Assessing the relative levels of greed and fear in the market at a given point in time is an effective way of timing the market. This article outlines the 6 most popular momentum indicators and concludes that trading gold using just 3 of the indicators would have generated an annual return of 39.6% compared to the YTD buy-and-hold return of only about 13%! Let me explain how, why and where they should be used and examine their specific application relative to the price movements in gold and the HUI. Words: 1450

So says Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) in an article written on behalf of www.PreciousMetalsWarrants.com (The Authority on Warrants). Please note that this paragraph must be included in any article reposting with a link* to the article source to avoid copyright infringement.

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Wilson goes on to say:

Securities ebb and flow, surge and retreat, and such action is measured by oscillators which are powerful leading indicators of the security’s immediate direction and its speed and are most useful, and issue the most valid trading signals, when their readings diverge from prices.

Bullish divergences occurs when prices fall to a new low while an oscillator fails to reach a new low. This situation demonstrates that bears are losing power, and that the bulls are ready to control the market for the stock or index again and such divergence often marks the end of a downtrend.

Bearish divergences signify up-trends, when prices rally to a new high while the oscillator refuses to reach a new peak. In this situation, bulls are losing their grip on the security, prices are rising only as a result of inertia, and the bears are ready to take control again.

There are a number of different approaches to this concept, as follows:

1. Stochastic Oscillator (SO)
- is a momentum indicator that compares a security’s closing price to its price range over a given time.

The theory behind this indicator is that in an upward-trending market, prices tend to close near their high, and during a downward-trending market, prices tend to close near their low.

There are two components to the SO: the %K which is the main line indicating the number of time periods (usually 14), and the %D which is a three-period moving average of the %K. Buy/sell signals occur when the %K crosses above/below the %D.

A %K result of 70 (or 30), for example, is interpreted to mean that the price of the security closed above 70% (or below 30%) of all prior closing prices that have occurred over the past 14 days and assumes that the security’s price will trade at the top (or at the bottom) of the range in a major uptrend (or downtrend).

A move above 80 suggests that the security is overbought and therefore should be sold while a move below 20 suggests that the stock or index is oversold and, as such, is a buying signal.

The SO, which ignores market jolts, is an ideal companion to the MACD to provide an enhanced and more effective trading experience. Using the two together gives traders an opportunity to hold out for a better entry point on an up-trending security or to be more sure that any down-trend is truly reversing itself when bottom-fishing for long-term holds.

However, on the downside, because the stock or index generally takes a longer time to line up in the best buying position, the actual trading of the security occurs less frequently, so you may need a larger basket of stocks to watch.

2. Relative Strength Index (RSI)
- is a momentum indicator that compares the magnitude of recent gains in price to recent losses in an attempt to determine overbought and oversold conditions of a security.

The RSI, on a scale of 0-100, indicates that a stock is overbought when it is over 70 and oversold when it is below 30.

Because large surges and drops in the price of a security will create false buy or sell signals the RSI works best when it is used in conjunction with short-term moving average crossovers such as the Stochastic Oscillator to confirm a directional shift.

3. StochRSI
- is created by applying the Stochastic Oscillator to the Relative Strength Index values rather than standard price data thereby giving the trader a better idea of whether the current RSI value is overbought or oversold – a measure that becomes specifically useful when the RSI value is confined between its signal levels of 30 and 70.

If you had used the above 3 indicators as your guide to buy and sell physical gold throughout 2011 you would have:

1.  bought gold on Feb. 1st at approx. $1,325 and sold out on April 21st just prior to the Good Friday/Easter long weekend at approx. $1,500 for a profit of $175 or 13%
2. bought back in at approx. $1,500 on July 5th after the long weekend and sold out at $1,850 or so on September 6th immediately after the Labor/Labour Day long weekend for a tidy profit of approx. $350 or 23%

The above 3 indicators do not yet suggest that you get back into gold – yet. Nevertheless, trading gold using the above 3 indicators would have generated a profit of $525 for an annual return on your gold investment of 39.6% over just 132 days – compared to a YTD buy-and-hold return of  only about 13%! (Perhaps I should have titled this article “How to Triple Your Returns in Gold“.)

