Nasdaq and S&P 500 Held Back by ‘Magic’ Resistance

An x-ray scan can detect conditions invisible to the naked eye. A fractured bone for example may be the cause of pain. Like an x-ray scan, chart analysis can identify important resistance levels for stocks, such levels – unknown to most investors – are the real reasons stocks stall (and reverse?).

Stocks haven’t gone anywhere for a couple of weeks and there’s a reason why.

The charts below show long-term technical resistance for the S&P 500 (SNP: ^GSPC) and Nasdaq Composite (Nasdaq: ^IXIC).

Technical resistance for stocks is kind of like a traffic light for cars. A car isn’t guaranteed to stop at a traffic light, but it’s more likely to stop at a traffic light than anywhere else.

The S&P 500 chart shows that technical resistance is made up of a 55-month old trend channel.

The Profit Radar Report has been tracking the trend channel since early 2013. This trend channel served as a natural target for stocks.

Back on July 14, the Profit Radar Report stated that: “The May 22 high did not look like a major market top and the current rally doesn’t have the attributes of a major high yet either. It would be reasonable to expect some weakness with support at 1,635 followed by the next rally leg to 1,750.”

The July forecast was confirmed by the October 7, Profit Radar Report, which stated: “The scenario that appears to make most sense is a quick trip into the 1,660s or 1,650s followed by another rally to new all-time highs.”

The Nasdaq (Nasdaq: QQQ) resistance goes back as far as 2000. The red line represents the 61.8% Fibonacci retracement level (a common turning point for counter trend rallies). The green trend line connects the 2009 with the 2010 low.

Temporary Stop or U-Turn

The S&P 500 (NYSEArca: SPY) and Nasdaq Composite have both stopped at their respective ‘traffic lights.’

Is this just a temporary stop (until the light turns green) or a full U-turn?

Although there is one pattern that suggests a continuation of the rally (more details here: The Secret QE Bull Market Trade Pattern that Almost Never Fails), truth be told, technical analysis alone doesn’t provide the answer.

Is it Time to Bet Against the Crowd?

Investors have become increasingly enthusiastic about stocks and for the first time in many months we are seeing real sentiment extremes.

But does sentiment still work as a contrarian indicator in a QE-skewed market?

This article takes a detailed look at the relationship between sentiment readings and stock prices in the QE bull market:

Assessing QE Bull Market Longevity Based on Investor Sentiment

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE Newsletter.

 

Nasdaq Reaches Long-Term Double Fibonacci Target – Now What?

In May the Profit Radar Report highlighted a long-term price target for the Nasdaq-100 made up of two Fibonacci levels. This week the Nasdaq reached this target. Is this bullish or bearish?

As a market forecaster, I’m obsessed with finding the next resistance cluster that will serve as target for the next rally.

This resistance cluster for the Nasdaq-100 (Nasdaq: QQQ) was fairly easy to spot as it was made up of two long-term Fibonacci levels.

The May 19, Profit Radar Report said this about the double Fibonacci target:

Real serious overhead resistance doesn’t come into play until 3,266 – 3,280. That’s 8% away and it should take at least one noteable correction and several more months to get there.”

Several months (and a few minor corrections) later the Nasdaq 100 has arrived and slightly exceeded 3,280.

The Nasdaq-100 chart below shows the 61.8% Fibonacci retracement of the points lost from 2000 to 2002 (at 3,280.29) and a Fibonacci projection level originating from the 2002 low is at 3,266.

Now What?

Quite frankly, I thought that the odds of a major market top once the Nasdaq reaches 3,280 were greater than 50%. But I may have to reconsider this expectation or at least put it on hold for now.

A close above such key resistance is generally bullish. Unfortunately, I have a hard time finding another resistance cluster for the Nasdaq. The 78.6% Fibonacci retracement is still 20% away and premature.

De-Isolating the Nasdaq

The Nasdaq doesn’t trade in a vacuum and it often helps to see what other indexes are doing.

The S&P 500 (SNP: ^GSPC), which sports a well-defined trend channel right now, is considerably closer to its trend channel resistance than the Nasdaq-100 to its 78.6% Fibonacci resistance.

The Dow Jones (DJI: ^DJI) is almost trading in its own world right now. A big earnings disappointment by IBM – the biggest Dow component – sent the Dow marginally lower on Thursday while the S&P 500 (NYSEArca: SPY) and Nasdaq closed higher.

