November 02, 2009
Where we have been, where we are now, and where we are going!
Hello and welcome to ETF Technical Trader! It is possible that many of the markets I follow have turned. October has been a tough month to trade, which is typical when there is a trend change. November may not be so boring!
Before I go any further, I want to mention a new feature to ETF-Technical-Analysis.com I think it will be a great benefit to all. I have devoted part of this Site to you, the visitor and reader of my commentary. You will see a new section on the NavBar saying, “Your Web Pages”.
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Now to what is important! I posted in last month’s e-zine that the September highs could be the turning point of the market. As we all know, that did not happen. The markets have continued to move higher. Could October highs be the turning point? Time will tell, however, there are already signs that it could be.
If you have been following my post, you possibly could have positions in the Bear Treasury Funds (PST and TBT), Bear Gold Funds (DZZ and GLL), and Bear Silver Fund (ZSL). These triggered buy signals when the price made higher highs. So far, the higher highs and lows still hold.
I made a blog update on the morning of 10/29/09 that said that a buy signal triggered for the TWM and TZA, two Bear Index Funds. According to that post, you could have a position in those funds with the pull back during that days trading.
These are inverse funds that track small cap and broad market indices. Because of that fact is the reason those two funds have broken out above the previous high made on 10/2/09. That is what triggered the buy signal. It looks like the small cap and broad market stocks are leading the rest of the market to the downside. The other markets have yet to break there previous 10/2/09 high, although that may not be that far off.
I had made some buy recommendations in the Bear Index Funds the beginning of October and did not fair well. Those funds moved through their resistance levels as the indices moved higher. Stops protect you from huge losses and leave you with dry gunpowder for the next fight. I am being patient and making sure of the setup. I am waiting for the confirmation needed to ensure better odds for a success trade. I will not discuss my analysis of each fund. I will cover only one fund in each category for you to get the main point in direction and potential move for the sector with that one fund. I will use SPY for the analysis of the entire Index Funds. I will use XLF and TLT to cover the Financial Funds. I will use DUG for the Oil funds. I will use GLL and ZSL for the Gold and Silver Funds respectively. So, let’s get started!
One of the most significant things I see is the volume. Volume has picked up as the price has started its decline. More significant was the volume Friday. Volume went ballistic in many of the Index ETFs Friday.
Price has yet to drop below the 10/2/09 low. That is the other critical support level indicating a significant change has taken place. However, it has broken below the 76.4% Fibonacci retracement level. Often price continues once that level is broken. Other Indices have broken the 10/2/09 low and I can expect that this fund will also.
The price has now broken through the TAZ. The price has been below the 55 EMA only once since April and that was only for a short period around the beginning of July. It is still above the 233 EMA. We will have to wait and see if the price can reach that level.
The MACD and Slow Stochastic have both started turning down confirming the potential change in trend. They have a long way to go before reaching the oversold mark. The Slow Stochastic has not significantly broken below the 80% line.
There is a gap in the weekly chart, which started with the week of 10/5/08. The price filled that gap and looks to be falling from that resistance. With the gap fill, the TAZ between the 55 and 233 EMA, and the break of the long trend line from the March low could be significant when looking at the weekly chart.
The 10/2/09 low is critical support. A break of that support will usher in lower prices for sure.
Another critical level was the trend line support from the March and July lows. That trend line was broken several days ago, well ahead of the overall market. The financials led the decline before, could it be leading again? Again, we will have to wait to see.
The MACD and Slow Stochastic have fallen aggressively from the overbought condition. However, it is nowhere near the oversold area.
The Elliott Wave count also shows a complete are near complete five waves down from the October high. We could see a bounce early in the first week of November. The October high will be the critical resistance for the bear case to hold up.
Interest rates have been on the rise of late. TLT has been trading within two parallel trend lines connecting the highs and lows from March. The price recently has tested the lower trend line again and has bounced up from that support. Will it hold?
Another critical support level is the September low. It tested it recently and came within 0.03 points of breaking it.
Another point of significance is the fact that the 13 EMA is below the 55 EMA indicating a downtrend. To add to that is the fact that the price, the 13 EMA, and 55 EMA are all below the 233 EMA. The price has moved up in the last couple of days and could still move up more, but I believe the 233 EMA may hold strong resistance.
