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June 25, 2009


Big surprise: the 65DMA on the S&P 500 provided an inflection point for the stock market. Who woulda thunk it? Now you see why I reduced my shorts a couple days ago. It usually takes more than one attempt to cross the 65DMA. However, I can't say I'm too impressed with this rally:

stock index chart

SPX 930 has provided two pivots in the last two months. The index also required strong motive days to both get above SPX 930 and back below it. Given the lack of volume, there is a decent chance today's action was a pop-and-drop sort of squeeze, meaning tomorrow would see a reversal of fortune. At this point, I will wait for either a heavy SoS day or a breach of the 65DMA to re-apply my shorts, but it will take a breach to get me really aggressive.

Now, look again at the chart above and then observe the following chart, which I posted on June 14:

s&p 500 projection

I'd say it's about time for that latter slide, wouldn't you? Come to think of it, if we gap into SPX 930 in the morning, I may just have to pull a fade and add my shorts back at that point. It would be a low-risk play since any close above SPX 930 requires a cover.

Precious metals have been edging higher, but there is nothing particularly noteworthy in their action. Miners, however, posted another fine day.

gold mining stocks

Now you can see why I chose the $40 strike for those calls I sold. Given the multiple resistance points and the lack of volume, I'd have to think the bounce in GDX is toast. We'd have to break above $40 on a surge in volume to change my mind. Until then, we are witnessing nothing but noise in a greater corrective pattern for miners and the metals themselves.

Speaking of backtests...

oil price chart

Something else written on these pages in early June was that the next sell-off would be nasty in the sense that its choppiness would keep bulls constantly hopeful and bears constantly on their heels. If you're prone to falling victim to whipsaws, it's best to either stay out or keep position sizes small.


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