Summary

For now the Nasdaq is above support (prior resistance) and the trend is up. In fact, the Federal Reserve and Washington politicians have created a ‘chaos environment’ that could keep prices buoyant for significantly longer.

However, not everything is hunky-dory. The S&P 500 is about to hit resistance that may reject this advance. Two long-term cycles, which predicted the 2000 and 2007 tops, project another market top in 2013/2014. Click here for more details on the S&P 500 cycles.

My take on the market along with a forecast based on technical analysis, sentiment and seasonality is available via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE Newsletter.

 

Where Will the Nasdaq and S&P 500 Mini Crash Stop?

For most of the year stocks – in particular the Nasdaq – have been on fire. Now investors are getting burnt. The most asked question is whether this is just a flash in the pan type correction or the beginning of something bigger.

The Nasdaq has gone from hero to zero in about three days.

There are probably many explanations for the Nasdaq’s temper tantrum. Technical analysis offers the most logical (and duplicatable) reason.

A number of my prior articles encouraged investors to watch upcoming resistance and immediate support. Why?

Just last week the Nasdaq-100 (Nasdaq: QQQ) was trading within striking distance of serious double Fibonacci resistance at 3,266 – 3,280 (the October 2 high was 3,256).

In addition, two long-term cycles are projecting a market top for 2013/2014 (more below).

Resistance levels for stocks are like traffic lights for cars. Resistance levels don’t guarantee that stocks will stop and take a u-turn, but – like a traffic light – they are the most likely place for a stop and/or u-turn.

The Nasdaq-100 chart below shows the key Fibonacci resistance and other trend lines we’ve been watching.

Yesterday the Nasdaq dropped below the upper black trend channel line and the longer-term red trend line just below.

The October 6 Profit Radar Report warned that: “We may be dealing with a bearish rising wedge and a deeper fall. We will go short with a drop below 3,185.”

The corresponding trigger level to go short the S&P 500 was 1,665.

As the Nasdaq chart above shows, there is no real support near current trade, so lower prices are still likely.

VIX seasonality suggests that stocks will rebound soon, but a 13 and 7-year S&P 500 (NYSEArca: SPY) cycle suggests that the coming year will be very tough for stocks. A much more detailed forecast is available to subscribers of the Profit Radar Report.

For more details on VIX seasonality click here: VIX Seasonality Near Best Turning Point of the Year

To read the full article about the 13 and 7-year cycles click here: 13-Year S&P 500 Cycles Project Market Top
Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF

Bullish or Bearish? S&P 500 Lagging, Nasdaq at New High Near Double Fibonacci Resistance

Investors are starting to back away from large cap S&P 500 stocks in favor of the tech-heavy Nasdaq. In fact, the Nasdaq is at a 13-year high despite a lagging S&P 500 and the economic drag of a government shutdown. Is this bullish or bearish?

Camouflage is defined as disguising the presence of a person, animal or object. Here’s a slightly different kind of camouflage:

The S&P 500 and Dow Jones are currently ‘camouflaging’ this week’s new all-time highs of the Russell 2000 (NYSEArca: IWM) and S&P MidCap 400 (NYSEArca: MDY). Also, despite weakness in the large cap sector, the Nasdaq-100 (Nasdaq: QQQ) just recorded a new 13-year high.

The Nasdaq (Nasdaq: ^GSPC) offers unique insight for market forecasters like myself. Why? Because it remains below its all-time high and therefore still has to deal with overhead resistance.

In fact, the Nasdaq is within striking distance of my double long-term Fibonacci target.

This target was identified via the July 10, 2013 edition of the Profit Radar Report, which stated:

“The most likely target for the Nasdaq-100 is 3,265 – 3,280, which is about 8.5% away. The up side potential for the Nasdaq-100 is larger than for the S&P 500 (NYSEArca: SPY). Apple may step up to the plate and help the Nasdaq-100 get there.”

Since this July 10 Profit Radar update the Nasdaq climbed 8.2%, driven by Apple, which soared 16%.

What Now?

Our forecast is on track, but we must be aware of these two issues:

1) The Nasdaq-100 is less than 1% away from our double Fibonacci target. This convergence of reliable long-term Fibonacci levels also serves as resistance.

2) The S&P 500 (and S&P 500 ETF) is significantly underperforming compared to the Nasdaq-100 and is still far away from its respective target.

