Wednesday, August 22, 2012

Gold break out and the stock market

Few days ago I mentioned the market was likely to test the trend average after making some sort of top and today the market corrected 20 points to 1406 before bouncing to its Fib retracement level and closing above the TA. It still remains to be seen just what kind of correction this is (or was) as this could well turn into yet another W4 correction before putting in another W5 high. Alternatively, it could be setting itself up for a bearish leg that will start closing under the TA. Today's chart reflects the differences between using wave counts vs trend averages. If I were just counting waves, I would assume the leg from 1426 to 1406 was an impulsive wave and that we are now on a W2 or B wave before seeing a bearish W3 or C wave. However, looking at the trend average and the MACD (which is moving average based) indicate the market remains bullish and is ready for another bullish wave as soon as tomorrow morning. In my experience, odds usually favor moving averages so I'll assume the market is trying to go over 1420 again. Also, gold broke out today out of an apparent ascending triangle and that confirms the markets are trying to price in QE after the Fed statement so this could well spill over onto the stock market at any moment.

I sold my VXX hedge today at the low, bought them back and then sold them again at the close for more coffee money :) So now I am back to 100% long and shorting/hedging overbought intraday prices.

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Shorting intraday extremes, closing same day

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