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History Says Short-Term Gold Pullback Likely
On just about any time frame the SPDR Gold (GLD) is showing a classic technical breakout, 60 Minute, Daily and Weekly - you can see the classic 'breakout' system (Acceleration Bands) applied to each time frame below. Late on you'll see why this move may be better to fade in the short-term, although, the technicals are showing trend strength.
GLD Weekly - Acceleration Bands
GLD Daily - Acceleration Bands
It's especially intriguing that this occurs the day before the FOMC announcement - was there a leak of some sort or is this just a risky bet? We've seen similar action ahead of the Fed before...
It's no secret that traders have speculated on economic reports being leaked, most recently the ISM number, or even the acquisition of Sepracor (SEPR) being leaked. In most cases LiveVolPro is my tool of choice for discovering these types of situations. Just six weeks ago (the last FOMC meeting) I pointed out a large bond trade placed 90 minutes ahead of the announcement.
The large trade was placed on iShares 20+ YR Treasury (TLT) and was presumably a bearish leaning straddle, based on our analysis. The straddle was placed on January strikes, however, at this time the trade is at a marginal loss. This brings up age old [rhetorical] question, what is smart money or dumb money...and who's better to follow? At any rate, check out the TLT trade status if you have time, but let's get back to the Gold breakout ahead of the Fed.
After exiting the last leg of a GLD call position last Tuesday, which I'd held for a couple of weeks (ETF Options Trader), Tuesday's Gold (GLD) breakout was of high interest. Once again, there's another significant move ahead of the Fed Wednesday's announcement-GLD hit all-time highs after one of the largest daily percentage gains in 2009. In my view, this move was overdone, thought it's not worth betting against just yet. For short-term technical traders you'll notice that most of these breakouts are followed by a settling period or a minor pullback. It will likely be different now. With jobs numbers or Fed speak we are almost assured that Tuesday's action will be analyzed and a strong move will ensue-a correction or further breakout. You might recall my associate Bob Lang, who predicted gold would be up 20% this year to $1200/oz ... so there's likely more upside by year end.
Option traders were net bullish on Tuesday (4th highest day for GLD options volume on-record) with roughly 3:1 calls to puts. I took a look back at the top five days for option volume on GLD and there seems to be a dependable trend in place- we're at a short-term top in GLD. The chart shows the most active days for GLD options with 5 and 10 day performance after option volume spikes. Note that in each instance of a record options activity we saw losses 5 days after and in 4/5 instances we saw losses 10 days after the spike.
In my view, this shows a clear and present trend - Gold (GLD) is likely to decline for the remainder of this week and probably next week too. That said, the longer term weekly trend is too strong to fight so the probable pullback on the horizon should be another great entry for longer-term gold buyers.
5 Gold Charts For Short-Term Timing
Of course it's hard to mention Gold without mentioning Goldman Sachs (GS), the new market bell-weather, which has earnings Thursday before the bell. It will be interesting to see if Gold can continue its rally amid a larger financial rally or vice-a-versa (last week GLD gained 4.5% and XLF gained 6.65% an uncharacteristic correlation).
My favorite pics below are the CBOE Gold Volatility Index and the GLD Weekly with Acceleration Bands Signals. The 'Gold Vix' as it's called gives unique insight on Gold prices and similar the the traditional VIX can provide guidance on short-term reversal areas. In the chart below I'm looking for relative extremes in Gold Volatility on Bollinger Bands.
Finally, the GLD weekly chart is nothing short of awesome. With all time highs being made each day it would seem a reversal is near, however, if we close outside the upper Acceleration Bands this week, look out for an even larger weekly rally. Note the past signals and average length of holding.
Gold:Sliver Rally (GLD:SLV) with Bollingers
Top 20 Option Trade from Breakout Day (10/6) - LiveVolPro.com
Gold (GLD) versus US Dollar (UUP)
GLD Weekly with Acceleration Band System
Gold Volatility Index (Gold Vix)with Bollingers
Sentiment Vs. Jobs Data : Bullish Vs. Bearish
The much anticipated jobs data was released Friday and pre-market action is pointing to a decisive sell-off. Of course, this is based on initial reaction to the number of jobs lost, but you can read the direct release here and make your own assertions.
