Anticipating a Stock Pullback and Bond/Volatility Rally

Posted by Bigtrends on March 19, 2012 1:56 PM

Gold, Silver, Oil and the Fear Index Trends

This week may provide some trading opportunities for us if all goes well, now that most traders are investors are all giddy about stocks again.  Last week we saw money move out of bonds and into stocks, and the bullishness vibe in the air reminds of many market peaks just before a 5%+ correction in stocks.

Depending how the S&P 500 (SPY) (SPX) unfolds we may be going long or short equities, long precious metals, long bonds, and we are bullish on the VIX (VXX), looking for a spike.

SPY Chart

Bonds (TLT):  After last week's strong move down in bonds as the HERD moved out of bonds and into stocks, it may be providing us an opportunity to catch a dip or bounce in the price of bonds.  If the stock market sees strong selling this week money will run back into bonds.

Bonds Chart

Looking at precious metals it looks as though gold (GLD), gold miners (GDX) and silver (SLV) may still head lower this week.  The charts are still bearish and pointing to another multi-percent drop in value.  Gold will look bullish around $1600, Gold Miners ETF (GDX) around $48, and Silver around $30 but we need to see one more wave of strong distribution selling for that to take place.

Gold Chart

Crude oil (USO) has recovered nicely from its 5 wave correction which shook us out of a bullish position.  I still like the chart for higher prices but with it trading at resistance and a high possibility of sellers stepping back in at this level, I am not getting involved here.

Oil Chart

The S&P 500 has made a new high but may run into sellers taking prices straight back down. We anticipate that the fear index CBOE Volatilty Index (VIX) will continue to rise in our favor.

VXX Chart

Courtesy of Chris Vermeulen,