I say “contrarian” because several weeks ago they were, but maybe not so now.

Then again, I’m sure there are many out there who feel inflation and the ever increasing (or should I say “forever increasing”) government debt will continue to put pressure on the U.S. Dollar.

This post, along with the recent one’s, concentrate on a potential move lower in Gold and higher in the U.S. Dollar, some of which are:

• U.S. Dollar Update 12/02/2009
• U.S. Dollar Update 12/06/2009
• Gold Update 12/07/2009
• U.S. Dollar Update 12/29/2009

You can see on the first chart below of DZZ (Double Short Gold ETN) has made 2 attempts to move higher that coincide with the 50 day Moving average near the end of December, 2009.

Since then, prices have pulled back a bit. For any swing traders who believe Gold has further to decline in the coming weeks/months, this pullback may be just what you have been waiting for.

If in fact the downtrend in DZZ has reversed and an uptrend has begun, the current levels could provide a low risk entry while being able to keep a relatively close stop loss in place in case the downtrend has not reversed.

The next chart is of UUP (U.S. Dollar Index Bullish Fund) and shows a similar situation:

You can see that after the recent run up towards the end of December, 2009, prices have pulled back and recently bounced off the 50 day moving average.

Whether this initial test of the average holds or not, and if you haven’t caught this already over the last few days, now would be a good time to consider potential long entry points. That is of course, if you feel the U.S. Dollar has more room to go on the upside, against the mainstream.

Just as in DZZ above, UUP has pulled back nicely which is what a swing trader would want to look for when considering entry points.

Please do your own research and make your own decision on these potential securities. My comments above are based on my observations and I do not have a position in either of them at this time. I do on occasion use DZZ as an intraday and/or multi-day trade.

Feel free to add your thoughts on potential price movements from here on either of these below in the comments section.

I posted a few charts in early December to consider as contrarian plays because at the time, everyone was short the U.S. Dollar and long Gold.

Everywhere you turned, people were talking about how high Gold could go, inflation and how low the U.S. Dollar would go.

For contrarian traders, that early December post proved to be the turning point. Here is a link to that original post: U.S. Dollar Trade Update 12-02-2009 and a few follow up posts I’ve added since then: U.S. Dollar Trade Update 12-06-2009 and Gold Trade Update 12-07-2009.

The first chart below is of the U.S. Dollar Index. You can see the nice reversal from the multi month decline that has occurred since the early December post I alerted readers. Prices have moved strongly higher, through the 50 Day MA. The RSI has since become a bit over bought and prices appear to be in a normal pullback from the recent run. Also notice the 50 Day MA has now turned up for the first time in several months.

The next chart is of GLD. After a near vertical hyped ascent, Gold, and GLD, appear to have come back to earth so to speak. Prices here have also breached the 50 Day MA, but lower in this case.

Prices do not appear to be near term oversold yet, but with the recent decline, there is room to go either way in the short term. Any upward move in the near term may provide additional short entry levels for those who missed the potential first leg down here. This is of course, if you feel contrarian in that Gold has lower to go.

The next chart is of DZZ, which is a possible security to trade taking advantage of a decline in Gold.

This chart also has provided a nice monthly return for those who took advantage of the early December post. A 20-27% move higher has occurred since then in DZZ.

You can see prices have moved up to the 50 Day MA, which is also near the Gap that was left on the recent decline in November. What would be nice to see here is a normal type of pullback, and then a continuation move higher. If this appears to be happening, a large leg upwards could be underway bringing prices much higher from here.

The final chart below is of UUP for those who like a little less risk. It has made a respectable 5+% move higher since the early December post. Not too bad for less than a month’s return.

Same situation here following the others above- a normal pullback could be in order, potentially moving to the 50 Day MA as a support level, which is now turning upward.

That’s about it for now. Please note that a “pullback” as I have mentioned above is not necessary to occur at this point. There is always the possibility that prices will continue in their current trend, especially since they appear to be coming off a multi-month trend reversal.

