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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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  • Is February A Risk-On Or Risk-Off Trade: Equities Or Gold & Bonds

    Recent price action in the stock market has many traders on edge. With the market closing below our key support trend line last week, the market has now technically starting a down trend.

    While trend lines are a great tool for identifying a weakening trend and reversals in the market, I do not put a lot of my analysis weighting on them.

    Most of my timing and trading is based around what I call INNER-Market Analysis which is I use for my algorithmic trading systems also (Market Stages, Cycles, Momentum and Sentiment). Using these data we can diagnose the overall health of the market. Knowing the strength of the market we can then forecast short term trend reversals before they happen with a high degree of accuracy.

    In this report I keep things clean and simple using just trend lines. During the last three weeks we have seen the price of stocks pullback. And because 2013 was such a strong year for stocks most participants are expecting a sharp market correction to take place anytime now.

    So with the recent price correction fear is starting to enter the market and money is rotating out of stocks and into the Risk-Off assets like gold and bonds.

    Stocks tend to fall in times of economic uncertainty or fear. These same factors push investors towards the safety trades (Risk-Off) high quality bonds and precious metals. As more money goes from risk-on to risk-off, stocks will continue to fall and the safety trades will rise. The move by investors to select the safety of gold and bonds compared to the volatility of stocks will result in these risk plays to moving in opposite directions.

    Let's take a look at the chart below for a visual of what looks to be unfolding…

    (click to enlarge)

    How to Trade These Markets:

    While these markets look to be starting to reverse trends, it is critical that we understand how the market moves during reversals and understand position/money management.

    Getting short stocks and long precious metals in the long run could work out very well, but if you understand the price action that typically happens during reversals you know that the stock market will become choppy and we could see the recent highs tested or possibly even a new high made before price actually starts a down trend. And the opposite situation for gold and bonds. Drawdowns can be huge when investing and why I don't just change position directions when the first sign of a trend change shows up on the chart.

    Price reversals are a process, not an event. So it is important to follow along using a short term time frame like the daily chart and play the intermediate trends that last 4-12 weeks in length. By doing this, you are trading in the direction of the most active cycle in the stock market and positioned properly as new a trend starts.

    What I am looking for in the next week or two:

    1. Stocks to trade sideways or drift higher for 3-6 days, then I will be looking to get short. Again, cycle, sentiment, and momentum analysis must remain down for me to short the market. If they turn back up I will remain in cash until a setup for another short or long entry forms. SPY

    2. Gold remains in a down trend but is starting to breakout to the upside. I do have concerns with the daily chart patterns for both gold and silver, so next week will be critical for them. We will be using some ETF Trading Strategies to take advantage of these moves. GLD, SLV

    3. Bond prices (not yields) look to be forming a bottom "W" pattern. They have had a big run in the last few weeks and are now testing resistance. I think a long bond position is slowly starting to unfold but if we look at the futures price charts for both bonds and gold, they have not yet broken to the upside and have more work to do. As mentioned before ETFs are not really the best tool for charting but I show them because they what the masses follow and trade. TLT,TBT

    Get these reports every week free at: www.GoldAndOilGuy.com

    Chris Vermeulen
    Author of "Technical Trading Mastery - 7 Steps To Win With Logic"

    Feb 02 12:37 PM | Link | Comment!
  • The Logical Fear Trade – Emotions Vs. Analysis & Logic

    I apologize now for the Christmas colored charts below… Its a lot of red and green but these are the most understood colors for knowing what ranges means (bullish or bearish).

    This was a very emotion week for traders. The strong selling Thursday and Friday has traders and investors running for the door and panicking out of positions. While I did close out our long SP500 swing trading on Thursday to lock in a profitable trade, I do feel as though we can re-enter next week a better price.

    The only ones feeling pain today are those who do not have enough self-discipline to create rules and trade by them. Again this is talked about in GREAT DETAIL in my new book. If this is you, I recommend buying my book and reading it this weekend as it's a quick and simple read. There is a paperback version or instant PDF download available: Get Book.

    Without self-discipline no amount of courses are trading services will make you a successful trader.

