Monitoring purposes SPX: Neutral
Monitoring purposes GOLD: Gold ETF GLD long at 173.59 on 9/21/11
Long Term Trend monitor purposes: Flat
The bottom window is the rate of change (ROC) of the VIX. Short term lows in the market have been found when the ROC of the VIX is over 10% and over the last several days we have two ROC readings above 10%. We have panic in the Tick readings with a close last Tuesday at -949; Wednesday at -419 and Thursday at -522. Our studies in the TRIN suggest worthwhile lows in the market form when the TRIN panic’s to closes above 2.00. There is a variation of this rule and one is when the TRIN closes above 3.00 over a two day period. Yesterday’s TRIN closed at 1.58 and today’s TRIN closed at 1.30 which adds up to 2.88 and below the ideal level of 3.00. These types of signals by the TRIN are usually not that strong but can produce a bounce short term. There is a chance the bounce could carry to the gap level near 196. We have circle in blue the previous times the TRIN closed above 3.00 over a two day period and as you can see the bounces were weak. We don’t believe the bottom has been seen in the SPY and after this potential short term bounce is completed another down leg is expected. The next leg down may produce the panic we are looking for in the TRIN to produce a significant low in the market.
Above is the QQQ. The pattern that appears to have formed is a “Head and Shoulders top”. Previously we had a target to 93.5 range which was met. To signal the bottom has arrived is for the TRINQ close above 1.50 and the TickQ close below minus 500 the same day. Neither the TRINQ nor the TickQ have expanded to those levels on the same day and suggests the bottoming process is incomplete. However the TRINQ closed at 1.68 and can produce a short term bounce. The pattern that may now be forming is a Head and Shoulders Top and the Right Shoulder may form on the potential short term bounce that is expected. Resistance may be near the gap down on July 31 near 96.5 range on the QQQ which will form the second hump of the Right Shoulder (similar to the two humps on the Left Shoulder). This potential Head and Shoulder top has a downside target near gap level of 90 that formed on May 27. We will see how strong this potential bounce is and than decline if a sell signal will be warranted.
The chart above is courtesy of www.barchart.com. We keep on eye on the gold Commercials positions which get reported on Friday’s. The Commercials are considered the “smart money” and worth following what they do and right now they are near a yearly high in their short positions in Gold. The large Speculators are near a yearly high in long positions in gold and are considered the “Dumb money”. Therefore you have the “Smart Money” short and “Dumb money” long and not usually a good situation for gold going forward. We are thinking that a surprise decline could be coming and that decline would be the one worth buying. The money manager for gold have stayed relative long and showing little fear here. We have a cycle low due in early August and if we are going to see a decline in gold it should be soon. Still waiting for a pull back short term.
Tim Ord
Editor