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Now let’s look at a chart for the same time period using the TRIX, CCI and ROC momentum indicators and see what they reveal:

4. TRIX
- is a momentum indicator that displays the percent rate-of-change of a triple exponentially smoothed moving average of a security’s closing price.

TRIX is designed to filter out security movements that are insignificant to the larger trend of the security. The user selects a number of periods (such as 15) with which to create the moving average, and those cycles that are shorter than that are filtered out.

TRIX is also a leading indicator and can be used to anticipate turning points in a trend through its divergence with the security’s price.

5. Commodity Channel Index (CCI)
- is an oscillator which quantifies the relationship between the security’s price, a moving average of the security’s price, and normal deviations from that average to determine when a security has been overbought or oversold.

The CCI, when used in conjunction with other oscillators, can be a valuable tool to identify potential peaks and valleys in the security’s price, and thus provide investors with reasonable evidence to estimate changes in the direction of price movement of the security.

6. Price Rate of Change (ROC)
- measures the percentage rate of change, indicating the strength of the momentum, between the most recent price and the price over “x” periods (the narrower the better) thereby identifying bullish or bearish divergences.

The ROC is able to forecasts sooner than almost any other indicator an upcoming reversal of a trend and whether or not a security’s price action is created by those over-buying or over-selling it. A number other than zero can be used to indicate an increase in upward momentum and a number less than zero to indicate an increase in selling pressure.

An analysis of the movement in the price of gold in 2011 using the TRIX, CCI and ROC indicators, however, would not have been nearly as effective in identifying entry and exit points to the extent that the STO, RSI and StochRSI indicators do.

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Precious Metals Stocks and Warrants

A look at the 1 year chart for the HUI Index below using the Full STO, RSI and StochRSI shows that these momentum indicators are also very useful in capturing points in time to buy and sell large cap gold and silver stocks and their associated warrants where available. (For information regarding long-term warrants associated with such stocks please read two recent articles of mine entitled Gold and Silver Warrants: an Insider’s Insights and Gold & Silver Warrants: What are They?)

If you had used the above 3 indicators as your guide as to when to buy and sell a basket of large-cap gold and silver mining and royalty stream company stocks throughout 2011 you would have:

1. bought in around Jan. 21st and sold out around April 8th for a return of approx. 13%
2. bought back in the week of May15th and sold out around Sept. 8th for a return of approx. 14%

As with gold the above 3 indicators do not yet suggest that you get back into the gold and silver mining stocks - yet. Nevertheless, trading such stocks using the above 3 indicators, and the HUI as a proxy, would have generated an annual return on your investment of approx. 27% over just 190 days – compared to a YTD buy-and-hold return of about -11% !

Conclusion

So there you have it – an extensive and in-depth assessment of how to evaluate the momentum impacting your securities of interest . The next time you analyze an asset you will be in a better position to determine which direction it is trending and what are appropriate times to buy and sell the security throughout the year.

In the next few weeks I will be posting further articles on trend indicators and market strength and volatility indicators to better enable you to time the market over the course of 2012 to avoid losses and maximize returns.

*http://www.munknee.com/2011/12/buying-selling-gold-using-momentum-indicators-generated-a-39-6-return-in-2011-heres-how/

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 Related Articles:

1. Gold & Silver Warrants: An Insider’s Insights

 After a very turbulent year, silver now looks set to take off again. The best entry point of the last 5 years was in 2008… and currently we are in a similar situation, which means that silver…is ready for take-off. In this article I will tell you why I think [that is the case illustrating my views with the use of 7 charts. Words: 1200

So says Willem Weytjens (www.profitimes.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The report’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Weytjens goes on to say, in part:

Chart #1: Commitment Of Traders Report and the Price Movement of Silver

Commercials have yet again reduced their net short position in silver, which is now close to the low of 2003 at the beginning of the bull market. Commercials are generally seen as the “smart money”, so if they reduce their net short position, they expect price to rise (or at least not drop substantially).

The reason why Commercials are the “smart money” is that – unlike the millions of small investors who burn their hands by buying high and selling low – they tend to “buy” low (reduce short positions as price declines) and “sell” high (increase short positions as price rises).

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Charts #2/3: Commercial Net Shorts vs. Sentiment and the Price Movement of Silver

There seems to be a very high correlation between sentiment…and the net short positions of commercials [as seen in the chart below]:

The best way to invest is to “buy low” and “sell high”.

