Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Virgin Media Fibre Broadband Installation - What to Expect, Quality of Wiring, Service etc. - 21st Jun 21
Feel the Inflationary Heartbeat - 21st Jun 21
The Green Superfuel That Could Disrupt Global Energy Markers - 21st Jun 21
How Binance SCAMs Crypto Traders with UP DOWN Coins, Futures, Options and Leverage - Don't Get Bogdanoffed! - 20th Jun 21
Smart Money Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 - 20th Jun 21
Rambling Fed Triggers Gold/Silver Correction: Are Investors Being Duped? - 20th Jun 21
Gold: The Fed Wreaked Havoc on the Precious Metals - 20th Jun 21
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Moves Lower as Stocks Reach Their Key Resistance Level - What's Next?

Stock-Markets / Financial Markets 2011 Jan 22, 2011 - 04:10 AM GMT

By: Przemyslaw_Radomski

Stock-Markets

Best Financial Markets Analysis ArticleIn our previous free essay we’ve mentioned that mining stocks are at a particularly important crossroad, and whichever they decide to move is likely to determine the way for the underlying metals as well. In the following article we will put another factor into the equation – the general stock market.


Let’s start with the long-term S&P 500 chart (charts courtesy by http://stockcharts.com.)

In the very long-term S&P 500 Index chart this week, we see that an important resistance level has been reached. This is equal to the late 2008 high, which was followed by a quick and severe decline. The price action, which followed this high towards the end of 2008 and this 1,300 level itself are therefore important factors (from the psychological point of view) from which some possible 2011 projections can be made.

At this point we would like to digress a bit. One might ask - why does the previous high make a resistance level? The answer is that people tend to see trades in only two ways – win or loss. Most people would see bigger difference between winning $1000 and losing $1000, then between losing $6000 and losing $9000. That is because in the first situation one is faced either win or loss, and in the second situation is a loss either way. Still, the second situation is more important, because the difference between two outcomes is 50% higher ($2,000 vs. $3,000). The vast majority of Investors and Traders originally became Investors and Traders to make money; however most people ultimately find it more important to feel that they are winning than that they make money. In this case, most people would consider the difference between $-1,000 and $1,000 as more important than the one between -$6,000 and -$9,000.

Another way to put it is to take a look at the question that Investors and Traders sometimes ask – I agree that the market is going to move lower, but my speculative long position is at a loss, so should I sell? The answer is – of course – if you think the market is going to move lower than you should close your long position, period. How much weight should one put to the fact that the position is already at a loss? None. If one believes the market is going lower, then ones loss would turn into a bigger loss – and why would anyone even consider wanting to have a bigger loss?

The real answer is that because that it requires one to admit that the position that one has previously entered turned against them. One feels responsible for it and wants it to be closed at a profit. What one fails to realize at this point, is that the same position could be re-opened at lower prices, which would make it even more profitable in the end. Again – one often takes into account the win/loss psychological factor instead of calculating profitability of each action.

Consequently, one maximizes the times that they are holding a winning position, but not their overall rate of return. For instance it’s better to lose $10 and gain $110 than to gain 20$ two times.

The abovementioned phenomenon alone makes the previous highs and lows important resistance/support levels. Many investors but at the top or very close to it (that’s why we usually see strong volume at/close to local tops), and once price declines they never sell – waiting to close their position at no loss whatsoever. Consequently, they sell when price moves to the previous high, since it is their purchase price. So, many Investors/Traders, who purchased stocks in August and September 2008, were waiting for the price to reach the price levels that we have just seen, in order to sell their stocks. This strong selling pressure is naturally a bearish factor.

The previous top is not the only bearish factor that we see today. We also have an interesting situation in other stock indices where a non-confirmation is – in fact – a confirmation of the previous points. Let’s take a look below for details.

According to the classic Dow Theory the signals from the industrial average should be confirmed by the ones seen in the transportation average. Without that a signal does not mean much.

Here, we are using this divergence in a slightly different way. In the past few days we have seen a sharp decline in the Dow Jones Transportation Average, without a similar action in the Dow Jones Industrial Average. In order to isolate this relative phenomenon, we have included a transportation:industrial stocks ratio below the price chart. Here, we clearly see that the ratio moved quickly lower recently.

Since this signal is quite clear, let’s take a look what it meant in the past. The fact is that in the past it was an early warning about the coming decline. In the past, declines such as this were seen to continue for days or even weeks. The implication here further confirms the short-term bearish case for stocks. Speaking of implications, let's take a look below, at our correlation matrix.

In this week’s Correlation Matrix, the short-term coefficients are not as significant as in weeks past. There appears to be a slight negative correlation between metals and stocks but this does not hold true for silver.

It seems that the medium-term coefficients (90-day and 250-day columns) are of more value at this time. Recent breakdowns have been seen in many of the markets this week but in most cases have not yet been verified. The situation is such that if these breakdowns are verified in the days ahead, the impact will likely be felt for weeks and therefore the medium-term columns will provide valuable insight.

Only the general stock market appears to have a significant influence on the precious metals for this time-frame. Therefore, if stocks decline from here, the same will likely be seen across the precious metals sector for they will be dragged down as well by the declining stock prices. Although the relationship is not clearly seen on a day-to-day basis (short-term correlation is weak), the bigger move in stocks is still likely to have influence one the precious metals sector.

The above would not be such a big deal if the gold market itself provided us with bullish signals - however that is not the case right now.

The very long-term chart for gold this week shows a key breakdown below the long-term support level. Price has declined below the 50-day moving average and slightly below the rising support line. This latter breakdown however has not been verified. Three days below this previous support level are generally required to verify such a breakdown.

Should a small insignificant move back up to this level be seen with a failure to move beyond it, it may very well be a signal to open short positions. This will be watched closely in the coming days.

Before moving to the following chart, we would like to digress once again. In the recent several weeks we have seen several moves lower, and mentioned several verifications that are needed. At this point one might get an impression that no signal is meaningful if we require verifications over and over again. That is not the case usually – the point is that we are in a situation where big trends can change, and this could impact the long-term holdings in a meaningful way. Selling long-term holdings is an important decision and should be utilized only at particularly favorable (or unfavorable, if you prefer to view it this way) conditions. It is these verifications and confirmations that provide us with enough certainty that a bigger move lower or higher is in the cards – that’s why we have been mentioning them so often recently.

Summing up, the outlook for the general stock market is bearish for the short-term and perhaps medium-term. This bearish sentiment is likely to have a negative influence on gold, silver, and mining stocks. However, since the latter are short-term oversold, we may have a quick move up first.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in