OIL
When the bears become extremely vocal about price moving lower, that is almost always a sign that a bottom is at hand. Retail traders become the most confident in direction when price is stretched the furthest from the mean. The opposite strategy works much better. Look how far below the 50 DMA price stretched. That wasn’t the time to be bearish. It was the time to look for a bottom.
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BEWARE THE FALSE BREAKOUT
Remember all those analysts that have been telling us the market was about to crash? Well, just like I predicted, the Nasdaq is now testing the all-time highs.
Beware of a false breakout early next week. This is how big money gets out of a position. They create a breakout and then sell to the clueless retail traders that buy the breakout. Buying breakouts rarely works in modern markets.
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GOLD’S MULTIPLE RESISTANCE ZONES
Gold has multiple resistance zones at the 1380-1400 level. It’s going to take some work to break through these. Gold will need some help from the dollar, which it will eventually get as the dollar will be due for its intermediate cycle low by the end of September or early October. Once the breakout occurs, gold should make a beeline for the 50% Fibonacci retracement, and then maybe to $1550 before this intermediate cycle tops.
Price is trapped between the 200 week moving average and the bear market trend line. I’m going to say that there is almost no chance of gold dropping back below the 200 WMA for the rest of this bull market.
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Gold: Sideways for Awhile?
In my last chart of the day I noted that gold and the metals sector in general were too stretched above the 200 DMA and would likely have to churn for awhile before the next leg up could begin. After seeing the sell off following Friday’s employment number I think I probably called that one correctly. The metals may have to churn sideways for most of August before the next rally begins.
I’m going to go over in detail this weekend what I think the sell off on Friday in the metals means for the sector. Hint: It’s not that bearish.
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Regression Mean
Probably the single most powerful force acting on all assets is regression. All assets regress to the mean over time. Absolutely the first thing any trader should do before making any trades is pull up a very long term chart and determine how far above or below the mean price is. You can then determine whether it’s likely for price to deliver a strong trending move.
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Nasdaq and Biotech
There should be enough time in this daily cycle for the Nasdaq to complete a full test of the all-time highs at 5231 before the next drop down into a daily cycle low. Again, let me stress not to read anything into the impending correction. It’s just going to be a run of the mill correction. They tend to happen like clockwork about every 35-45 days.
For those clueless souls who assured me I was wrong about biotech, we have a very powerful bottoming pattern in play. Very similar to what happened in miners many months ago. The possible T-1 pattern target is around 305-310 before the biotech sector corrects along with the stock market. Then you will get another chance to buy. I suggest you don’t blow it a second time.
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MINERS LAST RESISTANCE ZONE
Miners are in the process of breaking through the last resistance level. Once this is cleared they have an unimpeded shot to 380.
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EXPONENTIAL MOVING AVERAGE
This chart demonstrates why I have warned traders to use the exponential moving average instead of simple moving average. The exponential moving average gives fewer false signals than the simple moving average.
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GOODBYE 200 DAY MOVING AVERAGE
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