The Gold And Oil Guy : gold etf trading, spy etf trading

Uncertainty and Panic Selling in Stocks Provide Major Opportunity!

Chris Vermeulen — Mon, 01 Aug 2011 03:01:00 GMT

Over the past seven trading sessions we have seen stocks plummet in price because of the debt issues in the United States. I think a lot of individuals including myself thought that a bill would have been passed last week and with a plan underway money would flow back into stocks for a relief bounce at minimum. Instead, nothing was passed and that lead to strong selling into Friday’s close.

The next couple weeks are going to be very interesting for stocks, bonds, currencies and commodities as traders and investors process this event as it unfolds.

Let’s step back and take a quick technical look at the chart…

SPY – SP500 Index ETF – 10 Minute Chart
I call this chart my sentiment chart because I use three indicators to get a feel for what the masses are doing. The first indicator which is the green spikes on the price chart is my own custom indicator to measure panic selling in the stock market. Usually I look for strong selling days followed by an exhaustion gap lower within 1-3 days.

As you can see below, the last panic selling spike took place on a large gap down only 2 days after we saw extreme panic selling which actually got stronger as the session grew older. This is a bullish sign in my opinion.

Also if you look at the two other indicators at the bottom we can see the NYSE advance decline line trading down in an oversold zone. And the very bottom indicator is the put/call ratio showing everyone is trading puts and that means they are betting on lower prices.

To sum this chart up quickly I can tell that traders are selling everything they own because they are scared, stocks have moved down to quickly and likely ready for a bounce and also that options traders are expecting lower prices. So if everyone is bearish and has already sold their positions it only makes sense that a bounce or rally should take place in the next few sessions.

Percentage of Stocks Trading Above the 20 Moving Average
This chart helps me get more of an intermediate trend analysis for if stocks are oversold or over bought. This chart tells us the percentage of stocks that are trading above their 20 day moving average.

This is how I use the info:
Example: If we are in a long term bull market which we currently are… then I look at buy during these oversold conditions. Once this chart reaches the 75%+ level I become more aggressive with my positions and actively manage them (Take partial profits, tighten stops).

Example 2: During a major bear market you to the opposite (build short positions on the bounces to 75%+ level and then cover partial positions and tighten stops once stocks are oversold and ready for a dead cat bounce once below the 25% level.

SPY Daily Chart
This chart below allows us to get a longer term view of my panic selling indicator. As we all know the market moves in waves (fear and greed). So with the SP500 traded by individual’s from all around the world it generally takes 5-15 days for everyone to become fearful and or greedy and to take action with their investments. This can be seen from looking at how long it takes for the sellers unload their positions.
If things play out in favor of what the charts are telling me we should have a nice bounce or rally just around the corner. Again this analysis is based strictly on technical analysis and not on economic data. Adding the economic/political data makes things very confusing and interesting to say the least and they do not always to hand-in-hand.

Weekend Trading Conclusion:
In short, this coming week the market has a big wild card on the table. Until we know what that is be very cautious with trading positions. Just now/tonight Obama said a deal was reached to end debt issue and urges both parties to do the right thing and support this deal over the next 2 days. This deal will raise the debt limit and will cut $2.5 trillion from the deficit over the next 10 years.

We are seeing a 20 point jump in the SP500 futures from this news just moments ago so this just may be the bounce/rally I am looking for.

Technically I feel higher prices should take place in stocks but we may have a couple volatile sessions with lower prices before a strong jump in price as this news is not set in stone just yet and we have a couple days before we know what the final decision is…

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Chris Vermeulen

Equities Are Hit With Panic Selling, What Does It Mean?

Chris Vermeulen — Thu, 28 Jul 2011 04:00:00 GMT

It was an exciting trading session Wednesday to say the least… With all the uncertainty floating around it is causing the stock market to be more volatile than normal. It seems like every other day there is some big headline news causing either strong buying of stocks or strong selling to take place. It’s this type of price action which spooks the average investor causing them to panic out of positions at key support areas just before a continued move higher.

I like to focus on the market when I see extreme buying or selling taking place. During times of extreme buying or selling in equities, investors are reacting on emotions rather than logic and that’s when I benefit from everyone rushing to the door trying to get rid of their positions at any price they can get.

Let’s take a look at what the market is telling us right now…

SPY – SP500 Index Exchange Traded Fund – Daily Chart
In this chart you can see my custom green indicator at the bottom. I use this to measure fear in the market. When this indicator is trading above 5 I know the masses are unloading stocks as quick as they can in pure fear that a market collapse is about to take place. But the biggest thing I learned trading over the past 12 years is that when everyone is doing something its best to skip the trade or start looking for technical setups which will get you in against the masses because the move is generally almost over.

What I get from this chart below is:
1. The trend is still up
2. We have not broken the previous pivot low from last week
3. The market is showing extreme panic selling and I anticipate some type of bounce or bottom shortly.

VIX – Volatility Index – Daily Chart
The volatility index measures fear in the market. So with the vix spiking up into a key resistance level, I would not be surprised to see it go a little higher then sharply reverse back down.

Trading off fear and greed can be very profitable but you must understand the two. Greed is a slow driving force in the financial market. As prices rise day after day the greedy continue to buy more and if they see any sharp dip they just look at it as an opportunity to buy even more (even though its a sign of smart money distribution selling) until eventually there is a huge collapse from the big money players unloading their positions and the greedy are left holding the back with a higher cost average price. This is the reason market tops tend to take 3-7 times longer to form than market bottoms.

Fear on the other hand is very quick. Think of it as if you were walking through your house at night down a dark hallway. When all of a sudden your friend jumps out and screams catching you completely off guard. What do you do? You jump, most likely yell and drop everything you were doing, then 30 seconds later you are back to normal. Well this is what happens in the stocks market also…

Traders hold their positions until a piece of news hits the wires or there is a strong selling day and their investments start falling quickly. This sudden news or price movement which they were not anticipating causes traders to panic and sell everything before the investment collapses. Typically a couple days later the price rebounds and after a strong bounce these traders decide to buy back their position and ride the price to new highs. So what if you were to get in near the bottom then let all the traders bought back after you? It generally means big money for you. This is what I look for and what I consider panic selling to be.

Stocks Showing Signs of Being Oversold
This chart below shows the percentage of stocks trading above the 20 day moving average. Over time I have found that when 75% or more of stocks are trading above their 20MA then the market is getting overbought and one should be looking to tighten stops, take partial profits and or look for short setups.

On the flip side when only 25% stocks are trading above the 20 day moving average I find the market usually puts in a bounce or rally which lasts several weeks.

As you can see in this chart after Wednesday’s sharp move lower we are now entering into an oversold market condition. I expect volatile prices for a few days as the market stabilizes then a move to the upside.

Mid-Week Trend Conclusion:
In short, I feel we are in for some choppy price action over the next 2-10 sessions. With the current market trends I do feel that the odds are pointing to higher prices for both stocks and commodities.

If you would like to receive these free weekly updated in your inbox please opt-in to my newsletter here: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen