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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
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AlgoTrades Algorithmic Trading Systems
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  • The Election Cycle – What To Expect In Stocks & Bond Prices

    By: Chris Vermeulen - www.TheGoldAndOilGuy.com

    It is that time in the presidential cycle that gets everyone emotional and concerned with the future outlook of the United States. While everyone has their opinion on whom they think is best for America, I promised myself a long time ago to keep my thoughts to myself for two key reasons. ONE: only 50% of Americans will agree with me J, and TWO: I am Canadian so I do not experience what Americans go through on a daily basis.

    My thinking is if Obama wins then we will see Quantitative Easing continue. And with the recent positive economic numbers on Friday it should give some confidence to investors that things are SLOWLY stabilizing (Bullish for Stocks). But, if Romney wins then we could see Quantitative Easing be cut or eliminated which is obviously bad for equities.

    So, let's just jump into the charts of what I feel will unfold in the next few days and months.

    Using the season chart of the four year election cycle we can see what the Dow Jones Index has done in past election periods. Obviously every market environment is drastically different in each situation but overall we see stronger stock price. This is naturally a very emotional time for investors but once the election is finished most individuals become more confident simply because there is a leader that has four years to make things better and there is nothing they can do about it now and the campaigning and debating is over.

    (click to enlarge)

    DIA - Dow Jones Industrial Average - Daily Chart:

    Looking at the chart of Dow DIA Index fund you can see a 5-6 month cycle in the market which has a positive skew. Just so you understand what a positive skew is I will explain.

    Positive Skew is when the market is trending up making a series of higher highs and higher lows. Because there are naturally more buyers during a bull market each cycle upswing lasts longer then when the cycle down downswing. So you get longer rallies which sends your secondary indicators (stochastics, volatility, put/call ratios, advance decline line etc…) in the overbought levels for extended periods of time. Those trying to pick a top continually get their head handed to them. The focus must be on buying the pullbacks. Keep in mind volatility is higher which meaning risk per trade is higher. Overall in the long run you stand a much higher chance of making money trading with the trend than trying counter trend trades (picking a top).

    So as you can see below it looks like the stock market will be trying to put in the bottom over the next week or two which falls in line with our election cycle. It is very important to know that during intermediate cycle lows is where some of the biggest drops take place. These sharp drops are what is needed to cleanse the market one last time to shake as many traders with tight stops out of the market before it reverses and starts the next rally. I would like to see a 1-3 day market sell off as that would be the signature bottoming pattern I like to buy.

    Keep in mind that any index or high beta stock can be traded using this same cycle. Symbols like AAPL, SPY, IWM and QQQ.

    (click to enlarge)

    Bond Prices - Moving Against the Norm…

    Bond investors are some of the most conservative people in the market. They do not like to take risks so they dump their money into bonds to make a tiny profit in exchange for low risk (volatility). The nature of these investors put more money into bonds as we enter the election because they are nervous about not knowing who will be in control of the country.

    After the election finished some money flows out of bonds and into stocks because there is now a president and direction for the country. Generally come the new year investors move to bonds as the safe haven as they try to figure out what their game plan is for new year.

    So looking forward to this week and the next 2 months I would not be surprised to see bond prices rise or trade sideways while stocks move higher. This analysis is based on Obama winning. If Romney wins then I feel bonds will rally much more and stocks could sell off.

    (click to enlarge)

    TLT Bond Exchange Traded Fund - Daily Chart:

    Here is a chart of 20+ year bonds showing a possible reversal to the upside that could trigger as soon as next week. This chart is forward looking 1 - 2 weeks. Overall the trend remains down but if Romney wins I feel bonds breakout above the red resistance levels and trigger a new uptrend. You can follow my stock charts and ETF charts live every day here: http://stockcharts.com/public/1992897

    (click to enlarge)

    Election Year Trading Cycle Conclusion:

    Next week is going to be very interesting to watch unfold. I generally do not like to trade or invest before news of this magnitude so trade smaller sizes if you do as price action could be wild.

    Get my Daily Trading Analysis & Trade Setups at: www.TheGoldAndOilGuy.com

    Chris Vermeulen

    Nov 04 2:13 PM | Link | Comment!
  • AAPL Looks Ready Bounce & The Next Best Trade Ideas

    AAPL shares have been in free fall mode all October spooking investors with a $120 drop from the all-time high in September. As well all know, though it's hard to follow without a proven trading strategy to keep us focused but the key is that you must buy when others are selling and then sell when everyone is buying.

