Where we have been, where we are now, and where we are going!

Hello and welcome to the ETF Technical Trader. First, I want to apologize for not sending out a Newsletter the last couple of months. I will have to admit that I was frustrated and did not see how anyone was benefiting from my analysis. With that said, I want to thank those that have responded and encouraged me to continue. Without you, what I do is pointless.

One thing you may have noticed over the last month is that I am not posting analysis every single day on every sector. I am selective of what and when I will comment. I try to keep the garbage to a minimum and not give you too much fluff just to write something when it really is not necessary. With that said, however, you will notice that I did write on all the sectors on 7/1/10.

What a start to the second half of the year! You just may see more post due to the every changing landscape of the markets I follow. I have a feeling that the mundane weekly slog we have been experiencing is about to come to an end. Volatility is coming back into the market and we should see some big moves down with volatile swings to shake as many fleas off the dog as possible.

Again, I want to thank everyone who follows my analysis, especially to those that have responded with comments that have encouraged me to keep writing. I appreciate all your comments. Keep them coming! Now, let us get to the main course, the meat and potatoes!

SPY

One thing I want to stress is that I do not recommend trying to trade what you may think is a tradable bottom. Tradable bottoms will be few and far between for the next couple of weeks and even may be for a couple of months. If you want to lose lots of money and fast, just try picking a bottom and place long positions in these funds. Oversold momentum indicators along with many others will continue to show oversold conditions for extended periods. Therefore, do not trade off indicators, another way to lose lots of money and fast or at least leave a lot of money on the table!

The reason I make such comments is the landscape that lies before us. It is not a pretty picture! First, look at the Exponential Moving Averages (EMAs). I use the 13, 55, and 233 as a personal preference. One reason I use these strange numbers is that they are Fibonacci numbers (not so strange). I use these instead of 10, 50, and 200. As you can see the 13 EMA is below the 55 EM and the 55 EMA is making its way towards the 233. So far, the 55 EMA has not broken below the 233. However, that cross may not be that far away. When it does happen, I expect a steep decline. That is when everybody will notice that the bear market is back and with a vengeance.

Notice how the price bounced off the 55 EMA on 6/21/10 and has not looked back since. From my experience, in steep declines, the price may not get close to the 55 EMA for a long time. With that said, the 13 EMA becomes the major resistance. You will know when the decline wants to stop and rest when the 13 EMA is broken a couple of times.

The second reason for the negative comments in the beginning of this segment is the Elliott Wave Analysis. We are in a corrective phase, which should be wave C; however, this is of a much higher degree. Wave C of the bear market started with the 2007 high. The first wave of primary degree bottomed in March of 2009. Wave two topped in April of 2010. Wave 3 is just beginning, which should carry prices well below the 2009 lows.

Third waves are most often the longest wave with significant moves, which are usually intense. Look what the third wave did during the decline from the 2007 high to the 2009 low! The third wave started with the May 2008 high and ended with the November 2008 low. Notice how steep the decline was! The price nearly lost 50% of its value in that decline. The next third wave, the one we are currently in, is of larger degree! You just thought 2008 was scary.

Volume has also started breaking out higher. It started with the initial price decline in April of this year. The volume decreased as we had an upward bounce off the 5/25/10 low. With that decline in volume, the 50-day average volume continued sloping upward. The volume has really picked up since the 6/21/10 high. This is just the beginning of extreme high volume days as people liquidate their stock holdings. People lost a lot of money in their retirement funds in 2008. They had put a lot of hope in getting back to the 2007 highs. When that hope is dashed, they will not want to give any more money back and they will try to get out as fast as they can.

Next is the most important component of the bearish landscape that we see. That is nothing other than pure unadulterated price action. What I mean by that is higher highs and lows or lower highs and lows. What we have are very visible lower highs and lows. This indicates that the price should continue to decline. I will continue to trade to the downside until the lower highs and lows are broken. You can shorten your time interval to trade the short-term gyrations in the market. However, be careful in doing so, for any bounce will mostly be short-lived and very quick to take away any gains in a bounce, causing frustration and loss of capital.

What are the near term targets? I often use Fibonacci Price Extensions to project potential targets. We can measure the decline from 4/26/10 high to the 5/25/10 low. A decline from the 6/21/10 high that equals the previous decline will equal the 95-price level. A move of 162% of the decline into the 5/25/10 low will equal the 85-price level. These levels are not set in stone; however, they are excellent signpost to give you guidance and direction.

What makes the above targets strong probabilities are the support levels seen when looking to the left on the chart. It increases the odds of hitting the Fibonacci Price Extension targets when they also align with previous horizontal support and resistance levels. We will carefully watch this as time unfolds.

The level that is critical to the bearish forecast is the 6/21/2010 high. A break of that level will alter the wave count and ultimately the forecast. That level is well above the current price; however, we will be well aware of something being amiss long before the price reaches the 6/21/10 high.

TBT

We will have to be patient for this change in trend. I do not recommend bottom fishing. Right now, the price is well below the 55 EMA and there is a large gap between the 55 EMA and the 233 EMA. The turn could take some time to take place.

One thing that stands out from 7/1/10, is the price action. The volume spiked up on 7/1/10 as the price formed a Japanese Doji Candlestick pattern. Was this volume along with the price action enough to signal capitulation? I am not so sure, but it could potentially signal the beginning of the end. Continue to watch the volume because if the price is about to change trends, it will need volume to move to higher highs. So far, we have not seen an up day with volume anywhere near the 50-day average for a while. It will get my attention when we see an up day with volume well above the 50-day average.