You don't normally see economic data and technical data used in tandem, generally, economic indicators are longer-term compared to short-term analysis with technical indicators. In my view, this morning's negative reaction comes at a good time for buyers.
Most traders will look to short this market next week, based mainly on Thursday's sell-off followed by this morning's negative reaction. That seems logical, but there are two indicators that are screaming SHORT-TERM BOTTOM. The VIX and the CBOE Equity Put/Call Ratio.
CBOE VIX
CBOE Equity Put/Call Ratio
Read the Full Labor Department's Press Release Here
Betting On Volatility Ahead Of The FED: TLT Straddle
Around 12:35PM on Wednesday just 90 minutes prior to Bernanke & Co. released the ‘official' outlook on the US economy a large options trade was placed in a benchmark bond ETF. The Lehman 20+ Yr. Treasury Bond ETF (TLT) saw heavy options action in the form of what looks like a bearish leaning straddle trade.
January 115 PUT
Images Courtesy of LiveVol.com
January 115 CALL
Image Courtesy of LiveVol.com
Traditional Straddles employ the use of buying an ATM call and ATM puts where the buyer's expectation is increased volatility (in either direction). In effect, one side goes worthless while the other side increases in value theoretically netting out in a gain. Generally, volatility must increase a substantial amount fast and buyers should also be concerned that this expectation may already be priced in.
Profit/Loss TLT 115 Straddle
In today's case, the large option trade can be broken down into a bet on treasury volatility with a bullish bias on bond yields. TLT reflects the price of bonds, which trades inverse to yields. Effectively, the buyers of the bearish straddle expect rates to increase, either in the short-term or certainly before January. As of now the total investment is around 11.5 million, a hefty gamble to make 90 minutes before the FED statement.
TLT 3 Month Chart with Implied Volatilities 30, 60 90
Image Courtesty of LiveVol.com
Live Trader Talk Starts Today
Hey everybody,
Just wanted to let you know that our free, live educational series, Trader Talk, starts at 4:10PM today right after the market close.
I will be discussing recent market trends, specifically, market timing on the QQQQ and the SPY. Also, I'll be examining our favorite sentiment indicators such as the VIX and Equity Put/Call Ratio. Gold and Bond analysis will also be discussed. Finally, at the end of today's session we will have a stock Q&A with an exclusive BigTrends offer.
In future weeks BigTrends Trader Talks will feature other BigTrends Analysts such as Price Headley, Bob Lang, Moby Waller, and Scott Downing.
Stay tuned each Tuesday after the market close for our free live Trader Talk.
Click here to enter the room (remember to bookmark the URL because it will be the same each week)
Short-term Trend: Small Caps Lead and Tech Lags
Since last Monday's bullish Percent R Retest the S&P500 (SPY) has rallied back to make new highs for 2009. The low risk entry point was correctly forecast by Price Headley in his Weekly Market Outlook Video, but it was the mechanics of the 4 day rally that interest me... In recent days financials have seemingly led the market; however, a closer look shows that small capitalization stocks have led this market in recent weeks. In addition, the leading index for 2009 has been the weakest since the start of August.
More »Take a look at the 3 charts below and take note of the recent weakness in tech and strength in small caps. The final chart looks at the year-to-date performance, which highlights the extreme outperformance of the QQQQs. Bottom line, in the bigger picture the NASDAQ 100 (QQQQ) is outperforming, but recent strength in the Russell 2000 (IWM) exposes a strong trend worth noting. In my view we'll start to see the divergence between the NASDAQ 100 and Russell 2000 begin converging, the question is which direction will both move after closing at yearly highs on Friday? Sound off below in the comment section.
5 Day Relative Performance - SPY(Blue) , QQQQ (Red), DIA (Green), IWM (Yellow)
15 Day Relative Performance - SPY, QQQ, DIA, IWM
YTD Performance - SPY, QQQQ, DIA, IWM