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Chris Ciovacco
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Chris Ciovacco is the founder and CEO of Ciovacco Capital Management (CCM), an independent money management firm serving individual investors nationwide. The thoroughly researched and backtested CCM Market Model answers these important questions: (1) How much should we allocate to risk assets?,... More
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Short Takes - Ciovacco Capital
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  • Stocks, Dollar Anticipating Bailout for Ireland
    As we head into a new week, both stocks (SPY) and the U.S. dollar (UUP) need to be monitored closely. According to a Sunday story from Bloomberg:

    Finance Minister Brian Lenihan said Ireland will apply for a bailout as it sets itself up to be the second euro member to seek a rescue from the European Union and the International Monetary Fund.

    “I will be proposing to my colleagues that they should formally apply for a program,” Lenihan said in an interview with state broadcaster RTE in Dublin. “The banks were too big a problem for the country. The key issue all the time for the government is to ensure that we do not have a collapse of the banking sector (Full Story).”

    While the current rally attempt in the S&P 500 is not all that convincing thus far, stocks did find support at a logical point. The pink trendlines are based on the July and September 2010 lows. The blue trendlines are based on the April and November 2010 highs. The numbers shown on the chart below (top-left) represent Fibonacci retracement levels from the breakout above 1,130 to the recent highs. The recent correction retraced roughly 50% of that up move.

    Whether or not the S&P 500 can hold above its recent closing low of 1,178 remains to be seen, but there is ample evidence in hand to at least leave the door open to higher highs occurring between now and year-end.

    The chart of the dollar below can help us better discern if the  recent rally attempt may have more legs after some corrective action. The big picture still leans bearish for the greenback, but there are a few reasons to keep the door open to higher highs over the next two weeks.
    On November 18th, U.S. stocks and the risk-trade took a step in the right direction.  Monday and Tuesday's action this week may tell us if the move can take us to higher highs.

    Disclosure: Long UDN

    Nov 21 2:06 PM | Link | Comment!
  • 'Risk On' Trade May Be Back
    Countertrend Rallies in Dollar, Euro, Stocks, Silver, Gold, and VIX May Be Over Soon:

    The countertrend rallies in the U.S. dollar (UUP), euro (FXE), stocks (SPY), silver (SLV), gold (GLD), and the VIX (VXX) may be relatively short-lived. On November 10th, we stated, “The odds of short-to-intermediate-term reversals are elevated for numerous markets”. From their recent lows to their recent highs, the VIX rallied 29% and the U.S. dollar gained 5%. From their recent highs to their recent lows, gold dropped 6.6%, silver fell 14.6%, the S&P 500 lost 4.4%, and the emerging markets index gave back 7.3%. These all qualify as ample corrections within ongoing trends. Given the developments in Ireland, and more importantly the initial bullish response by the markets, we need to be open to the reemergence of the “risk on” trade.

    From Bloomberg: 

    Ireland may ask for a fund amounting to "tens of billions" of euros to rescue its banks to shore up the nation’s finances after talks with European Union and International Monetary Fund conclude. "If these talks were to result in a substantial contingency capital funding" pool that didn’t need to be drawn down, that "would be a very desirable outcome," Finance Minister Brian Lenihan said in the Irish parliament in Dublin today. He said no agreement has yet been reached. (Full Story).

    On November 17th, we mentioned that 1,178 represented a possible level of support on the S&P 500. The market closed right on 1,178 on Wednesday, which means we open on Thursday from a logical rally point.

    Before we show some evidence supporting a possible resumption of the acceptance of risk by market participants, let’s examine some simple ways to monitor the short-term battle between the bulls and the bears. If gold can close today in a bullish manner and take care of the four items outlined below, the odds of the recent bullish trends resuming in stocks, including emerging markets (EEM), and commodities (DBC) will have increased. From a bullish perspective, we would like to see the gold ETF (symbol GLD) finish up on strong volume; say, better than 32 million shares – the higher the volume the better. A low volume up day would be much less convincing.

