What are near-term and longer-term trends in money flow on the Cross-Market or Intermarket Landscape revealing about the current environment and factors to be watching currently?

Let’s start with the Daily Chart or Short-Term View and then broaden our perspective going back to 2009:

As I do for weekly membership reports, I’ll use the SP500 as the US stock market proxy, Gold and Crude Oil for leading commodities, the 1o-Year US Treasury Note price (for a bond market proxy), and finally the US Dollar Index (a basket of six leading currencies against the US Dollar index including the Japanese Yen and Euro).

If we broaden our perspective from the very short-term charts and shifting headline news, we see clear trends in “Money Flow” across these broad markets in the following way:

Money continues to flow INTO the US Stock Market and US Dollar Index

Money continues to flow OUT OF US Treasuries (boosting Treasury Yields) and Gold (priced in Dollars)

Given the intermediate and short-term compression or consolidation in Crude Oil (update post), there is a flat or neutral action observed.

As investors and especially traders, we are always assessing the probability for trend (money flow, in this case) continuation or else trend reversal (which will call for repositioning).

Trends have greater odds of continuing than of reversing, but keep in mind that no trend moves straight up or straight down, but they are comprised of pro-trend and counter-trend swings (or price movements).

It’s the series or structure of price highs and price lows that is important – it comprises the trend in motion.

While these trends have been clearly established since November 2012, let’s pull the perspective back to see the most recent aggregate trend reversal (in money flow) and how these markets have behaved since the 2009 inflection.

I started the chart just ahead of the major market inflection (stock, oil, and gold low; US Dollar Index high) at the beginning of 2009.

From the start of 2009, we see persistent UPTRENDS or money flow into US Treasuries, Crude Oil, Gold, and especially US Equities (stocks).

This structure persisted until roughly mid-2011 at which time the US Dollar Index bottomed (April 2011), Crude Oil peaked (also April 2011), stocks formed a short-term peak, and gold peaked later that year in September (money continued to flow into bonds without any major peak or bottom).

From this mid-2011 inflection point, trends in broader money flow shifted such that Oil and Gold (as of June 2013) have never traded back to the level achieved in 2011, the Dollar Index reversed into a full uptrend, and stocks continued their uptrend to new all-time highs.

Major headlines around this period included the end of QE2 (Quantitative Easing from the US Federal Reserve) at the end of June 2011, the loss of the US AAA+ credit rating from Standard and Poors (August 5), the Euro-zone/Greece crisis escalates (throughout most of 2011), and the US Congress fiercely deadlocked over negotiations to raise the “debt ceiling” or legal borrowing limit (July).

From mid-2011, we continue to see the aggregate money flow patterns or trends that we observe in the Daily Chart above, with the exception of the US Treasury market continuing to trend higher before peaking and reversing in May 2012.

When planning investments or trades in these markets, continue to study both the near term and longer-term trends in cross-market money flow and the trading opportunities that develop as pro-trend or counter-trend events.

As we shift into the middle of 2013, be on guard for any signs of early reversal in these trends as well.

Join fellow members to receive daily commentary and detailed analysis each evening by joining our membership services for daily or weekly commentary, education (free education section), and timely analysis.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

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If you prefer range trading strategies, the recent activity in Crude Oil has been a bonanza for you.

Let’s update our levels and trendline boundaries for Crude Oil and note potential impulse targets on any breakout of the tightly compressing triangle trendlines squeezing about the $93 midpoint area.

We’ll start with the Weekly Perspective:

I drew adaptive trendlines to connect the series of compressing highs and lows that build the current structural pattern.

From the wide volatile period of early 2011, crude oil has compressed up and down from the $93/$94 midpoint value area, giving opportunities to play “fade” or compression style range trading tactics at key boundaries.

The pattern now reveals a tight compression between the $97.50 level and (depending on how you draw the trendline), $88 or $91 area.

Short-term traders can continue to play reactions or intraday swings between these two levels – this has been a very effective strategy – while swing or longer-term traders may want to remain on the sidelines until a confirmed breakout of this pattern develops.

Crude oil can and likely will become volatile again, but it first needs to break free from this visual compression boundary (triangle pattern) that is squeezing price between these levels.

Initial upside targets on a breakthrough preferably above $100 (to give room for ‘traps’) include $105, $110, then even $115 on a powerful upside breakout.

Alternate downside targets simply include the $86 low from April, the $83 low from late 2012, and finally the $77.50 level from mid-2012 as simple planning targets.

The Daily Chart provides a tighter picture of the short-term triangle boundaries for trade planning:

A quick glance reminds us that the tighter or short-term trendlines intersect price into $97 and $92 per barrel.

Note the sideways overlap or compression of the 20 and 50 day EMAs near $94 along with the (slightly) rising 200d SMA into $92.35 (which has acted as short-term support with daily spikes or reversal candles off this level).

Today’s action reveals a similar “will it break or will it bounce again” dynamic at work into $92.50.

Note the green and red “If/Then” Bull/Bear bias levels on a breakout of the compressing levels.

