GLD has broken intermediate term trendline

GLD has been in an uptrend for two and a half years, but a couple of days ago it has broken through its up trendline that started in mid-March. The breakout was accompanied by higher-than-average volume. The most recent high off this trendline (H1) would suggest a drop to about 143.50.  The highest high off this trendline (H2) would instead suggest a drop to below 138.

The daily chart also shows a bearish divergence between price and MACD.

However, the price would have to drop to 141 this week, or to 142 next week, to touch the weekly long-term trendline. There is no MACD divergence in the weekly chart, suggesting that the long-term trend is bound to continue.

In light of all this, it is possible to see a drop to about 143, or a test of the long-term trendline, after which GLD would resume its upward trend.

In the very short term, GLD appears to be oversold.  RSI-5 and Slow Stochastics suggest a bounce may be about to take place.

To summarize:

1. Short-term: oversold, suggests to BUY before the bounce
2. Intermediate-term: broken up trendline, bearish divergences, suggest to SELL before the drop ends
3. Long-term: intact up trendline, price near trendline suggests a BUY

Bullish triangle in the Euro (FXE)

This chart of FXE shows a forming bullish triangle, a continuation pattern. The length of the formation is 3 months, and its height is about 10.  The breakout should occur between 66% and 75% of the length, in the grey breakout area. The length of the move should be about the same as the height, about $10. Volume, however, is not exactly in line with this pattern.  It should be decreasing as the triangle forms, with more emphasis on up days rather than down days.

MSFT

Here's a weekly chart of MSFT.

MSFT went through a double top in early 2010. A move of a little over the same height followed, which ended with the stock at 22.50 in late June 2010. This is now the lowest support line. It was also the start of a new leg up, whose trendline was broken in early March 2010.  Incidentally, the high of this rally had the same height of the previous double top and consequent down move.  Now it's in a down trend, but the recent moves have happened on decreasing volume.  The 23.50 support would be the next to break on the way down, while the down trendline would be the line to cross for a bullish breakout.

Now, let's see the daily.

The July 2010 bottom was preceded by a bullish divergence between price and MACD (2). Also, RSI was showing a divergence. The down trendline was broken in mid-July (3).  The new up trend (4) continued until March 2011 (6). Its end was preceded by a bearish divergence (5) between price and the three indicators in this chart: MACD, RSI and Slow Stochastics. The top of January 2011 became the start of a new down trend (7), which is still in effect. But since last March, MACD and RSI have been showing a divergence (8) with the price movement. Starting in May, Slow Stochastics confirmed this divergence as well.

Support is at 23.50, resistance is at 25.00. A breakout above the down trendline may represent the start of a new leg up.

ROC(7) on $VIX as an indicator of short-term market tops and bottoms

There's an interesting post by McClennan Financial Publications that describes the use of ROC(7) on the VIX to spot short-term tops and bottom in the stock market.

In summary, when the ROC(7) of $VIX crosses above zero, it suggests a market top, especially if the crossing comes after a sustained period under zero. Peaks of the ROC(7) above the 20% level, instead, indicate oversold  conditions and represent possible buying opportunities.

Let's have a look at the BUY signals first. I have marked seven peaks at or above 20% in the last year. Of these ones, signals 1, 3 and 5 were excellent.  Signals 2 and 4 were OK, and signal 6 was not good.  I would take this signal as a confirmation of other oversold market signals. There's a strange odd-even alternation of good and not-so-good signals, which may just be a coincidence.  We'll see how signal number 7 pans out in the next few weeks.

Now, let's look at the SELL signals, given by crosses above zero, especially after a prolonged time below zero. I counted 13 of such crosses in the last year. Of these, 6 were bad and 7 were good.  Slightly over 50% success rate is not great, but I see that most bad signals happened during the uptrend from September to February. Maybe this indicator works better in a sideways market.

This is what the $VIX ROC(7) looks like today.

