Wednesday, June 13, 2012

A Temporary Hiccup or Are the Bears in Charge?

We are now in the middle of yet another uncertain week in the marketplace.  Earlier this week, the bulls started out strong, but markets dropped in afternoon trading on Wednesday, with stocks accelerating their losses based on the news that Spanish credit was downgraded from a B to a CCC+.  While the SPX is holding up fairly well at 1314, the DOW dropped 77.42 points (0.62%) with a close at 12,496.  At The Naked Traders, we are watching the 1300 level on the SPX as the professional traders have identified it as a key psychological area.  A close below 1300 could signal a further selloff in the markets.

It is also worth noting that the VIX jumped 10% today, closing at 24.27.  This signifies that fear is creeping back into the markets, especially if it closes above 25 later this week:



Many of you have contacted me on Twitter this week, expressing your concern over the sideways to bearish price action for gold and silver.  Right now, it's important to remember that the fundamentals for gold and silver remain strong.  If analysts are correct in predicting further Fed easing by late summer or fall, the price of gold and silver (and other commodities) will follow.  In addition, the accumulation/distribution line has continued to rise for both metals, which is typically followed by bullish price action.  If you'd like to learn more, you can read about that here.

And while I expect gold and silver to rise long term, both metals are facing some short-term challenges.  The last time there was a major selloff, gold and silver benefited from the fear trade, but as we can see from this chart on SLV, there is little to get excited about.  The final doji that represents today's price action has equal lengths, which means silver could go in either direction for the short term:

















The chart for GLD looks a little better, but again, it is not clear if either metal will benefit from the fear trade:



It is possible that additional bearish news out of Europe could boost both metals, but on the other hand, we may see a selloff if the markets gap lower and traders need to liquidate metals positions to meet margin requirements.

As one who is new to trading, I very much want to be in the market and trading actively, but based on what we're seeing, I'll probably wait on the sidelines until next week.  The Greek election takes place on Sunday, June 17th, and it is a possibility that the outcome could have serious repercussions for the markets.  

At this point, it is unclear if the bulls or bears are in charge.  The bears have won the latest battle, but we will have to wait and see if the trend continues.

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