The USO Exchange Traded Fund also reveals compression levels and pending breakout targets:

I used a line chart to highlight the compression in price about the $34 central value area or midpoint.

We can clearly see a compression in the larger picture but perhaps more importantly for short-term traders in the July 2012 to present activity.

Continue watching these levels for short-term/intraday opportunities or breakout/swing trading opportunities moving forward.

Join fellow members to receive daily commentary and detailed analysis each evening – including specific analysis on gold like this post – by joining our membership services for daily or weekly commentary, education (free education section), and timely analysis.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

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With the morning breakthrough above the $1,400 confluence resistance target level, let’s take a quick update on the new levels and targets for trade planning opportunities in Gold.

We’ll start with the broader “Structure” Chart and then move to specific levels:

As gold continued its downtrend at the beginning of May, the 3/10 Momentum Oscillator showed persistent positive divergences, especially at the final low of the swing on May 20th into $1,350.

From there, a series of higher momentum highs along with bullish spikes in price contributed to the sideways trading range and key focal level at the $1,400 confluence (prior update post).

While the sideways range continued, gold held the upper level of the pattern and broke firmly and decisively above the $1,400 price, Fibonacci, and “Round Number” confluence.

The immediate target has been achieved quickly – it was the $1,413 level of the prior ’spike’ high and 50% short-term retracement.

We’ll pull the perspective back to the Daily Chart to highlight another key indicator confluence here:

Without getting too detailed, price continues in a short-term downtrend though the reversal up off $1,350 does establish the first higher low (the first step in a trend reversal).

Take a look at my May 20th update “This Would Really be a Great Spot for a Gold Reversal” for even more information on the broader trend and key factors to watch with gold prices here.

The focal point here is the falling 20 day EMA (Exponential Moving Average) which intersects price at $1,412 (again, the high of the May 22nd spike and 50% short-term Fibonacci level).

For planning, a continuation impulse or breakout above the current resistance cluster would be expected to lead to a push up at least to the confluence of the falling 50 day EMA and May price highs into the $1,470 level.

Note the “Open Air” between the current resistance near $1,415 and the “pocket” above price toward the next target.

Short-sellers would see this as an opportunity to place bearish trades at a resistance level, targeting another swing lower toward $1,350.

In the event price does break out, the short-sellers would thus contribute to an upward move with the triggering of their stop-losses (buying-back to cover).

This is why it is important to trade or monitor price at key inflection points – the losing side tends to contribute to the eventual outcome to the next target.

Here is the short-term 30-min planning chart for reference:

The 30-min candle chart above is similar to the 10-min “structure” chart which included all overnight action (unlike the chart above, which is why it appears much more “gappy”).

Again we see the price and Fibonacci Confluence into $1,400 and the new focal point (target) into $1,412.

A further breakout above $1,414 and $1,415 could quickly lead to a push to the $1,430 price and 61.8% short-term Fibonacci Level.

Keep in mind that the 20d EMA intersects price here at $1,412 as well, which would make a breakout here significant.

We’ll always be on guard for a “trap” which would unfold as an initial push above $1,415 that immediately reverses back under $1,410, and in that event, we would look for trapped buyers above $1,415 to liquidate to create a quick impulse back to the $1,400 confluence.

As shown on the highlighted levels, any breakdown back under $1,400 enters the “Bearish Territory” and thus bearish bias for short-term trading.

A breakthrough above here beyond $1,415 similarly enters “Bullish Territory” up to $1,430.  A firm breakthrough above $1,430 enters even higher Bullish Territory which triggers the Daily Chart impulse trade or thesis to target the $1,470 level.

Join fellow members to receive daily commentary and detailed analysis each evening – including specific analysis on gold like this post – by joining our membership services for daily or weekly commentary, education, and timely analysis.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

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Which stocks are the most over-extended and under-extended from their 200 day Simple Moving Average and what trading opportunities do these stocks offer?

Let’s update the scan and take a look at some of the opportunities that make this scan useful.

First, here are the top five SP500 Stocks most Over-extended from their rising 200d SMA:

The chart above – taken from FinViz.com – shows the percentage difference between the current price and the 200 day SMA.

For example, the most overextended stock First Solar (FSLR) is almost 77% above its rising 200 day SMA.

This stock is a good method for finding stocks in persistent uptrends, meaning we can use these as buy candidates via retracements or breakouts to trade with the prevailing trend.

Aggressive or “reversal-style” traders can use this list instead to find quick opportunities to play “fades” or even trend reversal trades when trade opportunities signal a possible reversal is developing (such as the break under a key support level).

Netflix is such a stock that showed persistence of uptrend, as it appeared as the #1 most over-extended stock from our February update.

Let’s take a look at popular stock Netflix (NFLX) to see how this may be applied:

Although Netflix (NFLX) has been in a persistent uptrend since reversing from the mid-2012 lows, it faces a critical price inflection point into the confluence of the prior swing low, 50 day EMA, and lower daily Bollinger Band all converging at the $205 price level.

