Stock Market Going Higher

The S&P 500 pushed above a key trend line Friday suggesting it wants to go higher. Just go with it for now, even if it doesn't make sense given all the continuing bad news we are barraged with.

The market had been showing some resilience, even with the push lower over a week ago, it suddenly reversed higher last week without even touching the bottom trend line you see on the chart below.

One can never be sure how far this goes, but if we start seeing high quality growth stocks breaking out, it might be worth taking a chance on some and see where this market takes us. As always, let the price and volume action tell the story and don't argue with the direction.

Gold Breaks Long Term Trend Line

The previous post on gold pointed out that gold fell right to a long term uptrend line. Since then, as the chart below demonstrates, gold broke down through this line. This suggests one should expect more downward pressure in the near term.

Gold bugs will suggest this is a buying opportunity as they all believe gold is going to one million, sarcasm intended.

Weather gold goes higher in the long run or not, it should be clear that there is a definite change in tenor for the metal for now.

So how does one trade this? Shorting rallies using your favorite tools: fibonacci retracements, trend lines, etc. Having been distracted early last week, I missed the break of the trend line, so I shorted silver Friday, perhaps a little late, but I am up in the trade. Which reminds me, I want to give a shout out to the fellow I met at the Reagan Library last week who suggested in line at the gift store that silver was a great buy at $30. Ride it out, friend.

Will Gold Maintain Its Long-Term Uptrend?

Gold took a thumping today, sending it down to a long-term trend line. Uptrends are defined as moving from the lower left on a chart to the upper right. In the chart below, you can clearly see gold's uptrend, marked by the white line. Gold is represented here by it's ETF, the popular GLD, which tracks the price of gold.

Gold's recent action has something of an ugly appearance, with its recent top hit in September towering over the november "hump" high.

It could present a terrific buying opportunity if you think gold still has long-term legs to the upside. If you are an aggressive trader, perhaps it's worth a stab at buying to see if you get a little pop, putting tight stops in place (stops at today's lows seem appropriate to me). If you are more cautious, waiting to see if it holds this trend line isn't a bad idea.

On the other hand, if gold fails this trend line, it could experience a quick drop to an area just above the $155 level on the ETF chart.

I'm leaving it alone for now.

Dollar General Breaks Out

This market has been choppy and unpredictable, so what do you do when a stock breaks out, like Dollar General, DG, did today? The safe approach is ignore it and wait for the market to begin an uptrend, otherwise you will be swimming against the current. When an uptrend resumes, then jump on break outs.

That the market isn't rolling over amidst all the terrible news is positive. Yet the market is hostage to news headlines, creating a herky-jerky environment, even if it seems to want to move higher. If you think the market might move higher, even if for a very short while, perhaps it's worth taking a chance on a break out - if you are not faint of heart.

I recently took this chance on October 6, 2 days before IBD put the market in an uptrend. I did it because the market had shown a tremendous upside reversal on October 4 (see chart below - this day happens to mark the market's recent low point), and market rallies can be exceptionally strong, strong enough for a short swing trade. It isn't clear that the market today has as much upside potential as it did on October 4, however.

The market's move had a definitive nature to it on October 4 and, from my perspective, was worth attempting a trade in a break out stock. My stock of choice was Nuance Communications, NUAN, (and there were others). The green arrow marks my buy point from a cup with handle. The stock is currently forming a new base along its 50 day average.

Getting back to Dollar General, DG, you will notice that it formed a flat base, as outlined by the rectangular box, which it just broke out of today on volume that was 89% above average.

DG is an IBD 50 stock with strong earnings, and while its sales figures aren't stratospheric, it does have a 17% Return on Equity as reported by IBD, a key feature shared by past market leaders. An additional supportive feature is that it has been accumulated by some big funds lately including Berkshire Hathaway. Good to see the big boys supporting the stock.

But be forewarned: buying break outs in this environment is risky. A stop loss should be used, as always, but perhaps a tighter one than the usual 7% or 8% would be wise right now.