Great Trades

Great stock trades based on fundamentals and technical analysis.

Friday, September 25, 2009


Another dip to buy or is the 10th time different?

With this rally, the TICK 10-day EMA is back above 600 again. It has room to go higher, but once it peaks, we should see at least a short-term pullback like the last 7 times it peaked over 600 since March. Previous peaks over 600 have led to more significant down moves (e.g., late August '08 and early January '09).

If the next pullback holds the 970 area, it would be bullish for a continued rally to higher levels. If we get a short pullback like the last 7 times it peaked over 600, the second day could again be a great buying opportunity.

Since our last post early last month, the TICK 10-day EMA dipped back down near 200 in mid-August on a short-term pullback that held the 970 level, which did prove to be "bullish for a continued rally to higher levels." There were a number of consolidation days before the 2-day dip to the 970's, and the second day again proved to be a great buying opportunity.

On August 21, the TICK 10-day EMA peaked over 600 yet again, followed by several consolidation days, a short-term pullback to the 990's along with the TICK 10-day EMA dipping back down near 200, and yet another buying opportunity after 2 days of selling.

Last week, the TICK 10-day EMA peaked over 600 for the 10th time since March (each time marked with a blue vertical line in the chart above). After several consolidation days, we've now had yet another short-term pullback, with the TICK 10-day EMA dipping down near 100 on this drop to the 1045 area.

If the pattern from the last 9 times the market had a short-term pullback after the TICK 10-day EMA peaked over 600 continues, the selling the last 2 days should prove to be yet another buying opportunity. If that pattern breaks, and the market continues lower after this short-term pullback, we may finally see a deeper correction.

Since the first peak over 600 on the TICK 10-day EMA, back in March, there have been 9 straight higher highs marked by subsequent peaks over 600 on this EMA. Will there be more to come? The market action in coming days should be telling...

In other commodities, gold has been consolidating around the 1000 level recently, threatening to take out the all-time high of 1,033 from early last year. If it holds the 1000 area and pushes through to new highs, the bull trend will continue, with a target in the 1300 area from the inverse head and shoulders pattern formed since early last year. A breakout in gold should also send silver much higher, with silver needing to more than triple to reach its all-time high. Adjusted for inflation, the all-time highs for both metals is much, much higher.

Some of our long-term mining holdings have come back to life recently with the recovery in metal prices, along with improving project developments. If/when gold and silver break out, they could move much higher quickly as the sector attracts increased investor attention and shorts scramble to cover their positions.

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