I can count a five-wave decline from the October high. This Elliott Wave count indicates a trend change. However, I do expect a rise up to the 97 level, which is the previous fourth wave high. The previous fourth wave is often a magnet for the bounce. After that, I expect the decline to continue.
There is potentially a head-and-shoulders pattern forming. With everything mentioned above, price could slice through the potential neckline drawn through the September and October lows. This is something to watch!
Anyone that has been following my post will most likely have a position in the Bear Treasury Funds. The critical level for support and long positions in these funds will be the 10/2/09 high.
DUG has been making higher highs and has had an increase of volume to accompany it. The volume actually went ballistic 10/30/09. This is a good sign with the higher highs made with the high volume. Last month’s e-zine, I mentioned that the volume was below its 50-day average. That has definitely changed! The bottom could potentially be complete.
The price has moved into the TAZ and just under the 55 EMA. Besides TAZ being resistance, several other resistance levels need to be broken to confirm a buy.
The first resistance is the lows of September. The price needs to break above that previous bottom to be able to say it has turned the corner for a change in trend.
The second resistance is the trend line connecting the highs of 7/8/09 and 10/2/09. This is another critical resistance line, which has to be broken for a confirmation of a change in trend.
The MACD and Slow Stochastic are oversold, but they are turning up to signal a potential turn in trend. The Slow Stochastic has not even broken through the 20% line.
I have to wait and be patient. The reward will eventually come!
GLL has had a good push upwards for four weeks. Now is has come down a little for the last two weeks.
There has been a five-wave move up from the 10/23/09 low and a complete or near complete three-wave correction. The 10/23/09 low must not be broken, or the change in trend will have to wait.
The 50-day volume has been ticking upward during this bottoming process. It is possible the smart money is accumulating shares.
The MACD and Slow Stochastic are oversold. Currently thy have begun to turn upwards. There had been a divergence between the price and the indicators, which signaled a potential upcoming change in trend.
The price has already cleared one trend line that connected the highs of 8/17/09 and 9/25/09. Presently, the price has come down to retest that line for support. The next trend line above the price connects the highs of 7/8/09 and 8/17/09.
There is TAZ resistance to overcome. The price is still stuck in between the 13 and 55 EMA.
The 9/25/09 high is critical for a strong confirmation of a change in trend. That level is still over 2.00 points over the current price. However, if that level is broken, the trend line mentioned above will be broken also. Therefore, the 9/25/09 level is an important level to watch.
This next week will be critical for the future direction of gold. Anyone that has been following my post will most likely have a position in the Bear Gold Funds. The critical level for support and long positions in this fund will be the 10/23/09 low.
The setup for ZSL is very similar to GLL. Volume has pickup a little around the recent bottom. This could potentially indicate smart money is buying shares.
There have been five-waves up, indicating a potential change in trend. Recently, there is an incomplete three-wave correction. There should further declines before this correction is over.
A critical trend line resistance has been broken. There may be a further retest of that line; however, I believe it will hold. The retest of this line aligns well with the Elliott Wave count just mentioned.
The price is still below the 55 EMA, within TAZ and below the 9/25/09 high. It will be helpful to confirm the change in trend if these two critical levels were broken.
The MACD and Slow Stochastic are oversold. Currently they have begun to turn upwards. There had been a divergence between the price and the indicators, which signaled a potential upcoming change in trend.
Anyone that has been following my post will most likely have a position in ZSL. The critical level for support and long positions in this fund will be the 10/23/09 low.
In last month’s e-zine, I said we are at a very critical point in the markets and that the next week should show its hand as to which direction we are heading in the market. Well, although not confirmed completely, it seems be holding true so far.
The next week should see some consolidation or some retesting of support or resistance. After that, I expect the downtrend in the indices to continue along with treasuries, oil, gold, and silver.
Just as a reminder, continue to come back to www.etf-technical-analysis.com to view My Blog to keep a close eye on any changes or updates I may make in my analysis. I will blog my updates before I will post the changes to the chart and analysis section for each fund I follow. Therefore, do not get left behind, stay current on my recommendations by checking my blog daily.
Talk to you next month! You can contact me anytime if needed when you have questions concerning my analysis or recommendation. You can go to Contact Us to fill out the required blocks and then post your comments before sending.
Be a smart trader!
Craig Wells