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Aaron Basile
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Contrarian Investor, Commodities Speculator, Technical Trader.
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Aaron Basile
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  • Financials Close Off Of The Lows To Make Possible Short Term Bottom

    The S&P closed a few points above the even number level of 1300 which is typical of an options expiration week since whole even numbers are closely associated with strike prices, and what better level is there than one that ends with 00? I think the big story for the market’s activity next week will be the financial sector as many of the major banks were beaten down hard last week and are close to the lows of their respective charts. I will most likely play the long side of the financials next week for a short term bounce, and I believe that it is also possible that this translates into a rally in the overall market.

    I have a short term level for the S&P at about 1306 which is a level that was tagged on Thursday and one that the market stayed above on Friday. This is by no means a major pivot but I think it may serve as minor support as the market consolidates off of the highs. Additionally, the 20 and 50 MA’s are beginning to scoop underneath the price activity and the 20 MA is already above 1306. This forces me to favor the upside and it is likely that the market is now putting in a higher low.

    Using 1258 as the high and 1356 as the high, the market has made a 50% retrace of the Independence Day rally (1258+1356 = 2614/2 = 1307). The close yesterday was 1308 but the low of the day was at 1307.52, which is almost exactly 50% off of the high of 1356.

    Bank of America has now pierced the $10 level on the chart and has made a bit of a bottoming tail on the daily. It sold right into this level without previously consolidating which means that it is valid for a long play as long as it stays above yesterday’s low of $9.88.

    BAC has earnings on Tuesday so I don’t advise holding the stock into the announcement, however I’d still favor the upside as it has sold into earnings and is already at the bottom of the chart which tells me that any bad news has more or less been priced in already.

    GS pierced $130 and has now made a higher low off of the bottom that was set in late June. This looks like a bullish setup for a long play, first target is the 20 MA, I would look for it to hit about $132.50.

    Similar to the chart on GS, JPM has made a higher low after a nice double bottom. It closed negative on Friday but made a lengthy tail on the daily chart which suggests that a short term bottom is in as long as it stays above Friday’s lows. The target for a bounce should be about $42.

    Probably the best chart so far is the XLF. Good series of higher lows and a possible bottoming tail from Friday’s action. Upside target is the pivot low of $15.34 which would also be a pierce of the 50 MA. There is nothing fancy on any of these charts and none of them should suggest anything more than a one to two day swing trade. For this reason, I like the FAS for added leverage to the possible bounce. Use XLF as a proxy for FAS since FAS is leveraged and does not accurately represent levels on the chart.

    I am looking for a gap lower tomorrow that stays above the $14.73 low on XLF, if this happens I will most likely go long the FAS and possibly another sector ETF (maybe QLD, SSO, TNA) that represents the overall market depending on where the SPX ends up after the opening bell.

    Jul 17 12:57 PM | Link | Comment!
  • Gold Reaches All Time High, Markets Reverse After Fed Announcement

    The stock market was sharply higher today after Ben Bernanke’s statements regarding the Fed possible involvement in future asset purchases should the economy not improve. To use a term heard from an industry contact today, “it’s as though every time Bernanke breathes in public it’s good for the PM prices”. Gold closed for a new all time high of $1585.50 and silver finished 7% higher as the dollar plummeted for a 60 cent loss after being nearly up nearly an entire point.

    Gold is up 7% in the last 7 days and is extended from the moving averages. It has a chance to confirm this breakout with a close higher tomorrow. It of course makes sense that gold would move higher with all that has been going over the past two weeks but the threat by Moody’s to downgrade the US should the debt ceiling not be raised was really nothing more than noise and should not have been taken seriously. Sure, they might downgrade the US’s credit rating if the deal is not done but to be blatantly honest there is less than one-thousandth of a percent’s chance that they will not come to an agreement by August and the market already knows this.

    Bernanke’s comments were bearish but he did not say that he was going to resort to additional stimulus until he deemed it necessary. Economic data is still awful and no amount of QE will change that. Also, the last treasury auction was fairly favorable which was caused by to the instability in Europe and it is also possible that policy makers may be forced to intervene in the forex market yet again if the USD/JPY stays below 80.

    On the weekly chart, today was not the first time gold had taken out a recently made peak only to fall to lower levels in the weeks following. Gold has failed confirmations above peak levels in the past (notably June 2010 and December 2010) and retraced back to the trendline going back to November 2008. I believe that for the reasons I have listed above and gold’s current overbought condition, that gold is in for another similar outcome in this instance but I do not see any opportunity to play it from the short side.