1. As sentiment and/or commercial net short positions climb into the orange area [of the chart above], it is time to become cautious…
2. The standard deviation bands [in the chart above] show how extreme the current reading is compared to its recent history so if sentiment rises above the red standard deviation band it is an unsustainable situation, and that sentiment has to reverse (decline) over time.
3. Conversely, when sentiment drops below the green standard deviation band…[that too is] an unsustainable situation, and sentiment has to reverse (rise) over time.
4. The red circles on the chart below show that good exit points occured when sentiment was above the red standard deviation bands.
5. The green circles on the chart below shows that good entry points occured when sentiment was below the green standard deviation bands.

The best entry point of the last 5 years was in 2008. This was a time when both Sentiment and Commercials Net Short positions reached extreme lows. Currently, we are in a similar situation, which could mean that silver is at or at least very close to a bottom, and that it could take off pretty soon…

Chart #4: The Situation in 2008

Looking back at 2008, as long as the price was below the 50EMA, [as seen in the chart below] you should not have bought. The best time to [have bought] in my opinion was early December 2008, when the price broke above this 50EMA and both the RSI and MACD broke out above the red resistance lines. At that point you had a BUY point. You would not have bought at the extreme lows, but taking this 50EMA as a stop-loss it would have minimized your losses…[and] you could have let your profits run. In fact, this 50EMA was at that point at the same level as the horizontal resistance line underneath the lows of 2006 and September 2008. A breakout above that level was extremely important going forward.

As price declined in 2008, the Accumulation/Distribution index declined as well [see above, but here in 2011] the Accumulation/Distribution index has made brand new highs despite the fact that silver is off about 35% from its all-time high…Another bullish factor now is that, as price declined, volume declined as well, which was not the case in 2008.

Chart #5: The Situation in December, 2011

It looks like the massive drop a couple of weeks ago – which took silver down to $26 – was the “perfect” entry point, price wise. However, in my opinion, there are “better” entry points at levels slightly higher than today. Let me explain why. If you would have bought when silver hit $26, you would have done an amazing job, however, if you did, you were catching a falling knife. There was a huge risk that silver would drop even lower, maybe as low as $20, which is about the breakout point of the autumn of 2010…Looking at risk to potential reward, at $26, the risk of silver dropping another $6.50 was too high for the potential $6.50 [ profit to be realized. The risk-reward ratio would have been] 1-1 since you could have lost just as much [if you were] wrong as [if you were] right. I [prefer] those kind of situations where you get a risk-reward ratio of 2 -3 (i.e. where you can gain 2 or 3 times as much as you can loose), [or, better yet, where] I don’t have to think twice when…[I get] a risk-reward ratio of 5.

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[As can be seen in the chart below] we are currently in a similar position [as we were in 2008], as there is resistance at $34 which acted as support in the first half of 2011. The 50EMA is now at the same level as this red resistance line, and both the MACD and RSI look set to brake out above their red resistance lines…Combine that with the severely depressed sentiment in silver and the low net short positions of commercials, and we have the ideal cocktail for a nice rally in silver prices…

 Chart #6: Sentiment in Gold

Silver tends to follow  gold [and a] look at the sentiment in gold [in the chart below shows]… that the standard deviation bands provide good entry and exit points. Sentiment in gold is now pretty bearish, and is close to the green standard deviation band.

Chart #7: Gold:Silver Ratio

When we look at the Gold:Silver ratio, we can see that the ratio is now facing strong resistance at the 38.20% Fibonacci Level. IF the ratio takes out this resistance, it looks headed towards 60, which is the 50% Fibonacci Retracement level. However,IF that were to happen, both the RSI and MACD would most likely make a lower high, causing negative divergence, meaning this “rally” should be “sold” (which means one should BUY silver in favor of Gold in my opinion). The MACD looks set to roll over, which means the ratio looks ready to drop.

Silver is ready for take-off. The question is, ARE YOU?

