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Chris Vermeulen
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Chris Vermeulen the founder of AlgoTrades.net Algorithmic Trading Systems. This automated investing system is designed for individual investors and traders. He is also the editor of the TheGoldAndOilGuy newsletter which is designed for gold market traders providing quality ETF Trade Alerts,... More
My company:
AlgoTrades Algorithmic Trading Systems
My blog:
TheGoldAndOilGuy - Gold Market Traders
My book:
Technical Trading Mastery - 7 Steps To Win With Logic
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  • Leading Sectors Breaking Down – Internet & Social Stocks

    In July I showed talked about the Russell 2K index and how it was underperforming the broad market. I went on to explain what it likely meant was in store for the US stock market this fall. The outlook was negative, just in case you were wondering…

    This week I want to talk about two different sectors that have often lead the broad market in rallies and corrections over the years. These sectors have underperformed the broad market much like that of small cap stocks, and this does not bode well for investors going into fall.

    In the analysis below I use Bollinger bands and trendlines. Using only these tools keeps the charts clean and easy to understand. In short, once a trenline has been broken that is the first early warning that a trend may be coming to an end. The second is the break of a Bollinger band.

    A combination of these can be taken as a trend reversal and likely the start of a multi week or month correction. This will depend on the chart time frame you are reviewing though. I use a similar method to identify trends with my automated futures trading system.

    INTERNET INDEX FUND ANALYSIS

    (click to enlarge)

    SOCIAL MEDIA INDEX FUND ANALYSIS

    Futures Trading System

    If you are wondering what exactly these two charts are pointing to… let me share my outlook.

    Because we have seen the support trend lines broken to the downside this month, and the fact that price has pushed more than 2 standard deviations from its norm, the odds favor more downside is to come.

    From years of experience trading price patterns and breakouts I know that when price breaks to the downs side and triggers fear among its investors it is typically your best time to sell short so you can profit from the falling prices. Fear is the most powerful force in the stock market and it must be traded much differently than when prices are rising.

    Although I feel the broad market is still within its uptrend, these two underperforming sectors may just continue to sell lower. Obviously once the broad market rolls over, these sectors should fall even faster to the downside but until then, they could chop around and grind their way down.

    Like My Simple Analysis & Tips? Join My Free Newsletter at www.GoldAndOilGuy.com

    Want My Trades Automatically Trade for You? www.AlgoTrades.net

    Chris Vermeulen

    Sep 23 10:49 AM | Link | Comment!
  • Option Skew Points To More Downside Potential In The Nasdaq

    By now it is no secret that equity markets continue to deliver solid gains for 2014. In fact, all of the major U.S. domestic stock market indexes are higher for the year. U.S. equities have benefited from an accommodating Federal Reserve, massive corporate stock buy-back plans, and solid earnings growth. The bullish trend which began in early 2009 has pushed equity indexes to several all-time highs. QQQ DIA, SPY, IWM

    However, when we focus our attention on 2014 one index is showing major relative out performance. The Nasdaq Composite and the Nasdaq 100 indexes have blown away every other major index in terms of overall returns in 2014. The chart shown below illustrates the returns of each major U.S. equity index year-to-date.

    (click to enlarge)

    As can be seen above, when looking at the corresponding ETF for each major index, the Nasdaq 100 (NASDAQ:QQQ) is running away from every other major index in terms of performance. As a contrarian trader, I am of the opinion that now may be an excellent time to consider looking for a possible short position to hedge against the bullish trend.

    The equity markets in the United States are becoming frothy and prices are at the very least fair valued if not overvalued depending on which methods are used to calculate current prices. When we consider the major out performance in the Nasdaq 100 Index, it would only make sense that if we see downside in the future we could capture some big potential profits.

    As an option trader who focuses primarily on probabilities for trade executions using a variety of implied volatility calculations and Delta assumptions, the following observations regarding the Nasdaq 100 Cash Index (NDX) were derived based on data points on Friday, August 29th.

    Based on the September NDX option expiration date, the current skew in the NDX option data is to the downside. In fact, as I am typing this NDX is trading around 4,075. A 2 standard deviation move to the upside (90%) is around the 4,200 call strike and the same measurement to the downside is around the 3,900 put strike.

    (click to enlarge)

    When looking at the same data based on the October NDX option expiration date, the current skew in the NDX option data demonstrates more aggressive downside Skew in October versus September. A 2 standard deviation move in the October series to the upside (90%) is around the 4,275 call strike and the same measurement to the downside is around the 3,755 put strike.