With the major market indices basically wandering in a narrow channel for the last month, is it finally time for a trend change?

In the video below you’ll be able to see how prices have moved in this channel and which key levels to watch for a potential breakout of the pattern. So far today, prices have rebounded from recent lows and and once again at the top of the channel.

The video also introduces you to some of the things available to you as a Market Club subscriber. Various chart tools are shown and used in the analysis as examples. In addition, some basic information is given on their Trade Triangle Technology and brief details on how to use it for your own trading.

I’ve included a chart below with a few Elliott Wave interpretations identified on the chart.

Keep in mind that these are my interpretations only. To keep up to date on a more regular basis and receive expert Elliott Wave forecasting, I highly suggest to consider a premium service like the Elliott Wave Financial Forecast Service.

If instead you want to learn more on your own for now, that’s great. There’s nothing wrong with that also. In fact, I always encourage any type of learning. I have a lot of free articles and resources on my site to help you out. You can find some here: Elliott Wave Information and Resources or do a quick search on this site using my search box located in the top right of any web page on the site.

There’s also a great introductory set of free video lessons on Elliott Wave accessible in the right column.

Looking at the chart below, you can see that I added a few labels as I mentioned above.

I’ve added what looks to me to be a clear minute 5 wave decline identified by circle i, ii, iii, iv and iv and within the minute iii wave, a minuette 5 wave decline identified by (i)(ii)(iii)(iv)(v).

The appearance of five waves display the direction of the trend to one larger degree. This clear chart pattern increases the potential for a major trend reversal to be in place for Gold. For this to hold true, prices should now rise, not necessarily in a straight line of course, but should rise no further then the recent highs set last week. If the prior highs do hold, then yesterdays low should be considered a 1 of many more lows to come in the months ahead.

A few weeks ago she was on CNBC also, and gave her outlook at that time as well. You can read more about her position then as well as watch a video of her interview from that time here: Meredith Whitney Turns Bearish Again.

This morning she made some interesting comments, some of which have been bothering me and I’m sure many other people for quite some time. One of which being that she thinks the government is “out of bullets”.

Her main concern that she sees a cause for concern is the lack of credit that is available for consumers. She said consumers are “getting kicked out of the financial system.”

I have to agree with her. In my own experience, my Home Equity Line was canceled with my bank, Bank of America within the last 3 months. The letter I received said that it was canceled and my new limit was zero dollars, due to the fact that the value of my home had decreased below my HELOC.

First of all, the value of my home has decreased….. from the peak of the market, not from when I purchased my home, which was when I opened my HELOC. On top of that, I don’t have a mortgage, my home is paid off. So why was my HELOC canceled to zero?

As soon as I received the notice I immediately knew it was the banking industry conducting business without any concern for their customers, especially those customers who have made them money over the years. Instead of trying to operate a business with the intention of making money with good customers, they are now blocking the majority of people out completely, good customers and bad. After all, they received money from the government to get them through the hard times, why do they need any more money form good customers?

In years past, banks obviously lent money too easily to people at extreme degrees, who shouldn’t have been given loans in the first place. This was one of the, if not the main cause for the economic downturn that we have all been experiencing to date. Now, they are restricting credit to the opposite extreme, cutting off access to credit almost completely to all consumers.

Someone needs to tell the banking industry that there is a middle ground, where banks can provide credit to creditworthy customers and operate as a successful business. In other words, there is a middle ground. Instead, they previously had swung too high to the upside and are now swing too far to the downside. It’s a shame they don’t see their mistakes at the expense of the entire economy.

Ok, enough of my story, here’s a video from this mornings show with Meredith Whitney on CNBC:

The video shows what price levels they are watching and which may signal a major trend reversal if it reached.

Market Club does a good job of releasing new educational videos in a timely fashion to help stay on top of the market.