*http://profitimes.com/free-articles/silver-ready-for-take-off/

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Related Articles:

1. The Dollar is Toast! The Future is Silver

Psychologists tell us that there are five stages of grief over loss of whatever kind, usually death, or breaking up with a loved one, which are: denial, anger, bargaining, depression, acceptance. I’ve applied these to the loss of the dollar, as I see most people today are still stuck in denial, and here’s how to deal with that. Words: 1100

2. Relax! Gold, Silver and HUI Index to Bounce Back to Major Highs in Early 2012

With the present major correction in gold, silver and the mining sector it is important to look at the big picture and see what the charts are saying from a technical fractal relationship with what happened back in 1979 when the last truely major bull run occurred. To date the situation is, frankly, no different than it was back then unfolding just as it should. As a result we can expect MAJOR upward price action in physical gold and silver and in their mining (producers, developers, explorers and royalty streamers alike) in the next few months on their way to their respective parabolic peaks in the years ahead. Read on. Words: 1265

3. It’s Silver’s Time: Sales of Silver Coins Soaring; Price of Silver About to Soar!

If sales for November and December match the levels of 2010, total sales of American Silver Eagle coins for 2011 should… [be] more than 20% above the record breaking sales level of 2010. [Not only that but] with physical demand remaining robust and investors seeking safe-haven investments in the face of the Eurozone debt crisis, I believe we could still see silver break above $50 by year-end or during Q1 of 2012 at the very latest. [Let me explain.] Words: 402

4. Silver: The Party Isn’t Over Yet

6. History Says Silver Could Become the Next 10-Bagger Investment! Here’s Why

If you concur with the 159 analysts (see below) that maintain that physical gold is going to go parabolic in price in the next few years to $3,000, $5,000 or even $10,000 or more then you should seriously consider buying physical silver. Why? Because the historical gold:silver ratio is so way out of wack that silver should appreciate much more than gold as it goes parabolic in the years to come. Indeed, silver could easily reach $100 – $200 per troy ounce, maybe even $300 and conceivably in excess of $400 depending on how high gold goes. The aforementioned may be hard to believe but an analysis below of the historical price relationship between silver and gold suggests that such will most likely occur if gold does, indeed, go parabolic. Take a look. Words: 1423

7. Don’t Be Misled! Here Are Five Common Myths About Silver

Oftentimes perception, and not reality, rules the day with the thousands or millions of speculators placing short term bets with assets like silver. These perceptions are particularly strong given that paper players in the silver market often control the price in the short term (6-8 months), since there is so much more paper silver than physical metal out there…Here are five common myths about silver that I bet many speculators still believe are true. Words: 1638

8. Silver’s Expected Outperformance Will Cause Gold:Silver Ratio to Decline

I believe that sooner or later Dr. Bernanke and the Feds will have to resort to another round of quantitative easing which will cause investors to run back to the safe haven of precious metals but, until that happens, I conclude that gold will continue to weaken… [Here's why.] Words: 461

So says George Maniere (http://investingadvicebygeorge.blogspot.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.  Maniere goes on to say:

The chart below shows that the latest gold price action is strikingly similar to the pattern that unfolded at precisely this time last year….[and] if this pattern holds true again it will provide traders with a good roadmap and price targets for trading gold in July…

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The chart clearly shows a broad picture of a repeating pattern of price swings. Notice how in April of 2010 we had a move up (1) followed by a small correction (2). We then  had a substantial move to the upside (3) followed by a correction of about one half of the previous move up (4). This was followed by another nice move up (5) followed by a substantial correction back to the level of the first correction (6).

A look at the chart below of the exact same time period in 2011 shows that an eerily familiar pattern has developed. The only X factor will be the final leg downward. If this final leg corrects back to the 150 day moving average, as it did in 2010, we will have a good indication of what to expect from GLD.

Conclusion

Look at the chart above. The signs are all there. If leg 6 pulls back to the 150 day moving average the RSI, the MACD and the slow stochastics will all be exactly where they were in 2010. Trust your charts! [The time is fast approaching to get back into the PM market and ride the bull market in precious metals once again.]