Pro-trend retracement traders can do additional analysis to determine a long/buy trading opportunity depending if they want to buy into support (with a tighter stop) or wait for a bit of chart-evidence of a likely upward swing which could come in the form of a break above a daily reversal candle or falling trendline (via bull flag logic).

The prior pro-trend retracement opportunity like this developed on the touch of the rising 20 EMA into this level in April.

Reversal traders may want to play an early entry into a possible trend reversal on a clean breakdown and close under the $200 round number area.  Note the divergence into the recent $250 high which adds a touch of bearishness to the strong uptrend.

Another example of a persistent uptrend with cautious divergences is Best Buy (BBY):

Best Buy (BBY) previously appeared on another one of these updates of stocks most under-extended from their 200d SMA (April 2012) as the #3 most unde-rextended stock at the time.

From there, though the downtrend did continue until late 2012, two breakout/reversal signals developed in early 2013 that preceded the recent strong uptrend; Best Buy now appears as the #4 most over-extended stock.

Like Netflix, Best Buy traded in a strong uptrend yet is showing signs of caution through volume and momentum divergences from April to today.

Reversal-style traders will want to see a clean breakdown under $26 and preferably $24 to play a larger reversal opportunity; bullish traders instead want to see the stock break above $27 for a potential breakout and pro-trend continuation opportunity.

The same type of logic holds for the Top 5 Stocks Most Under-extended from their falling 200d SMA:

To continue the discussion, Cliffs Natural Resources (CLF) and Apple (AAPL) appeared as the #1 and #4 most under-extended stocks from the February 2013 scan.

The persistence of the downtrend continued in these stocks where they interestingly appear in the same location on the under-extended list as they did three months ago.

Apple is facing another key challenge of “possible reversal” vs. downtrend continuation, giving bulls and bears potential opportunities depending on how price behaves at the current inflection point.

Reversal buyers/bulls may jump into the stock quickly on a breakthrough above the $460 level, generating a clean potential reversal signal with an upside target at least to $520.

Pro-trend continuation bears/sellers are looking for a breakdown under $440 to trigger a short-term bear flag and open the next downside (pro-trend) target back to $420 then $400 and under $380.

Cliffs Natural Resources (CLF) developed initial signs of reversal, yet a bull trap triggered the current sell-swing and continuation of the downtrend in motion:

While there are many examples of the concept, CLF reminds us that fighting a trend in motion can be frustrating, even with valid reversal signals.

A lengthy positive divergence developed through the early part of 2013 which culminated in a breakout – a reversal trigger – above the prior high and falling 50d EMA at the $22 per share level… only to see a bull trap take price back under the $22 breakout level and now under the rising trendline to trigger a pro-trend retracement opportunity here which targets the prior low from April as a minimum target.

You can apply your analysis to the remaining candidates that appeared on the 200d SMA scan results.

Study the prior updates for additional insights and lessons how to generate trading opportunities depending on your preferred style of trading (pro-trend or counter-trend/reversal).

Feel free to share your thoughts or trade opportunities you’re seeing in these stocks (including links to a blog post) in the comment section.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

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The renewed focus on the potential for higher future interest rates led bond funds TLT and IEF to achieve a downside price support target quickly.

Let’s take a look at this target which is the current key inflection level for traders to watch closely – with updated targets depending on what happens here.

We’ll start with the Weekly View of the 20+ year fund TLT:

We’ll simplify the chart by focusing on the critical inflection level into the $115 per share horizontal price and 38.2% Fibonacci Retracement level.

After the bear trap or false breakout event in April, the return back under the falling trendline allowed for an expected play back to the prior low in a continuation of the short-term downtrend.

This is another recent example of the concept of failed trades forecasting a bigger move in the opposite direction.

All things being equal, the key focal point here is whether the fund can attract buyers at a critical support level or whether sellers will continue to dominate the short-term downtrend, thus extending the next lower support target to the prior low and 50% Fibonacci Retracement near $110 per share.

We can see the immediate structure on the Daily Chart clearer:

The declining parallel trendline channel has developed nicely from July 2012 to present and again the fund interacts with the higher frame $115 per share level along with the $114 per share level just above the declining trendline support.

Note again the bull trap or failed breakout that reversed on a divergence into $124 per share – that failure helped signal the likelihood that a return to the prior low and falling trendline was the expected play.

Note how volume has been increasing steadily throughout 2013, particularly with respect to the prior two swings (from $114 to $124 and now back to $114).

The price action and planning is similar in the 7 to 10 year fund IEF (starting with the Weekly Chart):

While the patterns are roughly the same, the price levels are different.  The focal point for IEF remains the $105 per share level which is a full retest of the falling trendline of the weekly declining channel pattern along with the lower Bollinger Band intersecting $104.91.

The Daily Chart again reveals more details about short-term trading and game planning:

After a similar bull trap in early April into $109 per share, the price reacted lower to continue the short-term downtrend, ending at the current key inflection point near the $105 easy-reference confluence. Continue Reading…