Gold Update V & Market/Sectors in a Doji Trap

• Posted by WeeklyTA
• on May 12th, 2010

I first wrote about gold on April 10th. In this post, I mentioned my prediction for gold (Back in December 2009):

“Gold will continue it’s correction for the first quarter of 2010 and break the 2009 highs after Q1″.

Both parts of this prediction have been executed as gold broke to a new high yesterday. I wrote the first update on April 26th showing people exactly what I was looking for entry into this space. On April 27th, my criteria had been executed and buy stops were triggered on $GLD ($114.10), $IAG ($16.41), $GG (40.92). On my April 30th post, I mentioned that gold was and will be in a correction and that I expected additional upside. On May 4th, I removed 1/4 of my gold positions in the morning and another 1/4 in the afternoon to raise cash, for a total of 1/2 positions remaining.

This will be gold update V: all charts executed perfectly and the industry is technically sound. I chose this sector for only technical reasons and my decision to hold gold has nothing to do with what’s going on with the rest of the world or other asset classes. The charts set up perfectly and my students and I took advantage of it. Currently, I will keep my three gold positions started last month. It’s time to look for the next big idea as more and more people will be entranced with gold. As gold continues to rally, you will see more and more late folks getting on the bandwagon. It’s not time to exit unless the charts become technically unsound and I sense buying desperation in people.

The market has been and still is trading in a neutral range. Most sectors are displaying a doji string marked between the 50-day/100-day SMA’s. Currently, the $SPY is trading in said range and I expect this to continue until I finish all my finals (rest of the week). The $SPY’s 50-day is at 117.31 and the 100-day is at 113.92 and it’s 2-day range is between 115 and 117.36. The $COMP is also within the 50/100-day range and currently sitting at the halfway mark between 2325-2414. Instead of a doji string, the Nasdaq is showing a side-by-side white candles which currently does not confirm any direction. The $DJIA ($DIA) is also in the 50/100-day range sitting slightly above the halfway mark. I expect continued range-bound action on lower and lower volume as the market decides on when and how to exit consolidation. Patience is key right here as you don’t want to force trades at the moment.

Individual sectors are showing various consolidations in different locations, but otherwise remain range-bound. I use the SPRDs for broad sector analysis ($XLB, $XLV, $XLP, $XLI, $XLK, $XLY, $XLU, $XLF, $XLE).

$XLB – trapped between the 200-day/100-day SMA’s (31.89/33.03). Current two-day range is between 32.14-32.70.

$XLV – trapped between the 200-day/50-day SMA’s (30.14/31.64). Current two-day range is between 30.24-30.83.

$XLP – trapped between the 100-day/20-day/50-day SMAs (27.12/27.73/27.74). Current two-day range is between 27.27-27.69.

$XLI – trapped between the 20-day/50-day SMA’s (32.28/31.38) . Current two-day range is between 31.27-32.12. Positive ID on doji string.

$XLK – trapped between the 50-day/200-day SMA’s (23.11/21.64). Also, major test of the 100-day MA at 22.58. Current two-day range is between 22.49-23.00.

$XLY – trapped between the 20-day/50-day SMA’s (34.61/33.42). Current two-day range is between 33.42-34.35.

$XLU – trapped between all four SMA’s (20, 50, 100, 200) with heavy emphasis on direct testing of the 20-day/50-day/100-day SMA’s (30.14/29.95/29.96). Current two-day range is between 29.63-30.38.

$XLF – trapped between the 50-day/100-day SMA’s (15.99/15.22). Above halfway point. Current two-day range is between 15.67-16.13.

$XLE – trapped between the 100-day/200-day SMA’s (57.73/55.90). Also forming doji string. Current two-day range is between 56.50-57.83.

The purpose of mentioning these levels is to further break down the sectors into their various components. Since sectors do not breakout/breakdown at the very same time, it’s important to note any breaches of these levels for a preemptive strike in taking up short-term positions. You can’t sit there and wait until something happens. Rather, you should be vigilant and make note of the strongest and weakest sectors and where their immediate support/resistance levels are located. I have done all of that for you right here.

We in a neutral range-bound market for the time being. As consolidation continues each day, please keep in mind that volume will also decline each day. This will make it harder to trade intra-day. In addition, since the market seems to love gapping up or down 1%+ everyday, overnight positions should be kept small and extremely high-probability setups should absolutely be targeted. Try to figure out which stocks you are most familiar with and try to “feel” out how they behave. For me, one of those stocks is $AIG. The more you know how a stock behaves, the better positioned you will be in exploiting these tight ranges. In addition, I encourage you to set alerts on both sides of the range but not buy stops. Why? Because I see too many failed breakouts and breakdowns. Maintain small positions and cash until this range is resolved.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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