    I’ve had a few questions over the last week or so on this, and I would not be buying gold at this level. Buying here would be chasing plain and simple. Until gold, or any other asset for that matter, puts in a base of support, it is dangerous to enter any long position.

    The market is showing signs of weakness after the inability to sustain the highs after Bernanke’s comments earlier today. It fell most obviously because of the Moody’s threat but also take into account that today was a Whipsaw Wednesday which is a volatile trading day prior to options expiration. The reversal now sets the market up for a potential bearish consolidation above the 50 MA but nothing else is clear at the moment.

    FXE had a nice morning star reveal today which is the bullish version of an evening star reversal. Note the sharp move down, followed by a gap lower and a tail on yesterday’s candle, then a sharp move up today for a gain of 1.2%. The target on FXE is $142 which coincides with the 20 and 50 MA’s and the lower half of the previous support trend in the symmetrical wedge that I had covered for a couple of weeks before it broke down the other day. I expect FXE to reach $142 by the end of the week but I personally won’t enter this trade.

    Jul 13 10:00 PM | Link | Comment!
  • S&P Loses Gains For Second Day On The Back Of A Weak Euro

    This is already shaping up to be a wild options expiration week. The market fell for the second day in a row due to the negative news about the emergency meeting that the EU was having for Italy regarding what to do with their rescue package. This hurt the Euro as the exchange rate plummeted below $1.39. Gold and US treasuries rallied again as a safe haven play and the equity markets confirmed what I had predicted yesterday which was that we were in for a down day today since many asset classes failed to confirm above or below major pivot levels.

    Though GLD rallied .89% SLV fell sharply into the red as it lost 2.38% on the day. This is likely to be explained by gold being a better store of value and a safer asset than silver. The stronger dollar did not hurt gold today because gold buyers benefitted from the fears in Italy and consequently, both gold and the dollar moved higher, while silver retreated from the highs and forfeited back some gains.

    I said yesterday that $143 and $141 were the levels to watch on FXE and that a move in either direction would be decisive because the trading range had become so tight. Today it gapped below the lower trendline which completes the symmetrical wedge which I had said in one of the videos last week, was a bearish wedge.

    Despite today’s move, I think that downside is limited to $138 in the short term. It’s likely that it pierces the 200 MA tomorrow and tags $138 on the way there. If however it consolidates for the rest of the week, then it may have to momentum to fall to $137 following any type of consolidation or sideways trading. I am now out of my EUO Jul 11 calls as there is no reason to risk giving up gains as there is now much less upside to the trade and my contracts had already gained over 350% since the 30th of June.

    The Euro may stabilize by the end of the week but UUP can confirm a breakout of $21.67 with another positive close tomorrow. The dollar has broken out of the upper trendline in the symmetrical wedge pattern but it needs to confirm above $21.67 in order to move higher. Given the almost automatic bearish bias that UUP has, it isn’t hard to imagine the dollar failing to confirm tomorrow and instead, coming back in to test $21.60 as support before making another move up. If the dollar does confirm above $21.67, then it goes back to double top at $21.86.

    Once again TLT continues to rip higher closing up another 1.5% and is now 4.5% off of the bottom that I had called on June 30th. TLT will likely test $97 tomorrow but given the vertical move, I doubt it closes above it.

    Are you beginning to see a pattern? The dollar, the Euro, and TLT are all close to major support/resistance and both have little up/downside in the short term. It appears that while trends may be reversing, we’ll likely see a bit of a pause and/or consolidation tomorrow.

    The SPY had an extremely weak showing and barely scraped off of the lows by the closing bell as it appears that everyone is now trying to take profits from the monster move all at the same time. Again, like the three charts above, this one tagged support (50 MA) and has another level just beneath that which it may possible tag intraday tomorrow, but a close below 1310-1313 would come as a bit of a surprise.

    Part of the reason why I believe we could see a little bit more downside tomorrow is because the Q’s are still extended despite today’s move lower. A really rough support level has been drawn at $57.50 and I’m only using it because it’s about the same amount of percentage points lower as 1313 is from the SPX and i has been tagged a couple of times since February. Additionally, it’s half of an even number which is a bit of a mental level for traders. However, if this level doesn’t work out, we could see the Q’s lag and fall to the 50 MA which would be around to $57 level. I certainly think this is possible by the end of the week but I also wouldn’t be surprised at all if the Q’s continued to outperform.

    I am still long SQQQ and am up $1.50 (6.5%) but I will be watching this closely and I’ll be making a point to protect gains.

    Jul 11 9:33 PM | Link | Comment!
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