    (click to enlarge)

    While I realize this is somewhat technical, the main premise is that the option market in the Nasdaq 100 Cash Index (NDX) is skewed toward more potential downside risk. This data lead me to place a new trade earlier this week which was next short the Nasdaq 100 Cash Index (NDX) using an October Call Credit Spread as a trade structure.

    Recent results for the service have been very strong for the options alert service. The last 4 trades have produced a 13.95% winner in Matador Resources (NYSE:MTDR), a 17.05% winner in the S&P 500 Cash Index (SPX), a small 1% loss in the Nasdaq 100 (QQQ), and a 21.95% in the Russell 2000 Cash Index (RUT). The options newsletter service is priced super affordable at just $29.99 per month with new trade alerts sent out almost daily.

    Ultimately time will tell if the skew in the NDX proves to work. For now, I like the near 75% probability of success that the NDX Call Credit Spread is offering with a nearly 20% potential return. In the future readers can expect a recap of this trade. Happy Trading!

    Chris Vermeulen

    www.thetechnicaltraders.com/options/

    Tags: QQQ, DIA, SPY, IWM
    Sep 02 9:11 AM | Link | Comment!
  • Gold And Oil On The Verge Of Something Big – Hero's Rarely Win

    Everyone has been calling for a bottom in Gold the last year. But the fact is that gold and gold stocks are still clearly in a bear market. Just look at the 200 day moving averages. The previous trends were down and prices have been moving sideways for the past year.

    A lot of newsletter and analysts are calling a bottom. Technically it's just a consolidation pattern. Consolidation patterns are a continuation pattern, meaning if the previous trend was down, which it was from 2011 till now, the odds favor price will continue lower after this consolidation. GLD, GDX, GDXJ, DUST, NUGT

    goldbear

    If this consolidation does happen to be the bottom then we can classify it as a stage I base. Gold and gold stocks will start a new bull market, but price needs to break to the upside of this consolidation pattern. Until it breaks to the upside, it is still in a down trend.

    Gold topped out over three years ago. And I am in no rush to try to pick a bottom and be a hero here. I'm just going to continue waiting on the sidelines until price confirms either a new bull market has started or for price to breakdown and we get another leg lower.

    Oil Outlook

    Taking a look at the big picture of crude oil the chart looks bearish. It too has been trading in a range since 2011 and the price is nearing the apex of a consolidation pattern. SCO, UCO, USO

    oilbear

    It's important to know that a pennant formation which is what crude oil has formed are the most predictable when price breaks out of the pattern within the first 1/3rd of the formation.

    The longer price consolidates and gets squeezed into the narrowing apex of the pennant pattern, the more unreliable. The trend breakout will be, and it becomes at best a 50/50 bet.

    Crude oil's previous trend was up, but it's been consolidating for such a long time that price is now squeezed into the apex. This negates that bias for the previous trend to hold true so we have no idea which why it will breakout but when it does expect an explosive move.

    A breakdown in crude oil will send price to the $70 or $75 per barrel range, and that will hammer on the Canadian dollar also. I can see $1 USD being equivalent to $1.20 Canadian in a year.

    My Gold and Oil Conclusion

    Looking at the US dollar, it has been rising partly due to the euro falling. This strong dollar will put a downward pressure on commodities overall. UUP

    Automated Trading System

    Gold and oil have not been that exciting for investors since 2011 when they topped out, but both are setting up for massive moves that should last month, if not year or more. Once these new trends emerge expect to see them in the headline news every hour.

    It does not matter which way these commodities breakout of the consolidation patterns. With the dollar continuing to rise and the bearish chart patterns for both gold and oil there is a good chance much lower prices are ahead.

    This will catch most investor's off guard. It's human nature to try to predict tops and bottoms in the market. But this is why most investors get caught on the wrong side of the market. The market always has a way of catching the majority of people on the wrong side of a position.

    I am happily sitting in cash with some of my investment capital waiting for gold and oil to breakout of these large patterns. I would not be surprised if we see $900 gold, gold stocks like the gold bugs index $HUI to be at $150, and $70 per barrel for crude oil. I am not saying this is what I want, but you should be mentally prepared so you can get back into cash position and so you can take advantage of falling prices with me.

    Big money will be made on the next price movements in these commodities. Whether we have to go long the market or short sell the market. Either way, we can make money. So don't be a hero and try to pick a top or bottom, just wait for confirmed breakout then invest with the trend.

    Would you like my trade alerts CLICK HERE

    Want my SP500 trades executed for you in your brokerage account CLICK HERE

    Charting your way to financial freedom,

    Chris Vermeulen

    Aug 22 9:38 PM | Link | 1 Comment
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