which indicates that buyers are not nearly as confident as they were in the previous rallies.

Next, take a look at the COT data for Gold. The chart above shows gold’s price in the upper panel, and the 78-week COT commercial trader’s index in the lower panel. When the blue line is at 0, commercial traders are more short than they have been in the past 78 weeks, and vice versa for when the line is near 100. With the recent rally, commercial traders have taken the opportunity to drastically increase their short positions, which is a bearish sign.

Finally, I want to comment on sentiment. Seasonally speaking, August and September are quite bullish for gold. However, because this tendency has been so apparent in the past couple years, there is now a general consensus that gold will continue to rally in the coming weeks and months. Combining this bullish sentiment with the bearish factors mentioned above tells me that the probability of a drop is higher than the probability of a rally, and I am positioning myself accordingly. Good luck!