The S&P 500 target was outlined via the above chart (also featured in the July 10 Profit Radar Report). I was a bit off with the timing on the above July 10 projection, but the S&P followed the basic path and got very close to my target (it reached 1,730 on September 19).

The target was based on an ascending multi-year trend channel. I have a feeling the S&P will make another attempt to hit this channel later on this year.

The Challenge

We are basically dealing with two indexes at different ‘life’ stages. You could also call it a divergence or contradiction.

Nobody knows what trick the market has up its sleeve, but we know that Mr. market usually does exactly what fools the greater number of investors.

I am currently tracking two possible resolutions that will do exactly that. One involves are near-term break down, the other a near-term buying opportunity. As always, I’ll share my findings via the Profit Radar Report first.

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE Newsletter

The Secret QE Bull Market Trade Pattern that Almost Never Fails

Experience is a cruel teacher, but nevertheless it teaches perceptive investors valuable lessons. Here’s the most important lesson this QE bull has taught me. It’s a pattern that allows us to identify when the bull is likely to strike next.

Have you ever attended a seminar where the teacher said: ‘if you only remember one thing, remember this.”

If you only know one thing about this QE bull market (in my humble opinion), let it be this: Persistence wears down resistance.

Before I explain what this means, let me insert this disclaimer:

I do not agree with the Fed’s easy money policy. It is not right, it is not fair, and it shouldn’t be legal, but my job as a market forecaster is to make money for my subscribers. If rising stocks translate into gains for my Profit Radar Report subscribers, so be it.

What I’m about to share with you has kept us on the right side of the trade (being long), even though I’ve gone on record saying that the odds of a significant market top around current prices are higher than 50%.

I also want to admit that my September 10 article on the equity put/call ratio showed a bearish extreme, which was supposed to lead to lower prices. Well, it didn’t, but QE bull trading patterns prevented us from going short at a time when (as we know now) stocks were getting ready to soar.

On the flip side (and unrelated to the QE bull trade pattern), I would be remiss not to mention that the August 7 Profit Radar Report saw higher prices coming:

“We continue to expect higher prices, since the important resistance level of 1,730 for the S&P 500 (SNP: ^GSPC) hasn’t been touched yet.” We actually went long the S&P 500 ETF (NYSEArca: SPY) when the S&P 500 moved above resistance on August 29 (buy trigger was at 1,642).

Ok, with that out of the way, let’s talk about the QE bull pattern.

Persistence Wears Down Resistance – The Pattern

Persistence wears down resistance basically means that sideways trading almost always leads to higher prices. Corrections originate from intraday reversals or gap down opens, but almost never develop straight out of range bound trading.

The green boxes in the S&P 500 (NYSEArca: VOO) chart below highlight times when range bound trading (usually 3 – 6 days) was followed by a spike higher (the red box marks an exception to the rule).

The spikes are often caused by gap up opens. The biggest chunk of the gains happen within the first minute of trade, which tends to bypass investors waiting on the sidelines. Today’s bypassed investor is tomorrow’s buyer.

Quite frequently we see the pattern highlighted via the gray oval. Consolidation – spike – consolidation – spike – consolidation – spike.

Only a coiled up snake can strike. Like a snake, the stock market (NYSEArca: VTI) coils up and strikes, and coils up and so on. The opposite is true of the VIX (Chicago Options: VXX), which has been taking a nap for most of the year, allowing investors to snooze in complacent bliss.

The night before this week’s Fed spike, the Profit Radar Report (September 17 issue) referred to this pattern once again and wrote: “A range bound market rarely precedes a top. Tuesday’s lackluster sideways session suggests at least another spike.”

When Will the Pattern Break?

Obviously QE is at the root of this pattern, and it’s commonly believed that the amount of dispensed QE (taper or no taper?) will eventually break the pattern.

This may well be, but there is another – so far unnoticed – force that can break the QE bull pattern.

This force is discussed here: Who or What Can Kill this QE Bull Market?

Hint: It’s up to investors themselves.

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF

The XLF Financial ETF Chart Looks Ominously Bearish

Uncertainty is one of the annoying staples of investing, but there are times when risk and uncertainty can be reduced to an absolute minimum. The Financial Select Sector SPDR ETF (XLF) is at such a low-risk inflection point right now.

Technical analysis is not infallible, but sometimes it allows you to pinpoint key inflection areas.

The Financial Select Sector SPDR ETF (NYSEArca: XLF) is at such a key inflection point right now.