The price gapped up the next day and closed up for the day. The price is still below the 13 EMA and we will watch it closely for the next couple of weeks. A break above 41.07 will draw a lot attention and signal that the trend may be about to change. That level should also put it above the 55 EMA. We will have to wait to see where the 13 EMA will be in relation to the price and the 55 EMA when the price breaks that level.

If you are one of those fortunate people, that is long the treasuries or should I say short the rates, you may consider taking some money off the table. The reason is due to what I said about the volume and the Doji candlestick pattern. You should have a good profit and it may be a good time to take some of those profits now.

XLF

This indicates that the financials are weaker and you can expect them to lead the decline, just as they did in 2008. However, both are at the same 61.8% Fibonacci Price Extension level from the above-mentioned intraday highs. While I am here with the Price Extension, I might as well give the targets.

The first target is the 100% Price extension level, which is at 12.70. After a break of that level, then we can expect the 161.8% Extension Level at the 11.30 level. As I mentioned above with SPY, these levels correspond with horizontal support levels going back to the middle of last year, which magnifies the importance of those levels. Keep those levels in mind as time passes.

I guess I do not have to tell you that the trend is down. However, the price is below the 13 EMA and the 13 EMA is below the 55 EMA. The price is also below the 233 EMA and the 13 EMA is below the 233 EMA. All we need to confirm that the long-term trend has turned down is the crossover of the 55 EMA below the 233 EMA. They are very close right now and a good turn down of the price from current levels should pull it under soon.

Notice how the 55 EMA turned down the price on 6/21/10. It has not looked back since. As I said in my discussion of SPY, I expect the 13 EMA will be the significant resistance for a while now. We will have to wait and see; however, keep that in mind.

The price tells us more than anything else that the trend has turned down. As you can see, the price action from the 4/15/10 high has painted lower highs and lows. We will have to stick to our guns and stay with the downward forecast until the landscape changes and we start seeing higher highs and lows.

USO

I believe the odds favor to the downside for several reasons. First, the trend has turned down and we have to stay with that until the landscape changes. Right now, the price is below the 13 EMA, the 13 EMA is below the 55 EMA, and the 55 EMA is below the 233 EMA. XLF has painted lower highs and lows, we will have to stay with the forecast of downward pressure for prices until the lower highs and lows are broken.

I cannot really tell you when the potential countertrend top occurred when using Elliott Wave Analysis. I can tell you it was around the price of 42. The price declined from that level to the low of 5/25/10, which is at the price of 31. It has bounced from that level and found resistance at the 55 EMA. Look to the left on the chart and you can see why those levels turned the price

We have lower highs and lows since the 6/21/10 high. It has also broken below the 6/7/10 low. With these two and the EMAs the way they are, I have to look for lower prices.

Again, look to the left on your chart and you can see how important the 30 level really is. A break below 30 will break all the previous lows in the countertrend move since the 4/21/09 low. A break below the 4/21/09 low, which is 26.28, I believe, will cause the floodgates to open to allow a mass exodus out of crude oil. You should be out of Crude along time before then; actually, you should be short crude at this point anyway.

GLD

I believe there has been a battle over which is more eminent, inflation or deflation. The inflation camp has been winning many of the battles lately, but, I believe the deflation camp is about to win the war! Many commodities have already started declining and you can see what crude oil has done the last two months. The economic data that has come out in the last two weeks also confirms that the economy is much weaker that what most have anticipated. I believe that a capitulation is about to take place as the inflation camp waves the white flag and surrenders. Gold could potentially fall hard with lightening speed. Now you have been warned!

What makes the landscape any different from previous times as the gold price bounces up off the floor and rises even to higher highs? First is the Elliott Wave Count. I believe that the rise from the 5/21/10 low has been an Ending Diagonal. The decline on 7/1/10 broke the trend line that connects the lows of the diagonal. That decline on 7/1/10 was huge and with a significant spike in volume. This may be a shot across the bow that the trend is about to change.

Do I recommend shorting gold at these levels? No, not just yet. My experience tells me to wait, my efforts in trying to pick tops and bottoms has burned me too many times. What I do recommend is for those of you that may be long gold, may want to consider taking some profits.

The price is below the 55 EMA; however, the 13 EMA is still above the 55 EMA. I would like a cross of those EMAs before I consider shorting gold. I also would like to see lower highs and lows. I do not think the price action surrounding 6/29/10 and 7/1/10 constitutes lower highs and lows. I need to see a little more. I will keep you posted in my daily post as I see the significant signpost that would signal a good shorting opportunity in gold.

SLV

Again, the 13 EMA is above the 55 EMA right now. I recommend waiting before considering a short in silver. The price has broken out below both of these EMAs, which is a hint that the trend is about to change. Like gold, silver had a huge drop on 7/1/10 with a significant spike in volume. All of this is something worth scrutiny in the next couple of days or weeks.

We have seen somewhat of a lower high and low. However, I want to see a break below the 16.94, which is the 6/4/10 low, before I will consider recommending shorts for silver.

Concluding Comments

What I expect and what actually happens may be two different things or not just when it is expected. What I expect is lower prices with everything I mentioned above and the economic data that has been coming out the last couple of weeks has only confirmed what the chart landscape is already telling us. I am biased towards lower prices and will remain that way until I see where the trends are about to turn back up.

The markets may be about to melt down or even explode to the downside. You can make money in this scenario, at least for a while anyway, by trading the inverse ETFs. Just do not get too greedy. In the movie, Gordon Gekko said, “greed is good”. I am here to tell you it will bankrupt you. Just try to preserve your capital and you will be well ahead in the game. Preserving is what everyone will have on their mind when there is a mass exodus. Everybody will no longer have the stomach for a buy and hold strategy after the melt down experienced in 2008 and the first quarter of 2009. People will be thinking, “no you don’t, you are not getting anymore”!