If you pay attention to the videos, you’ll also see how some of their charting functions work.

Enjoy the video:

Well here we are in the month of December and things can get pretty tricky this month. For this reason, I wanted to produce a video that I thought would be helpful to you during this time.

In my new video I show you the exact points that we’re looking at for a major trend change in the S&P 500. I also point out the exact number that will show an exit point, but not a major trend change, in this same index.

As always our videos are free to watch and there is no need to register and we look forward to your comments in our Trader’s Blog.

Adam Hewison
President, INO.com
Co-creator, MarketClub

Over the last two weeks the S&P 500 has been moving in a sideways channel, showing a lack of real direction and lack of conviction in either direction.

So far this week, the upper area of resistance just above 1110 has held but as I mentioned above, the lack of volume makes it hard to determine whether another leg higher is in store or not.

The other possibility of course is that the lack of volume this week is also contributing to a lack of sellers which would push the market lower. We’ll have to wait until next week to get a better idea of the next move.

Until then, have a Happy Thanksgiving.

Actually, she said she “hasn’t been this bearish in a year”.

I ran across several forums and articles with comments where the commentors were bashing Meredith Whitney, saying that she has been bearish all along the recent rise since March, and a bunch of other to be expected types of comments.

In my opinion, when Meredith Whitney says something, it’s time to wake up and start listening. I’ve been listening to her comments for over a year now and she has been right many more times than not. (Yes, I’m a Meredith Whitney Fan)

Obviously I’m not alone as the market, in particular the banking/financial sector, sold off pretty hard after her comments yesterday.

Back on October 13, 2009 she came out and downgraded GS from “Buy” to “Neutral”, just as many other analysts were upgrading GS. Here’s how that call worked out since then:

And here’s the KBW Banking Index ETF since then:

By looking at the two charts above, you can judge for yourself whether you want to listen to her or not. If you do, here’s the Meredith Whitney interview from yesterday to listen what she has to say now. After listening, let me know what you think by commenting below:

The move so far this morning is what should be expected for “Hump Day”. That is, rising up to the top, climaxing, and then “rolling over” the hump.

The “hump” of course being today, Wednesday, midweek.

Taking a look at the chart below, you can see that today’s move so far is less than enthusiastic.

You can see by looking at today’s candle that the market was higher earlier today, and has since pulled back from those highs. Sound familiar? Here’s what I mentioned to watch for on my post 2 days ago here S&P 500 Update 11-09-2009:

Looking at the updated chart below, the next area of possible resistance, and the area to help form the possible double top, would be near 1100. I feel this also is now providing a strong “round number” attraction since we are so close. So even if the market moved lower tomorrow morning, I would expect a pop to this area first before the reversal.

While this didn’t happen yesterday, it appears to be happening today. So far this morning, the candlestick shown is representing a nicely formed Shooting Star, which is typically a Bearish formation for anyone using Candlesticks in their analysis. In addition, notice the weak volume that has occurred during the current uptrend.

This doesn’t mean the top is necessarily in, by itself. It does show a lack of follow through as the price level only briefly breached the most recent highs of 1101.36 reached on October 21, 2009. This morning’s high registered just above that at 1105.37, albeit briefly.

Following up from my previous posts : S&P 500 Update 11-09-2009 which mentioned to be on the lookout for the Head and Shoulders Pattern which has failed, and then went on to mention the next pattern to watch for would be a potential Double Top:

With this mornings brief move above the recent highs, the Double Top pattern still has potential to occur. Brief moves, or even one or two day moves up through prior highs by relatively small amounts do not eliminate the possibility from a Double Top occurring. They should only make you aware that the potential exists for the trend to continue higher.

We’ll have to pay close attention to see if today’s “hump” proves to be more than just a mid-week occurrence and possibly develops into one of a larger picture to be observed on the S&P 500 chart in the days/weeks to come.

Where do you think the S&P 500 is going from here?

