If you take a look at the following financial sector ETF XLF, you will notice that it's now trading near a major support level (fair value) where most shares changed hands in the past. With this sector sliding 13% from the highs in February and the fact that it's making a parabolic drop into a support zone, I can't help but think a bounce is very likely to form soon.
SP500 Futures 10-Minute Chart
With the financial sector nearing major support and the SP500 starting to show signs of a bottom forming, I'll admit my heart is starting to pound in excitement for an entry point. I'm really hoping that we see another sharp drop in the stocks, which should spike up the Volatility Index (VIX) to 21 or higher. If we see this take place, I'll be taking a long position to catch a 2–15 days bounce in the broad market.
The chart of the past 10 trading sessions below shows a price and volume pattern that typically leads market bottoms. I'm keeping a close on things these days.
Silver 2-Hour Chart
Silver took a big haircut last month, falling from $50 down to $33/oz. Ever since then, it has been trying to form a base that will act as the next launch pad for higher prices. So far, it is looking good but there is a key resistance level to breakthrough before fireworks. Keep your eye on the silver bullet.
Gold 2-Hour Chart
Gold is back trading up near its high but is starting to struggle with resistance (sellers). We could easily see gold pull back to the $1,520 area before taking another run at resistance.
Conclusion
I feel investors are getting very nervous because of the six-week selloff in stocks. There have been some technical support levels broken on the SP500 and other indexes and its these broken levels which have investors running for the door. The thing is, this type of selling happens every year and generally two to three times. During a bull market, I like to see fear in the eyes of investors. Until we are proven wrong about buying extreme oversold dips, they continue to be my focus.
Also if the financial sector can find a bottom and start to rally, then we will see higher stock prices across the board in the coming weeks. I am currently neutral on metals, oil and the dollar. But am getting bullish on financials and the SP500 as they move lower.
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Chris Vermeulen
TheGoldAndOilGuy
