While day traders can embrace this up/down, up/down market, it makes swing traders dizzy. Frankly, I hate it and so does my account; and trading light, or not trading at all is my preferred approach in this type of market. While fundamentalists claim this back and forth action is caused by the ever changing news environment, as a technical analyst I know it is because the SPX is trapped by the 200 DEMA. The 200 DEMA (or DSMA, doesn’t really matter) is the line-in-the-sand for the epic battle between Bulls and Bears. Above the line live the Bulls, below the line live the Bears, and around SPX 200 is the battle ground with enough land mines to blow a swing trader’s account. The 200 is where the big institutions and hedge fund focus much of their buying and selling, and the battle goes on until one side wins and price moves far enough away so that they have to commit in size to a direction. So while the 200 acts like a magnet (for indexes and stocks), pulling price to it in either direction, once it is soundly breached, a trend develops. My guess is that this up/down action continues until the Bollinger Bands come together in a squeeze, then we emerge in a solid move. Unfortunately, there’s no way to tell at this point which direction we trend. Good luck, keep your helmet strapped, and save firepower for the trend move.

Let’s see in next weeks ? It is time to tight stops.

I’m a sucker for market lore–those weird little myths and superstitions that surround traders and the financial markets. They remind me of the years I spent coaching youth baseball, another human activity shrouded in wisps of myth. In any case, a recent CNBC story line caught my attention that said, “Beware the Death Cross”. The article didn’t offer anything more than an analyst saying that he was worried because the 50 day moving average had turned and looked like it might cross down through the rising 200 MA, thus forming the bearish “Death Cross.” I’ve heard the whispers about the “Death Cross” for years, so I decided to go back and see if there was anything to it besides a wildly romantic label. Unfortunately, it does appear that significant things happen when the 50 DSMA crosses the 200 DSMA, in either direction.Let’s take a look at the monthly chart of the SPY. For the averages I used a 2 and 9 month EMA to simulate the 50 and 200 day averages (there’s about 22 trading days per month). On the left, the upward crossing in late 1996 marked the beginning of a huge rally. In late 1998, the averages tried and failed a crossing, and the rally resumed. The first true down crossing occurred in the summer of 2000, and the market just collapsed for 3 years. Finally, in early 2003, an upward crossing led to a 5-year rally that featured a steady upward grind where the averages bumped each other, but never crossed. Again, in late 2007, the averages crossed down, marking the sharp Bear market, which ended in spring of 2009. Now that the market has several daily closes below the 200 SMA, the 50-day average is heading down toward the 200, and the two should meet sometime this month.Now, one could argue that moving averages are lagging indicators, and their crossings are statistically meaningless. However, legend has it that billions of dollars of institutional money key off this simple moving average cross trading system, and traders should pay attention. Me? I come from French Catholic stock, and we’re like the Irish, or any baseball player, when it comes to legends, myths and fantasies. Count me Bearish if the Death Cross happens.

IAGThe only real prevailing certainty in this market right now is VOLATILITY. This measurement of fear has seemed to put a nice floor under gold. Certainly the world’s quest for the ultimate refuge has taken a big chunk of volume from the other indices which continue their futile attempt at scaling the “wall of worry.” I think this will continue and the technical chart seems to agree. A classic Cup and Handle continuation pattern has formed on gold’s daily and it appears that the handle is almost complete and poised to break out. Also, with the manipulation associated with the Comex option expiration behind us and the dollar a bit Topy, the stars could be lined up. Furthermore, gold’s supply side is very limited, the production side is declining and the demand side is rising and has changed from jewelry demand to investment demand.So, moving into June, we could have the perfect storm for a launch to a new level for gold and gold equities.Take a look at IAG (Iamgold Corp.). The technicals mirror the $GOLD chart very well to serve as a proxy to the physical. WEEKLY: The share price rose to a high in December, pulled back to value, then ran up for a retest that failed. From the looks of the shallow retrace, it appears to be recharging for another run at the high. DAILY: The MACD-H is rising after it bottomed, following a price pull back which found support at the 150MA (forming the bottom of the handle). Next week I’m looking for an upside breakout, leading to a Fast/Slow EMA crossover and subsequent MACD MA x-over – both of which should help to ramp volume. At that point the gravity will let go and blue sky won’t be far away. We’ll see.Steve M

I was asked by a Spike Member to write a few comments about entering the 1,2,3 Bottom or 1,2,3 Top patterns. The thing to remember about is that these are reversal patterns, not trend continuation patterns. As such, it really doesn’t pay to jump the gun and enter early, only to watch the set up collapse. I prefer to enter on a show of strength to confirm the pattern. So, I look to enter on a market close above the #3 move if a bottom, or to short below it if a top. In the case of SRS, a trader would enter around 26.61 on the 5/14 close. I would exit four days later around 31, and look to buy again on the pullback to the rising MA. Stop goes below the pattern at around 24. Occasionally, there is a trend continuation entry above the #2 high, but in this case, I would consider re-entering if price closes above the 20 MA again in a narrow-range day.