On my last post I mentioned to be on the lookout for a possible Head and Shoulders pattern in the stock market forming, specifically the S&P 500. Today’s large move higher put’s the odds of this pattern happening at risk.

I mentioned in the previous post that volume appeared low for any significant move higher and today’s move had a little more volume than the last few sessions, but nothing to write home about. It still seems suspect, but if the market wants to move higher, none of us are big enough to slow it down as a whole.

For the head and shoulders pattern to still work, the S&P 500 will have to start moving lower sometime tomorrow morning and not look back. If it doesn’t, the next pattern to be on the lookout for would be a Double Top.

Looking at the updated chart below, the next area of possible resistance, and the area to help form the possible double top, would be near 1100. I feel this also is now providing a strong “round number” attraction since we are so close. So even if the market moved lower tomorrow morning, I would expect a pop to this area first before the reversal.

The other thing to keep in mind is that if you use any form of Elliott Wave analysis, the move higher today burst up through the bottom of the previous 1st wave lower near 1073 which is also nicely coincides with the 61.8% Fibonacci retracement level as seen on the chart above.

I’m not positive right now, but I believe this move up through the prior 1st wave down is one of the rules that cannot be broken for a downtrend confirmation to be in effect. I will check my Elliott Wave Principle book and add my findings to the next post. (I’m writing this BEFORE I read my Elliott Wave Paid Subscription service as I cannot and will not provide other peoples copyrighted analysis. When I write any analysis on my site it is my own, based on what I have learned myself. See below for more information to learn about Elliott Wave analysis and their expert forecasting services.)

The other possibility I see is that a triangle is forming. Usually triangles form before a final thrust to the end of a larger degree trend but I have seen on occasion a triangle form at the top itself. There are also several different types of possible triangles to be aware of. I will try and research more over the weekend and add an updated post of further possibilities.

So basically we will have to look for a move lower almost immediately tomorrow first, if not then a possible double top. If we move higher and close above 100, then the odds will increase that higher levels are in store before a major top is in place.

Important update: There’s still time to join EWI’s FreeWeek! Our friends over at Elliott Wave International are offering Robert Prechter’s latest monthly market letter, The Elliott Wave Theorist, for free along with the firm’s most popular U.S. analysis and forecasting publications. You can now download, print and read dozens of chart-filled pages of current analysis for U.S. stocks, the economy, precious metals, bonds, U.S. dollar and more — and it’s all free for one week only. This opportunity ends Nov. 11. Learn more about FreeWeek, and get your free reports here.

You can also join Elliott Wave International’s FREE Club EWI and access the Basic Tutorial: 10 lessons on The Elliott Wave Principle and learn how to use this valuable tool in your own trading and investing.

Late yesterday I heard someone mention that a possible head and shoulders pattern could be forming in the major market indices.

When I heard this I remembered the last time people were talking about the same thing. It was a few months ago in late June/early July 2009.

At the time, there were so many people talking about the possibility of the pattern unfolding, that I imagine many people got out of their long positions towards the bottom of the right shoulder. This also happened to be right before the reversal to the upside occurred and the beginning of the next leg higher.

Now, 4 months later, the same potential pattern may be unfolding. While this post may be early, being early will allow you to watch your charts as the potential pattern does or does not unfold. Doing so and preparing yourself now, rather than later, will allow you to position yourself to take advantage of potentially profitable trades.

For example: If the S&P 500 is indeed tracing out a Head and Shoulders pattern, then we are currently at, or fast approaching the top of the right shoulder. Any sign of strength reversing into weakness would be a potential good entry point for short positions if you feel the pattern is indeed unfolding and that the market will be moving lower from here.

Taking a look back to the most recent high on the chart, if the right shoulder does form and hold, you would be entering on a lower high, which is just about the best short entry point you could ask for (behind the exact high of course). The top of a right shoulder is also point “3″ in a 1-2-3 pattern, another great entry point/signal.

