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Typically,
the week before Christmas, stocks and commodities drift higher due to the
lack of participants. Light volume favours higher
prices, which is why stocks want to rise going into
the holiday season.
The big money players, like hedge
fund managers, are finished for the year. They're sitting on the sidelines
enjoying the holiday season while waiting for their year-end bonus checks.
Let's take a quick look at how the
week finished...
Friday was an interesting session as
stocks and oil reached some key resistance levels. Below are my thoughts,
charts, and a possible trade idea for next week.
Gold & Silver Thoughts:
Looking at the long term charts of
gold and silver, I feel they could head much lower in the first quarter of
2012. The inverse relationship between the dollar index and gold makes me
think this is a high probability scenario.
The weekly dollar index chart remains
strong at this point and could start another very strong rally any day. Once
the dollar starts heading higher, expect precious metals to move down along
with equities.
SP500, Dollar and Volatility Index
Below are three charts stacked on top
of each other. They are marked with my analysis and thoughts for next week.
Personally, I don't feel shorting stocks is a safe play. The last week of the
year, we can see the volatility index (VIX), and the dollar, rise without
putting pressure on stocks. So be aware of that.
TRADE IDEA - View Chart:
Crude oil looks
like a great low risk opportunity (a real "Christmas" present!)
from Mr. Market. SCO would be the ETF for US based traders. HOD, which is
listed on the TSX, is good for Canadians. I favour
this setup because I don't feel that oil will be as affected from the holiday
bulge as will American equities.
Pre-Holiday Trading Conclusion:
I was planning on avoiding the market
Friday, but the charts were calling my name... The session ended with what
looked to be a short squeeze. The remaining short positions didn't get their
expected drop in price. Consequently, when the traders all started to cover
their shorts (buy) just before the close, it caused
a strong surge higher.
I do not recommend shorting stocks
next week because of the light volume. However, oil looks good to me.
Just thought I would share my end of
the week thoughts, and wish you a Merry Christmas!
Cheers!
Chris Vermeulen
Editor, the Gold and Oil Guy
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