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Chris Vermeulen's  Instablog

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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  • Negative Earnings Surprises & 3 Year Breaish Pattern For Broad Market

    As mentioned last Friday just before things took a dive on the weekend, a look at the major market indices did not look promising. If we take an even longer term look and examine the monthly charts we can see that The S&P 500 as well as the Dow Jones have been approaching multi-decade rising channel resistance lines. Further, they also appear to be forming bearish rising wedge patterns.

    Monthly Long Term Chart Analysis & Thoughts:

    (click to enlarge)Monthly SPX Index Trading

    As many of my longer term subscribers can attest to, I always preach that technical analysis is one part art and one part science: you can never be completely certain on what the outcome of a pattern is going to be. However, we can use historical analysis to make better investments. The great American Novelist Mark Twain probably said it best in that "history does not repeat itself, but it rhymes". Regarding a rising wedge pattern, we know that roughly two-thirds of the time they will break to the downside. This also means that one-third of the time they break to the upside.

    In accomplishing our goal of capital growth we must do a number of things. We must make returns on our investments, we must protect our investments, and we must limit our losses. While all three aspects work in tandem with each other, there are times when focus must be allocated to one specific approach.

    Regarding the current technical setup, I'm not so focused on the 67% chance that these wedges will break to the downside, but more so the impact of each outcome on the average Joe's portfolio and mom and pop businesses. The S&P 500 and the Dow are approaching long term resistance lines that have been in place for decades. If we do break to the downside, which I suspect we will, there could be a very significant sell off with consequences that no one can predict at this point though I mention some things in the chart above. Alternatively, there is significant overhead resistance in the various indices, and I don't believe an upside break would be too monumental.

    That being said, I always like to keep an open outlook and wait for the right opportunity. I'm trying to think of scenarios that would prelude further upside action and I really am not coming up with much. As evidenced by the completion of the recent 5 wave uptrend on the S&P that coincided nicely with the various quantitative easing policies, Ben Bernanke and the fed have had less and less impact. I truly can't see many fiscal developments that would prompt any significant bullish action.

    The only scenario I really think that could pump up equities is a series of positive earnings announcements. A lot of expectations, earnings numbers, guidance, etc… have been revised downwards over the last couple of quarters, so there is the opportunity for some positive surprises that could lead to some bullish price action. In absence of such a scenario, I really can't think of much else that would prompt a run up.

    Look at these charts of positive and negative earnings surprises… and the dates and remember what happened following this negative data….

    Positive Earnings Surprise


    (click to enlarge)Earnings Positive Surprises

    Earnings Positive Surprises

    Negative Earnings Surprise

    (click to enlarge)Earning Negative Surprises

    That being said, I am recommending two courses of action. For those steadfast bulls, lock in some profits and/or buy some protection. Missing out on some of the upside is a lot better than losing some of the gains you have fought so hard for over the past couple of years. For the more aggressive traders and investors, start following my updates a little more regularly as I foresee many shorting opportunities coming up in the future. As many of you know, sell-offs are often quick and abrupt, and timing is extremely important when playing the downside.

    Further, trading could get very volatile in the near future. Historically, and even more so looking forward as August and September have been very costly for the average investor. Our focus will be in taking the highest probability trades that offer the best risk to reward scenarios. There will be times when we miss trades, and times when they're not timed perfectly. But, as those who have been with me for a while can attest to, patience pays off in the long run…

    Join my Free Market Analysis & Trade Idea Newsletter Now: www.GoldAndOilGuy.com

    Chris Vermeulen

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SPY over the next 72 hours.

    Jul 25 7:19 AM | Link | Comment!
  • Apple Back On The Upswing - Are You Ready This Time?

    After seeing apple peak in April the stock has finally taken a breather and went through a six month consolidation. After breaking above $430 it never really looked back and the stock gained 50% in a mere three months. It looks like the stock can be entering its third wave in a long term bullish trend. A few important points to consider:

    - Fundamentally Apple is not a "high-flying" tech stock with ridiculous multiples
    - Currently trading at roughly 15 P/E it is hard for anyone to justify it being anything other than cheap.

    - Technically the stock is exhibiting many bullish technical signals
    - Strong break out in early July of consolidation with increased volume despite typical low volume summer trading.
    - Outperformance of the Nasdaq and S&P
    - Apple appears to be entering bullish 3rd wave upwards in a typical 5 wave pattern

    - Apple makes up roughly 20% of the weight of the Nasdaq, so while you may not always be interested in trading directly in Apple, it is prudent to keep an eye on its general direction.

    Back in March and April the optimism got a little too high and we saw price pullback. This is very natural and healthy; it would have been irrational to want to get in after a 50% move in three months. However, we have now seen price consolidate and Apple disappear from the hourly headlines. This is exactly the opportunity we like, and all signs point up for Apple.

    (click to enlarge)Apple Stock Trading Idea

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    and Trading Education Videos: www.GoldAndOilGuy.com

    Chris Vermeulen

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: AAPL
    Jul 16 10:00 PM | Link | Comment!
  • The Next Major Move In Precious Metals Is Close

    After making new highs about a year ago we have seen Silver and Gold consolidate for roughly the last twelve months. Technically, it would typically be a bullish scenario with gold from the stand point that the last 12 months' price action was a sideways consolidation in a bullish pennant formation. However over the last year we have witnessed a series of lower highs and increasingly tested supports levels around $150 on GLD which raises caution.

    Click Gold Chart for Full Size

    (click to enlarge)

    With the fed pulling any extensions on further quantitative easing in the form of QE3 or other programs, the bullish case has lately been criticised. However I am still a firm believer that gold in most respects is a currency, and the only one that can maintain its value. There are very serious issues looming in Europe and across the world that are far from resolution. With few tools left in the toolbox to stimulate world economies, further easing can never be ruled out.

    Silver, after breaking through strong resistance around $19- $20 in September 2011 went almost parabolic in spring 2011 prior to giving up most of its gains in the last year. There seems to be significant support around $26 on SLV, however this level has been tested quite frequently over recent months and this again raises caution. While silver owes some of its moves to its industrial application, the high correlation between the two metals is not to be ignored.

    Click Silver Chart for Full Size

    (click to enlarge)

    I think the long-term trade will be long in both metals, but I'm waiting to see a significant breakout out of these consolidations on heavy volume to confirm a direction. I would like to see both precious metals break out of their respective consolidations and ultimately have further confirmation in the USD. Any major headlines over the next couple months involving Europe or quantitative easing may provide us with the trigger for the next big move.

    Get My FREE gold cycles and trading analysis here: www.GoldAndOilGuy.com

    Chris Vermeulen

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jul 13 6:46 PM | Link | Comment!
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