The financial ETF (XLF) chart below offers a wealth of information:

1) XLF is butting against resistance created by the May 22 high.
2) The rally from the August 28 low has almost exactly retraced a Fibonacci 61.8%.
3) The current rally high could almost be considered the right shoulder of a head-and shoulders top (although there’s no real neckline).
4) Key resistance is at 20.32 – 20.60.
5) Key support is at 19.50 and 19.30.
6) There is a bearish RSI divergence at the July 23 high.

What Does All This Mean?

As long as trade stays below 20.60, odds favor lower prices ahead for XLF, potentially a sizeable decline.

How to Trade

There are two low-risk ways to trade XLF:

1) Go short now with a stop-loss above resistance or
2) Go short once support is broken.

Those are low-risk trades, not no risk trades.

Why Low Risk

Support/resistance levels act like traffic lights. A car driving down the street is most likely to stop (and reverse) at a traffic light. It doesn’t have to, but if the light is red it has to stop.

The XLF resistance level acts like a traffic light. XLF doesn’t have to stop there (in fact, a bullish case can be made if XLF breaks above resistance), but if XLF is going to stop and reverse, it will be at this ‘light.’

Overhead XLF resistance provides a stop-loss level, which exactly defines the risk of the trade. The potential gain is significantly larger than the potential loss, putting the risk reward ratio in favor of the short trade.

Only trading low-risk setups like this one results in about 60% winning trades, but the gains of the winning trades are 3-4 times bigger than the losses of the losing trades. The Profit Radar Report specializes in spotting such trade setups. The green bubble (August 5, 2012), marks when the Profit Radar Report stated: “Financials are currently underloved. With such negative sentiment, a breakout above 14.90 could cause a quick spike in prices.”

XLF echoes the current position of the S&P 500 (NYSEArca: SPY), which trades at a similar inflection point. The Nasdaq (Nasdaq: QQQ) has rallied much further than the S&P 500, the Dow Jones on the other hand (NYSEArca: DIA) has yet to catch up to the S&P 500.

Regardless of the short-term outlook for XLF, the financial sector is still plagued by serious issues.

Out of all people, it’s Hank Paulson – former Treasury Secretary (during the 2008 financial crisis) – who is addressing the vulnerability of the financial sector and actually warns of another financial ‘firestorm.’

More details here: Hank Paulson Warns of Another Financial Crisis

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter or sign up for the Free Newsletter.

 

Nasdaq-100 is Approaching Massive Resistance

The Nasdaq-100 has been a stock market trailblazer ever since the 2009 low. Despite its 210% gain, the Nasdaq is lagging well behind many other major indexes. This makes it an ideal target for technical analysis and long-term resistance studies.

Right now the Nasdaq-100 (QQQ) is better suited for technical analysis than almost any other broad market index.

That’s a bold statement, but there’s a good reason. Unlike the S&P 500, Dow Jones and many other indexes, the Nasdaq-100 is well below its all-time high.

Any index, stock or ETF at or near an all-time high has little up side resistance. Theoretically, the sky is the limit. Not so for the Nasdaq-100.

The chart below shows just two trend lines that have capped all of the Nasdaq’s recent advances and offered the same great trade setups (more below).

Right now the Nasdaq is butting up against red trend line resistance. The up side is obviously limited as long as prices stay below the red trend line.

Going short against the red trend line would be a low-risk trade setup simply because the risk is limited and well defined. However, I’m not inclined to short this market (yet).
Even if the Nasdaq-100 (Nasdaq: QQQ) moves above the red trend line, it is very close to massive resistance going back to its all-time high in 2000. The resistance is massive, because it’s made up of two separate Fibonacci levels converging in close proximity of each other (more below).
Support is provided by the green trend line. As long as prices remain above the green trend line, the trend is up.
The Profit Radar Report has been taking advantage of those two trend lines for months. When the Nasdaq double backed the red trend line on May 28, the Profit Radar Report recommended to go short.
A re-test of previously broken resistance is a bearish opportunity 8 out of 10 times.
The open chart gap left on June 20 was a clear signal that the index will come back up to fill this gap. Chart gaps act like magnets for price.
There’s an open chart gap just above 3,000. It too will be closed.
From Small to Big Picture
The red and green trend lines are ‘small fish’ compared to the truly massive resistance not far above current trade.
How the Nasdaq reacts at this key inflection point may well set the stage for the next year of trading. We’ll have to see what happens, but I believe the odds of a major top occurring against this massive resistance are greater than 50%.
The Profit Radar Report has revealed the key resistance level and how to trade the coming weeks.