    Four bullish signals to watch for on the daily chart of gold: (1) RSI back above 50, (2) close above orange trendline, (3) MACD Histogram to “tick up”, (4) Rate of Change (ROC) to move back above zero. As of Wednesday’s close none of the four had occurred yet. If we get all four at the close on Thursday, it is bullish short-term for the price of gold, as well as for stocks and commodities in general. 

    Gold - What to Watch

    The rally in the U.S. dollar may be over, or at a minimum ready to take a break. As of Wednesday’s close, the weekly chart below shows no significant bullish divergences that would lead us to believe the recent rally in the dollar was anything other than a normal countertrend rally. Notice the thin blue dotted line below may provide resistance. Rate of Change (ROC) is shown at the bottom of the chart; it has not yet given a longer-term bullish signal for the dollar. We need to keep an eye on the dollar - trendlines show some possible uncertainty over the next few weeks. 

    U.S. Dollar - What to Watch

    The weekly chart of the euro supports the possibility of the resumption of the rally and higher highs after the current correction has run its course. Notice the thin blue trendline may stem the recent decline in the euro. Like the dollar, the euro’s trendlines tell us to remain vigilant and open-minded over the next few weeks. If divergences appear on a weekly chart, it would be concerning. 

    Euro - Correction Over?

    The weekly chart of the VIX does have a bearish MACD Histogram divergence with price, which supports the possibility of a lower low in the VIX. The Rate of Change indicator (bottom of chart) has not given a bullish signal, which also, as of Wednesday’s close, supports further VIX weakness. 

    VIX - Rally Over?

    Traders often watch Fibonacci retracement levels; so it pays to keep these in your back pocket. The basic concept is all markets have natural ebb and flow where “giving back” some gains is a normal part of any healthy market. Retracements bring new buying interest and allow markets to move higher. Silver and gold both have retracements levels close by that may spark interest from traders. The retracement in silver is relative to the recent move from point A to point B (see below). 

    Silver - Correction Over?

    There are no bearish divergences on the weekly chart of silver, which supports the resumption of the uptrend after the current correction. Gold and silver, as well as most risk assets, are now at a point where their risk-reward ratios are much more favorable than they were a week ago.

     Silver - Correction Over?

    Like silver, gold has a retracement level and price support in the neighborhood. We need to watch the daily charts today for buy signals. 

     - Correction Over?

    Gold’s weekly chart also supports a resumption of the uptrend, but relative to silver, gold is not as impressive. 

    Gold - Correction Over?

    Just as the elements were in place for countertrend rallies in stocks, dollar, euro, gold, silver, and the VIX on November 10th, the elements are now in place for a possible resumption of the primary trends. Volume and breadth can help us read the conviction of any market moves on Thursday. Any gains need to be held into today’s close. Markets will open higher; so the majority of today’s gains cannot be captured. However, further gains seem probable if we see what we want to see over the next few days. As always, keeping an open mind and paying attention to what is happening, rather than what we think will happen, is extremely important. We need to see short-term buy signals, which were not present as of Wednesday’s close. If we have time, we may post some updates during the day on Short Takes.

    Disclosure: SLV, GLD, EEM, UDN
    Nov 18 9:21 AM | Link | Comment!
  • Silver May Be Making a Blow-Off Top Today
    The silver ETF (SLV) normally trades 14 million shares per day (3-month average). Today as of 3:00 pm ET, it has traded 114 million shares or 691% above its average, which is very, very rare. We have been concerned about a rally in the dollar and the possible negative impact on silver and gold. While today’s gains in the dollar are still somewhat tepid from a conviction standpoint, the greenback is still up for the 3rd day in a row. As of 3 pm ET, SLV is off 5% from its intraday high. It is possible we are seeing what is known as a “blow-off” top in SLV today. If SLV finishes the day in the red, which may not happen given silver’s incredible strength, then it may be a sign of a short-term reversal. We have to see how SLV closes before we can read too much into it.

    Disclosure: SLV
    Nov 09 3:14 PM | Link | Comment!
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