Taking a closer look at the chart you can see that back in late June the price level broke down through the 50 day Moving Average line briefly before moving higher into the potential right shoulder formation. Compare that with the recent price movement and you’ll see the exact same thing so far.

These are common characteristics of the beginning of a right shoulder forming in a Head and Shoulders patter. That is- a move lower on weakness from a recent high, followed by another attempt higher on “lower volume”. You can see the lower volume when the right shoulder began back in late June as well as the beginning of this month. Both instances also display weakening RSI and MACD levels.

So what’s different this time? There are many things different now but one thing noticeably different on this chart this time is in the volume. Take a look at the volume during the last “Head” formation back in June- it was basically a bit lower or at the same level of volume as in the right shoulder during late June/early July.

Now take a look at the recent “Head” formation. I see an increasing amount of volume that occurred as the top of the “Head” was unfolding. To me that appears to be a sign of distribution in large amounts, possibly giving us the signal that a major top has been put in place. Of course this is my opinion and yours may be different. If so, feel free to add your comments below to express your point of view.

The last time the pattern began to unfold and failed as can be seen on the chart. This time we will have to wait and see but as I mentioned above, a good entry point for potential short positions would be at/near a high (right shoulder). This would be a better short entry point than waiting for a breakdown through the neckline, only to be caught in a reversal as happened the last time. I’ve drawn the necklines on the chart for these price levels to be aware of.

The levels I mentioned in that post have been violated to the downside, with considerable volume and Advance/Decline Issues currently near 25%/75%.

I mentioned that “As the current position of the S&P 500 displayed on the daily chart above evolves, any considerable move, and close, back lower through yesterdays low of 1042.19 could easily be interpreted as 5 waves down from the recent market top.”

I then went and mentioned that “This would not be the same as the previous 3 lows on the chart which had 3 waves down. Instead, this would raise the odds that a next larger degree trend change was underway, down.”

Now what? Barring any overly optimistic bounce into the close today, any close at or below the current level would increase the odds that a major trend reversal in under way.

As a clear 5 wave pattern is unfolding to the downside, the next thing to consider is how far the current leg will continue. There are several different wave patterns that can evolve and there is no better time than now to learn more about Elliott Wave patterns by accessing your own Basic Tutorial: 10 lessons on The Elliott Wave Principle for free, and learn how to use this valuable tool in your own trading and investing.

Here’s a great Technical Analysis Handbook that will provide further information on using Elliott Wave Analysis to help you navigate the current market positioning:

Here’s an updated chart after the market close today showing the S&P 500 closing at 1036.19, below the prior trend line support level and below the recent low from 2 days ago.

After the market closed yesterday I heard comments that the move higher was the biggest one day advance in 3 months. Today, comments were just the opposite, even worse- “the decline was the biggest one day decline in over 6 months”. Where did all the optimism go after yesterday’s GDP report?

It seems every other day the news changes course and the market swings back and forth, not knowing which way it should continue.

The one thing that is certain from looking at the chart below is that the angle of ascent is slowly decreasing. Ever heard the term “roll over”?

Take a look at the four most recent lows I have identified on the chart below (L). Each consecutive low has been closer to the 50 day Moving Average line than its prior low, with the prior low bouncing off the line and the most recent low penetrating down through it before moving back above it today.

In addition, you can see that I have added a lower support line connecting these 4 recent lows, which should provide a good additional signal in the future if broken through down lower.

It’s fascinating to see that each of these 4 prior lows consisted of very similar patterns immediately prior to the lows. That being, each pattern from the high immediately prior to each low (H) has a clearly recognizable 3 wave pattern before ending at the low and reversing.

For those of you who don’t know, a 3 wave pattern is most often associated with a counter-trend move. Meaning, against the next larger degree trend. In this case, that trend has been up since March 2009.

How does this help us? Well, another type of wave pattern is a 5 wave pattern. The 5 wave pattern is not associated with a counter-trend move, instead it can be associated most often with a directional trend move.