Long NMSAX at 16.96, sold at 17.84

NMSAX is a mutual fund that tracks the S&P SmallCap 600 Index. IJR is an ETF that tracks the same index.  For this analysis, I am going to use IJR as a proxy for NMSAX.

The weekly chart shows an up trendline that was broken in early June. It also show a resistance line at 65 that was broken in November 2010, and should now act as support.  MACD suggests that the momentum of the rally that started in September 2010 is waning and that this market looks like it has started rolling over - on the weekly scale.

The daily chart shows two divergences between price and MACD, one in early 2011 and the other in April, marked by the red lines. It also shows a intermediate trendline, only slightly tilted upwards (green line). It also shows a peak in February followed by a taller one at the end of April.

These features are suggestive of a possible head and shoulder pattern, described by the grey lines. The green support line would be the neckline.

The bars in the MACD-Histogram of the last four days indicate a shrinking distance between the two moving averages, which typically precedes a crossing of the red signal line over the black MACD line. Also, MACD is at an extremely low level, not since since last September. These signs point to a possible move upward in the next few weeks, followed by a decline that should eventually break below the neckline, to complete the head and shoulder pattern.

Volume has been low in the February peak, a during the leg up of the "head", but has picked up during the leg down. It also spiked considerably in mid-March, at the neckline between the hypothetical left shoulder and  head. These readings are consistent with a head and shoulder pattern.

Now, if all of this is correct, this market should move up to about 74 in the next three to four weeks, or maybe longer. It should NOT move substantially below the green support line.  In fact, a drop below 68 would probably not stop until the next support at 64 (intermediate term) or 65 (long term).

I took the first bite on June 10, when the close was 69.04.  I took the second bite on June 15, when the close was 69.34.

A close below the green support line is my stop. My target is the first close above 72.5.

UPDATED ON June 29, 2011

Sold after IJR closed at 72.50, which resulted in NMSAX at 17.84.  I probably sold too soon, and I knew it, but I wanted to follow my plan and not enter any risky situation. All indicators are overbought, although they are not flashing sell signals yet, but we have reached the height of the left shoulder, and the cross pattern is sometimes negative.

Percentage gain: 4.78%.

Long UCO at 50.89, exit at 48.49

On May 10, I thought I could catch some more of the bounce. But the bounce was over.

On June 8, MACD on the 15 minute chart looked up, and I exited to minimize the disaster.

At least by June I had figured out that the major gap down in early May was a major bearish sign.

Long UCO at 50.67, exit at 49.89

Entered on May 31. I thought it was a breakout, didn't really understand what a resistance line is.  The up slope of MACD looked promising.

At least the exit was done properly. Sold on June 9.  I used MACD on the 15 minutes chart to time it.

Negative 1.53%.

IWM developing head and shoulders top

IWM seems to be in the process of developing a head and shoulders top. The left shoulder and the head are complete, and today should be the bottom between head and right shoulder.  The neckline is just below 78, with a slight upward slant.  Volume has been low on the rallies leading up to the left shoulder and head peaks, and high on the selloffs leading down to the troughs.

The next move should be a low-volume rally to about 83, peaking at the end of June or in early July.

USO forming a bearish pennant

This is a chart of USO showing a possible bearish pennant that has developed over the last month.  An alternative view would be to consider it a bearish flag, by drawing the upper edge of the pennant parallel to the lower edge. Considering it a flag, however, does not change its inclination (bearish) nor the length of the flagpole.

The blue long-term up trendline indicates that USO is currently in a long-term uptrend. The early May breakaway gap down, which flew down past support at 42.25 on very high volume, marked the end of the steep mid-term uptrend, denoted by the green up trendline.

The early May breakaway gap may also have been the right side of an island reversal pattern. The left side of it could be the late March or mid-April gap up on low volume, which could be considered the exhaustion gap of the rally that ended in early May.

At this point, a break below the long-term support line could find some support just below 38, but after that it's free fall to 35.25 or 34.50.  The length of the flagpole, however, would take the next leg down to 32.50.