Saturday, September 03, 2011

Technical Picture - Bearish Island Reversal Within a Bear Flag Pattern

Technically, we have a bearish island reversal on the SPY following Friday's action, because, if we remove the bad tick from Wednesday, there's a portion of the gap that remains unfilled. For the daily timeframe, I'm focusing on the S&P futures chart just above as opposed to the SPY chart daily at the top of this post, because as you may have noticed, the SPY daily ETF is now being smoothed or filtered eliminating unfilled opening gaps. For accurate, raw data you need to look at the lower timeframes such as the 60 minute below. Hopefully the ETFs will end this new filtering process so that the SPY daily chart can become useful again.

Narrowing the view to the 15 minute timeframe below, we can see that negative divergence of the RSI to higher prices started on Wednesday, following which prices started printing lower highs and lower lows. Friday's jobs number was the nail in the coffin as prices gapped wide and bulls could not push prices above S2. After the third attempt at S2 failed, it was time to get short. A minor attempt EOD to thrust off the bottom failed, as Emini S&P futures prices closed on the lows of the day.

The bears are firmly back in control, and I doubt we will be able to fill the gaps in the short-term.

GLD is back near all time highs. After retracing from the initial impulse move lower, GLD consolidated in a sideways box play. Overnight Thursday to Friday, GC futures rallied some 30 points (goodnight gold trade). When this happens you want to get long gold miners as these need to do some catching up.

Looking at the pre-market action of a few large cap gold miners, I decided to go with my usual suspect, ABX. Long on the open, Lock in some profit on the 10:00 turn and reload on the Fib. retracement. Avoid trading GLD in these instances because it gaps too wide as it follows the gold spot prices too closely.

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