ETF Trade SPY: Russell 2000 Nearing Danger Zone

The Russell 2000 is one of the top performing indexes this year. It outperformed most broad market and sector indexes, but is nearing resistance that’s kept a lid on every advance. Here’s how to tell if the R2k is ready to top out.

“Are we there yet?” If you are a parent you’ve no doubt heard this question.

Kids can be impatient and don’t read maps or GPSs, so the question makes sense.

Investors often ask themselves a similar question. Instead of “are we there yet?” they ask, “how much up side potential is there?” or is the stock ‘there’ (at its peak) yet.

The closest thing to a GPS for stocks are trend lines. Trend lines outline the path for stocks, indexes or ETFs.

The chart below shows a parallel channel for the Russell 2000 Index (Chicago Options: ^RUT).

At first glance it looks like the Russell is ‘getting there’ or approaching a possible top.

Like a tenacious woodpecker, the Russell 2000 keeps chipping away at parallel channel resistance without out actually penetrating.

This hasn’t hurt performance. Since the channel is ascending, the Russell 2000 can continue higher without ever breaking above the channel. But we see that almost every touch of the upper channel line (red circles) caused a temporary pullback.

The rally from the November 2012 and June 2013 low has been very steep and with all things that are too good to be true, the Russell will eventually give back some (or most?) of its gains.

RSI (gray circle) is already showing signs of fatigue. Although this is a small warning signal, RSI can lag for months and RSI-based sellers may miss a big portion of a rally.

The chart for the iShares Russell 2000 ETF (NYSEArca: IWM) and Vanguard Small Cap ETF (NYSEArca: VB), although not as crisp and clean, look very similar to the R2K index.

Since the Russell 2000 has outperformed the S&P 500 (SNP: ^GSPC) to the up side, it will probably outperform the S&P 500 to the down side. Now don’t go out and short the R2K or S&P right now, but you may mentally prepare for a possible shift from an up to down trend.

How To Spot a Top

Stretched rallies have a tendency to flame out with a trend channel over throw, where prices stage one last hurrah and spike above the channel. A close back below the channel often concludes the rally and kicks off a prolonged decline.

Any decline has to be confirmed by a drop below resistance, which didn’t happen in April and June (green circles).

The ETF Trade SPY is a free weekly feature that identifies ETFs near major inflection points created by support or resistance levels.

Prices near support/resistance levels tend to be great setups for low-risk trades. Why low-risk? Support/resistance is used as stop-loss and is an effective risk management tool.

If you only enter trades where your potential gain is bigger than your potential loss, you win.

To receive future issues of the free ETF SPY follow iSPYETF on Twitter @ iSPYETF.

ETF SPY History

XLK: July 24, 2013, ETF SPY predicted higher prices for XLK. Click here for XLK support and target levels.

Dow Theory: July 19, 2013 ETF SPY predicted higher prices for Dow Jones Industrial and Dow Jones Transportation Averages.

XLF: July 12, 2013 ETF SPY predicted higher prices for XLF along with a price target.

ETF SPY: Will XLK Ride Apple’s Coattail?

Apple has broken above resistance courtesy of a post-earnings gap up open. This is a bullish development, but caution is warranted as there’ve been at least 7 dead cat bounces in recent months.

The after hours reaction to Apple’s earnings announcement was positive. Shares were up nearly 5% as AAPL beat earnings and sold more iPhones than expected. The biggest fly in the ointment was that margins are shrinking, a problem all companies face when they ‘grow up.’

Apple accounts for 11.67% of the Nasdaq-100 (Nasdaq: QQQ) and 13.15% of the Technology Select Sector SPDR (NYSEArca: XLK).
Although Apple’s effect on the technology sector is not as suffocating as it was at $700 a share, AAPL is still the single biggest component of QQQ and XLK.
Interestingly, XLK has thus far been unable to beat its May high, but QQQ did. This lag is not due to Apple, as Apple rallied 11.8% from June 24 – July 17, XLK only 7.51%.
XLK Technical Picture
The stock market in general is kind of stuck between a rock and a hard place. A correction is due, but any dip is likely to be bought again. This means the up side is limited, but so is the down side.
The XLK chart below shows basic support and resistance (solid red and green line).
A close below the July 19 low at 31.37 would be a failed percentR low-risk entry, essentially a sell signal.
As long as prices stay above 31.37, the open chart gap (purple bar) should be filled. Even a move to the red trend line is possible.
AAPL Technical Analysis
If you want a shot of nostalgia, you’ll enjoy this article from August 22, 2012:
This article was written at a time when analysts were ‘bidding’ for the highest Apple price targets. Above 1,000 was pretty much the minimum bet.
Apple then dropped from 705 to 385 and has been bouncing aimlessly ever since.
Today AAPL was able to clear short-term resistance at 437. Next trend line resistance is at 448.
There have been many false fits and starts for Apple since the April low at 385 and there’s no telling if this bounce will stick. Similar breakaway gaps (gray circles) were retraced shortly thereafter, so it’s prudent to wait for more confirmation.
Simon Maierhofer is the publisher of the Profit Radar Report.
You can follow him on Twitter @ iSPYETF.

Has Gold Bottomed?

Gold’s second quarter will enter the history books as one of the biggest declines ever. Until yesterday, gold’s third quarter performance has been boring at best. Monday’s one day pop begs the ‘real rally or bull trap’ question.

Gold is special for many reasons. For example, a single ounce of gold can be stretched into a 5-mile long thread or beaten out into a 300-square foot sheet.

Gold is also non-toxic. In fact, you may find gold metal flakes in exotic foods or unusual Swiss liquor. I still have an old bottle of GoldSchlager schnapps in my bar.
This strong gold flake liquor may help drown the pain of this year’s gold performance, but other than that investors don’t care much about gold’s taste or pliability.
Investors buy gold as protection. What kind of protection? That’s a fair question. I guess unless you were looking to buy protection against making money, gold has been little more than an expensive placebo (ask John Paulson).
                                            
When central banks around the world started to quantitatively ease economies out of the ‘Great Recession,’ gold was considered an inflation hedge.
Quantitative easing (or QE) continues, but gold is trading 30% below its 2011 high.
This line of fundamental reasoning doesn’t make sense, but many investors still base their gold buying/selling decisions on a similar rationale.
Yesterday gold saw the biggest one-day spike of the year. Why? Perhaps you can make sense of this, I can’t.
Abe’s (Shinzo Abe, Japanese Prime Minister) party and its coalition partner won a majority of upper house seats in the weekend vote, boosting his opportunities to stimulate the economy.” – San Francisco Chronicle
Nutshell explanation: More easy money will mean higher gold prices.
If plenty of easy money over the last two years coincided with the steepest gold decline in decades, why would it propel prices higher now?
Has Gold Bottomed?
To answer the question that really counts – has gold bottomed? – I rely on technical analysis.
Technical analysis is not always correct (nothing ever is), but it got us out of gold when it traded around 1,800 and to this day I receive thank you e-mails from subscribers.
(Original August 21 and 24, 2011 subscriber update: “I don’t know how much higher gold will spike but I’m pretty sure it will melt down faster than its melting up. At some point investors will have to sell holdings to pay off debt or answer margin calls. The most profitable asset is sold first. Gold has been the best performing asset for a decade and a liquidity crunch could produce sellers en masse.”)
The chart below plots gold prices against the S&P 500. The resulting chart illustrates two key points:
  1. The S&P 500 and gold have been moving in the opposite direction since late 2011.
  2. The basic technical picture for gold.

Here’s what’s worth noting from a gold technical analysis point of view:
  • The June low occurred against green trend line support.
  • Monday’s bounce hoisted prices above resistance at 1,300.
  • Gold is bouncing against next resistance around 1,335.
After gold’s second quarter meltdown prices had to bounce. Until yesterday, it lacked the escape velocity needed to break above resistance (at 1,300), and still another move above 1,335 is needed to unlock higher price targets.
Since there was no bullish RSI divergence at the June low (not shown on chart), I’ve been hesitant to embrace this rally. In fact, I would prefer a new low.
But the market cares little about what I like. So, as per the July 10 Profit Radar Report, I recommended to take partial long positions in the SPDR Gold Shares (NYSEArca: GLD), or iShares Gold Trust (NYSEArca: IAU), and iShares Silver Trust (NYSEArca: SLV).
Thus far the positions have done well and we’ve locked in some profits already and increased our stop-loss to guarantee a winning trade.
Gold (and silver) will have to move higher to validate employing more capital on the long side.