Note: To learn more about identifying wave patterns and keep up with the current market position and future forecast, take a look at my page on the Elliott Wave Financial Forecast Service or watch the free videos accessible in the right column of this page under “Elliott Wave”.

As the current position of the S&P 500 displayed on the daily chart above evolves, any considerable move, and close, back lower through yesterdays low of 1042.19 could easily be interpreted as 5 waves down from the recent market top.

This would not be the same as the previous 3 lows on the chart which had 3 waves down. Instead, this would raise the odds that a next larger degree trend change was underway, down.

News articles started hitting the press, adding to recent articles stating that the “Recession is Over!”.

Previously, the most recent 4 quarters of data had shown contracting economic activity, so the new data is welcome news.

Or is it? In reality, there are many people that want to know what the future holds, not what this report is showing.

For anyone trying to figure out if the stock market has finished declining and will move higher from here, one thing to remember is that the GDP data is lagging data. Meaning, the current data is from the most recent ending quarter. So is this data a sign of better things to come?

Here’s a chart showing the last time the GDP data was at or above the current reported 3.5%:

You can see that the last time the GDP data was at or above the current data was back in the third quarter of 2007, at 3.6%. Coincidentally, this was at the last major top of the market. Something to think about.

Headlines are often misleading so let’s take a closer look at some of what’s in the data:

• Motor Vehicle output added 1.66% to the final numbers benefited by the “Cash for Clunkers” program.
• Noted in the report is an increase in personal consumption expenditures and federal government spending.
• Later in the same report, although federal government spending contributed to the final data, it has decreased from the previous quarter.
• Prices paid for gross domestic purchases increased 1.6% in the quarter. That was with oil prices lower than where they are now.
• Current-Dollar Personal Income- Decreased.
• Personal current taxes- Increased.
• Disposable Personal Income= Decreased.

Personal consumption seems to have added the big boost to the numbers here. So far the market likes what it sees, but I can’t help to think about some of the other information in the report which shows decreasing income, increasing taxes and reduced government spending including government programs.

Here’s a link to the latest GDP report: BEA Advance GDP Report for the third quarter 2009.

Just remember that the actual number reported is for the recent quarter, not the future quarter.

The revised August 2009 annual rate was 417,000 so this months report is trending the wrong way for anyone looking for signs of a recovery. The annual rate of 402,000 is 7.8% below the September 2008 rate of 436,000.

Mortgage applications also decreased during the most recent week by 12.3% from the prior week, another lack of a sign confirming an economic recovery, that should be of concern.

With the $8,000 New Home Buyer tax credit due to expire at the end of November and both New Home Sales and Mortgage applications declining already, I would expect there to be an increasing decline in the numbers over the next several months. At the least, it’s probably too close to the tax credit expiration for any new homes to be started that will allow for any additional benefit.

The Index came out at 47.7, which is down from 53.4 in September and 54.5 in August. Economists had expected the index to rise to 54.0 after a decline last month. The trend here is clearly moving lower and does not bode well for the Stock Market going into year end.

This is the lowest reading now since July 2009 when it came in at 47.4. Going back further, the next lowest reading was in April 2009 at 40.8.

Chart Courtesy of Briefing.com

Consumers are obviously still worried about business and labor conditions and it’s quite possible as labor conditions continue to remain poor, consumers still have more to cut back over the coming months.

This is a good topic to look into if you haven’t done so already. Most people get sucked into the thinking that if the markets are rising, it has to be because earnings are rising, right? After all, that’s what the television reporters, newspapers and Analysts will tell you.

During the “heat of the moment”, or “excitement of the current market” in our case, it’s easy to be misled and not slow down to analyze what’s really going on.

I have some of my own idea’s I’ve come to realize and will be adding a new post in the next few days about this, in the meantime, you can read the article in the main site section here: Are Earnings Really Driving the Stock Market Higher?