Tuesday, December 13, 2011

Technical Take GLD suffers serious whackage

The indices (DJIA 12021, S&P 1236) had another volatile day, but closed within their intermediate term trading ranges (10725-12919, 1101-1372).

The S&P (1) decided not to contest its 200 day moving average and instead challenged the 1230 support, (2) that test held which is a positive in itself but also keeps the developing reverse head and shoulders in tact. This all leaves the S&P short term in a tight range bounded by the 1230 support level and the 200 day moving average (1262).

Further, a look at the charts of the stocks in our Universe shows virtually no technical damage and little prospect of such without a much bigger hit to prices. In other words, I don’t see any sign in our stocks that this Market could be heading down.

Volume was lower; breadth weak. The VIX fell leaving it outside the upper zone of its current trading range. While positive for stocks, it is unusual for the VIX to be down on a down day in the Market. According, to my option trading buddies, fund managers who are underperforming and need some incremental performance before year were selling options to collect premiums.

GLD suffered some serious whackage, dramatically busting through the lower boundary of its intermediate term up trend and breaking the pennant formation to the downside. The percentage move below the lower boundary almost satisfies the distance element of our time and distance discipline which in itself represents a serious challenge. The breakdown of the pennant formation simply adds to the negativity. GLD did manage to close on an initial support level. If that holds, then we could see a bounce back within the intermediate term up trend. If not, we have to take this break seriously and start to trim this position.

Bottom line: the difficulty the S&P is having with its 200 day moving average notwithstanding, the technical bias still seems to the positive. So while the fundamentals have me jittery, there is nothing technically that persuades me to do any selling. The exception to that statement is GLD. As noted above, the damage done yesterday puts GLD price very close to fulfilling the distance element of our technical sell discipline. The size of this holding (circa 12%) demands discretion over valor.

An update of cash on the sidelines (short):

The history of December options expiration (short):