    Apple shares really have helped in holding the overall stock market up in the past but recently it has been a big drag on the broad market. Taking a look at the chart below you can see my analysis and thoughts of this giant.

    The red horizontal line shows the key level where high volume traded in the past. For the market to reset (flush out investors/traders) it must shake as many longs out before it can start rising again. By the price breaking below that level which also happens to be a Century Number $600, most of the stops were placed down around this level. The volume spike of 40,000,000 shares clearly shows it triggered stops once that $600 level was broken. We want stops run because it give more power to the next rally/bounce.

    (click to enlarge)

    NASDAQ Index:

    The NASDAQ has formed a similar chart pattern and is heavily weighted with AAPL shares. Trading NQ futures, QQQ, QLD or the XLK exchange traded fund as a much more affordable way to play a bounce/rally in the coming weeks.

    (click to enlarge)

    Russell 2000 Index:

    I really like the Russell 2000 index because small cap stocks can rally hard and fast outperforming the large caps like AAPL, SP500, NASDAQ and DOW. This index is looking ripe for a bounce in the coming days which could trigger the next major rally to new highs. You can plan this index through TF futures contract, IWM, TNA, UWM exchange traded funds.

    (click to enlarge)

    Trading Conclusion:

    While this setup looks very promising because the election is almost over and the Santa Clause rally is just around the corner. Know that some of the biggest drops in the market happens during times when the market is running the stops. It is a natural tendency to take big positions which things look great, but that is not how you do it… Take calculated position sizes knowing indexes could fall another 2-3% before putting in a real washout bottom.

    Get My Trade Alerts at: www.TheGoldAndOilGuy.com

    Chris Vermeulen

    Nov 01 8:39 AM | Link | 2 Comments
  • WTI Crude Oil & Oil Stocks Seasonality & Year-End Outlook

    Crude oil has had some large price swings this year and another one may be on its way. This report shows the seasonality of crude oil along with where oil is trading and what the oil service stocks are telling us is likely to happen going into year end.

    Since WTI Crude Oil topped out in September at the $100 resistance level (Century Number) many traders are looking for a bounce or bottom to form in the next week. Historical charts show that on average the price of oil falls during November and the first half of December.

    The charts of oil and oil stocks shown below have formed patterns on both time frames (weekly & daily) that lower prices are to be expected. If you did not read my Gold Seasonality Report I just posted be sure to review it here: Gold Seasonal Report

    (click to enlarge)

    WTI Crude Oil Weekly Chart:

    Here you can see that price tends to fall going into Christmas and rallies during the last week of trading. USO chart looks the same. This price action falls in line with Dimitri Specks seasonal chart providing us with insight as to what we should expect. Later this week I will finish my report on the Election Cycle Seasonality report which shows weakness in the market during Oct & Nov when a president is up for re-election.

    (click to enlarge)

    Oil Services Stocks - Weekly Chart:

    If you follow oil closely then you know likely know already that oil related stocks can lead the price of oil by a couple weeks. What this means is that if big money is flowing into oil stocks (bullish price patterns with strong volume), then you should expect the price of crude oil to rise in the coming days. That said, if money is flowing OUT of oils stocks then lower or sideways oil price should be expected.

    The weekly chart oil stocks show a very large bearish head & shoulders pattern. While I do not think the neckline will be broken it is very possible.

    One of the most important pieces of data on the chart is the VOLUME. Notice the lack of it… Volume tells us how much interest and power is behind chart patterns and declining volume clearly tells us these investments are out of favor currently and that big money is not moving into them.

    (click to enlarge)

    Oil Services Stocks - DAILY Chart:

    Zooming into the daily chart of the OIH fund oil service stocks we can see there is yet another bearish pattern unfolding. Another head & shoulders pattern which looks as though it is just starting to breakdown as of this writing. Next support level is $35-36.

    The energy etf XLE looks similar and can be used also.

    (click to enlarge)

    WTI Crude Oil and Oil Service Stocks Trading Conclusion:

    Looking forward 1-2 months (November - December) taking the seasonal price swings in oil, re-election cycle seasonality and price action of oil stocks I feel oil will trade sideways or down from here. With that being said, expect crude oil to rally during the last week of the year. I hope this provides some useful info for your trading!

    Get my Daily Trading Analysis & Trade Setups at: www.TheGoldAndOilGuy.com

    Oct 30 1:39 PM | Link | Comment!
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