    Let's get technical and jump into the charts…

    Momentum Index - The Intraday Extreme Overbought/sold indicator

    This is an indicator I follow daily to understand how strong the selling is. If it is broad based or sector related. The last two sessions clearly shows is broad based and that the market has moved to quickly in one direction and is primed for a knee jerk reaction bounce.

    (click to enlarge)

    Swing Trading Cycles : 3-8 Weekly Overbought/Sold Market Cycles

    This is a fantastic tool for timing key pivot lows and highs in the broad market. We are nearing another key pivot low but there is still room for more selling next week.

    (click to enlarge)

    Options Traders Are Fearful of Continued Selling

    If you don't know what the put/call ratio is, in simple terms it tells us when the majority of traders are buying put options (expecting stocks to fall, ratio of 1.0+), and when they are overly bullish (expecting stocks to rise, ratio below 0.60).

    The chart below shows everyone is leaning towards more selling in the stock market. I use this as a contrarian indicator.

    The Fear Trade - Shorting Fear with an Instrument that Naturally Loses Value: VXX

    There is a lot of interesting way to trade the stock market and once way it through shorting the VXX ETF during bull markets. Instead of buying a long position in stocks, you could simply short the VXX fund. This thing loses value over time because of the way it's managed/constructed. So logic says, shorting it on bounces can be very rewarding during times when fear is high.

    Keep in mind this fund and its underlying index moves FAST with 20-30% percent swings… Trade small position sizes if you ever touch this thing… TVIX, VXX

    Weekly Technical Trading Report Conclusion:

    In short, (pardon the pun) I feel the stock market is setting up for another big bounce. The technicals and longer term trend remains bullish. I trade with the trend until proven wrong. Only then will I change the direction and trade with the new trend.

    Get These Reports Free Each Week: www.GoldAndOilGuy.com

    Chris Vermeulen

    Algorithmic Trader

    Tags: TVIX, VXX, UVXY
    Jan 24 3:56 PM | Link | Comment!
  • GOLD MARKET TRADERS: METALS AND STOCK MARKET WILL SWAP TRENDS – PART II

    The two trend reversals everyone has been waiting a year for are about to take place, but they have not yet started.

    While I do think 2014 is the year we see gold, silver, miners and many other commodities rally, it is important to follow the trend and wait for a reversal to form before getting overly excited and long commodities.

    Each time we see the daily charts form some type of bullish pattern gold market traders become instantly bullish. And each time this happens they get another reality check about their trading technique of trying to pick a bottom.

    I just published a book in December which teaches readers how to identify trends and stages in the market - "Technical Trading Mastery - 7 Steps to Win With Logic". Buying into a bear market rally is not a high probability winning position. Odds favor that sellers will pull the price down and likely to new lows.

    This January is one of these times and gold market traders are getting excited and long positions. While the bottom may in for precious metals, buying a bounce in a bear market is tricky and you better have some trading discipline to exit if price starts to sell back down.

    Eventually we will see the stock market rollover and breakdown below its support trendline and gold will rally. But keep in mind, some of the largest percentage based moves take place just before a reversal. What does this mean? It means that the stock market could easily go parabolic and rally for a few more weeks, then reverse down sharply. And precious metals would do the opposite, sell off, make new lows, then reverse back up and start a new bull market.

    Stock Market VS. Gold - Gold Market Traders Be Aware!

    (click to enlarge)

    Below are a few more charts showing my big picture trend analysis for silver and gold miners. GLD, SLV, GDX, GDXJ

    (click to enlarge)

    (click to enlarge)

    Gold Market Traders Conclusion:

    In short, the precious metals sector is still in a bear market and has not yet reversed to the upside. As you know I don't pick bottoms or tops which go against the longer term trend. In this case the trend is down for precious metals so I am not trying to pick a bottom.

    While I am starting to get excited about the eventual bottom in gold, I am still sitting on the fence with my cash.

    If you would like to get my analysis every day and my gold trades be sure to join me atwww.TheGoldAndOilGuy.com

    Chris Vermeulen

    7 Steps To Win With Logic

    Jan 20 12:16 PM | Link | 1 Comment
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