Gold, Silver and Stock Indices on the Verge of Rolling Over?

Source: Chris Vermeulen, Technical Traders  (2/25/10)

Last week we saw the market rally on light volume into a resistance zone on the daily chart. Light volume rallies are always a warning sign, much like the "Calm before a Storm."


This week has been playing out as we expected. Last week we saw the market rally on light volume into a resistance zone on the daily chart. Light volume rallies are always a warning sign, much like the "Calm before a Storm."

The way I look at bearish price action:

The First Heavy Selling Volume Day—I see this as large institution selling massive amounts of investments (stocks & commodities) because prices have risen enough for them to book profits OR they know something we don’t and they are getting out before the majority of traders find out.

Light Volume Rally/Drift Higher—After a heavy volume sell off we tend to see prices drift higher on light volume. This is when the institutions stop dumping investments and allow the retail investors (Un-educated Traders) to buy the market back up.

Bear Market Trend—In a down trend we see these two phases enter and exit the market. These patterns happen on every time frame from tick charts to yearly charts. Trends vary in length from 1-2 cycles and sometimes 10-20 cycles and more…

Current Market Conditions

So far this week we have seen the market sell down on increasing volume which is bearish and is pointing to lower prices. On Wednesday we saw prices move up on light volume with volatility rising into the close with a short wave of selling. This was indicating to me that sellers were starting to enter the market again.

The daily chart below clearly shows the heavy selling and drift higher on declining volume. The market is now trading deep into a resistance zone and looking ready to drop.



SP500 Intraday 2-Hour Candle Charts

You can see the same selling patterns repeat themselves. Since the Feb 5th bottom we have been forming a much larger bear flag, which makes me think a BIG drop is only days away.



SP500 Trend Trading Conclusion:

Both stocks and precious metals are trading with the same chart patterns and volume levels. So if you are wondering about gold, silver and oil, I am seeing a similar scenario playing out for them also.

The reason I keep bringing these bearish patterns up in my reports is because once you master trading in a down market then you can make money during some of the fasted moving times in the market. I have always preferred shorting the market because prices drop much quicker then they rise. So profits are made quickly.

Also, if the broad market does eventually roll over later this year, and I am not saying it is, but "IF" it does, then you will feel somewhat comfortable with the positions we will be taking.

If you would like to receive these Free Bi-Weekly Trading Reports please visit my website for TheGoldAndOilGuy.com at: www.TheTechnicalTraders.com.

Chris Vermeulen

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