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.

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.

After reaching a new high yesterday of $1153.90, the precious metal has pulled back some, albeit slightly so far.

The last few days have basically been in a sideways trading channel but prior to this, has been on such an optimistic rise that sooner or later a decline will ensue. Right?

If you took a look at a gold chart without knowing it was gold, it would look similar to previous market tops that were followed by a crash. Take a look at a housing price index chart, the 1999-200 Tech Bubble, the recent financial bubble or even an Oil chart when it was at $140.00 not too long ago.

I know what others are saying, that as long as the U.S. Fed keeps printing money, the value of the U.S. dollar will keep going down and people will continue to buy Gold. That may be, but I’m adding this post for those of you thinking things may just be getting to overly optimistic right now in Gold.

Just imagine looking at charts in a few months only to see that the U.S Dollar made a major bottom which just happened to coincide with a major S&P 500, DJIA and NASDAQ top, and Gold and other commodities made major tops as well.

I wonder what all those Meredith Whitney bashers would say then? Probably nothing at all. You wouldn’t hear a word from them then. Read more about what Meredith Whitney thinks here: Meredith Whitney Turns Bearish Again

For those who think a pullback of a considerable degree may be coming, or underway, here’s a way to try and take advantage of this using DZZ for a trading vehicle in a stock trading account. Here’s a chart to look over:

Looking at the chart of DZZ above, you can see several observations I noted: 1) the RSI above the main cahrt area has been oversold for about a week now and appears to be turning up. 2) The MACD on the bottom of the chart is in the perfect position to begin a reversal move higher. 3) The share price itself has dropped below the recent confining channel and has the potential to move back into this channel up towards the 50 day MA as it has on prior moves off the lower channel trend line.

What made me take a look at a potential trade to profit from a decline in Gold was that earlier this week Bob Pisani was shown on CNBC with a single Gold Bar that I believe was mentioned to be worth about $450,000. When something like this appears on mainstream television my friends, the end is quite possibly in sight.

This is not always the case though. The last time I mentioned I was concerned about any further upside in Gold was when I read that Gold was appearing in Vending Machines in Europe. That was back in June and we had a trade-able decline following that, but then Gold resumed its ascent. At the least, some sort of pullback may be in the cards near term.

Post your comments below to share what you think may be in store over the coming days and weeks ahead:

I thought now would be a good time to add a post comparing the VIX with the S&P 500 past performance as the VIX can be used as a good measure of the expected volatility of the stock market.

When market participants become fearful, they panic and sell, illustrated by a spike in the VIX.

On the opposite extreme, when participants are complacent, they typically have the majority of their funds at work in the market illustrated by a falling VIX.

Since the market has been on a roaring uptrend since March 2009, I’ll concentrate on looking for a sign of a top. Using the VIX again for the purpose of this post, if market participants are putting their money to work in the stock market buying many different stocks, we should be seeing a steady overall rise in the market with a falling VIX, or at least remaining low.

At or near a top in the stock market, I would expect to see a distribution process by market participants, selling more than they are buying and a rising VIX to illustrate some of this fear.

Since many individual investors continue to buy at the top of a market trend, some sort of plateau or gradual turning point, may be seen while looking at a chart over a longer time period. This is possibly due to larger traders and institutions beginning to unwind positions before the individual investors.

Once everyone catches on, look out below because that’s when all hell breaks loose and the VIX will display a spike on a chart.

Take a look at the charts I composed below for historical and current comparisons. The first chart is from the end of January 2009 thru yesterday November 11, 2009.

You can see on the chart above the clear uptrend in the S&P 500 with consistent higher lows in place. The VIX is displayed in blue on the chart. Noted on the chart from mid-April thru early August is a clear downtrend in the VIX with consistent lower highs made.

This goes along with what I mentioned at the beginning of this post that as more and more people put money to work and buy stocks, the stock market rises and the VIX declines as people become complacent.

From August thru today though, the VIX appears to be doing something different. As the stock market has continued to climb, the VIX has found a near term floor providing support and has been forming higher highs on pretty much each consecutive spike.

The VIX is showing how the Market is now climbing a wall of worry. People are getting fearful. Take a look at the next chart below now:

On this chart above I’ve added a few more observations.

• At areas (2) and (3), each time the VIX spiked, which also coincides with a sell off in the stock market on the chart, the spike in the VIX was followed up with a decline in it’s value as the S&P 500 resumed it’s uptrend.
• At areas (2) and (3), each time the S&P 500 made a new high, the VIX made a new low.
• At area (1), as the S&P 500 made a new high, the VIX did not make a new low. Instead, it made a higher low which was followed up with a spike in the VIX almost as if to relieve pressure that was building up.
• Area (4) is the current position. You can see that not only has the VIX made a higher low so far, the S&P 500 has not made a new high (worth mentioning here). The S&P 500 is currently showing a sign of possible distribution among larger investors/traders, being signaled by the pressure building up in the VIX.
• Notice the lower red dotted line which shows a relative base, or support level formed. Out of the last 4 lows to reach this level, only the most recent had fallen below this. Also notice the higher highs on each recent spike as mentioned on the previous chart also.

For some historical perspective, I added two more charts from prior time periods. The next chart below is from early March 2008 thru early June 2008.

You can see on the chart above that from late March thru mid-May, the S&P 500 made higher highs while the VIX made lower lows. Then, as the market started to roll over, the VIX began to rise as to be expected. This particular time was at the beginning of a major leg lower in the stock market.

The next chart is from early July 2008 thru early September 2008.

The same higher highs in the S&P 500 coincide with lower lows in the VIX. In this case though, the S&P 500 top flattened out and did not make a new high as the VIX began to rise, the same appearance as currently. This time period was also a major turning point that began a large leg down for the stock market.

The last chart above appears to be displaying a build up of pressure signaled by rising fear, as the S&P 500 tried but failed to make any significant new high.

Here’s a chart of the S&P 500 showing the two turning points coinciding with the last two charts above:

And here is a current chart of the VIX showing the base that appears to have formed with the recent spikes:

Based on my observations above, a trade using VIX CALL Options may be something to consider once you perform your own research and analysis. I’d be interested in what you think or have to say about this or other ideas. Let me know your thoughts 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?

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.