*http://investingadvicebygeorge.blogspot.com/2011/06/gold-etf-gld-shows-eerily-familiar.html

Related Articles:

1. Gold’s Recent Price Action Suggests Ultimate Top of $5,000/ozt.  http://www.munknee.com/2011/06/golds-recent-price-action-suggests-ultimate-top-of-5000ozt/
2. Why Silver Could Drop Below $30/ozt.  http://www.munknee.com/2011/06/why-silver-could-drop-below-30ozt/
3. It’s Not Time to Buy the Gold Miners – Yet  http://www.munknee.com/2011/06/its-not-time-to-buy-the-gold-miners-yet/

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

Gold

So says Brian L. Wilson  in an article* which Lorimer Wilson, editor of www.munKNEE.com, has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Wilson goes on to say:

A: Gold

Fund: SPDR Gold Trust (GLD)

Gold has been the primary go-to commodity for inflation hedging for years now. As the primary store of wealth throughout history, its recent appeal as a safe haven against currency debasement has driven the price up significantly in addition to its increasing demand. Despite the commodities selloff which has crushed silver and oil spot prices, gold has been more resilient. Looking at its price history, this makes sense as gold has had steady appreciation for years. If a bigger correction ever did come, gold investors may have more time to exit their positions.

With a recent turnaround in the value of the U.S. dollar, whether gold still remains an attractive asset at the… 1500$/oz. [see this article (1) for the correct designation of ozt. not oz.]  level is largely up to speculation rather than any easily understandble economics. [While] some will argue that gold has reached the bubble stage – and the widespread popularity of the yellow metal does add to this argument – [gold is, nevertheless,]… the most popular hedge against impending inflation.

[The graph below shows the MACD and the RSI for gold over the past year

The MACD Trend for Gold

MACD measures how the 12 and 26 day exponential moving averages behave relative to each other. [For a more detailed description of this indicator and others in the trend category read  this article (2) entitled "Yes, You Can Time the Market – Use These Trend Indicators."] Positive MACD will indicate upward price acceleration for instance.

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In the case of GLD, one can see that there is accelerating downward pressure in the gold market. The 12 day EMA (exponential moving average) is dropping faster than the 26 day can keep up, signaling that:

The selling [in gold] is going to stay and possibly accelerate in the near future. The declining 12 day EMA is a strong bearish signal, but this kind of downward pressure isn’t sustainable for very long.

The RSI Momentum for Gold

The RSI measures momentum through an equation which factors in gains and losses made in 14 periods (days in this case). In layman’s terms, it describes what the market is doing. High is buy, low is sell.  [For a more detailed description of this indicator and others in the momentum category read  this article (3) entitled "Ride the Market Waves With These 6 Momentum Indicators."]

One can see that the gold market became overbought at the end of April, before dropping to a more even territory in just a week.

Right now gold is neither overbought nor oversold, so RSI suggests sideways trading for now.

The Volatility Indicator for Gold

GLD’s chart [above], with some key moving averages and bollinger bands [For a more detailed description of this volatility indicator read  this article (4) entitled "Here’s How to Time the Market!"] added in provides another view which suggests that:

Gold will remain somewhat immune to the volatility of the commodity markets in the near future...

While the 10 day moving average is in a steady decline (approaching the 50 day average and crossing the 20 day), the drop is not steep enough to signal any drastic changes in the foreseeable future and paints:

 A neutral, albeit slightly bearish, picture for the short term price action of gold.

A steadily increasing 200 day moving average signals that gold is retaining its overall strength as an asset class for the long term. In addition, the 50 day line is oscillating well above it. This is a somewhat bullish signal for the long term, as the slow momentum is still upwards using moving average analysis.

Overall, weighing all technical data:

Gold is showing immunity to drastic price changes and will likely trade steadily downwards in the near future but should reverse as selling dissipates…

As such, this provides a good opportunity for gold bulls to add to their position in the coming weeks, assuming that the trend can reverse in June.

B: Silver

Fund: iShares Silver Trust (SLV)

The latest hot commodity to hit the market, Silver, has only recently enjoyed the enthusiastic demand that has propelled gold’s price for the last few years. Becoming unstable in late April, it suffered a massive crash– not too dissimilar to its cliff-drop in the 1980′s. Now that the correction is slowing down, can technical indicators point to a reversal, or at least a price floor?

Fundamentally, silver has become popular for many of the same reasons as gold [but]  this doesn’t explain why silver performed so spectacularly February, March, and April especially. Simply put, bullish sentiment on the white metal has been through the roof all year. With outlandish estimates by some analysts saying that the metal will be worth $200 [ per ozt.] in a few months, [read this article (5) that has used fractal analysis to forecast that silver is going to $52.80 to $56 dollars before the end of June and this article (6) using Elliott Wave analysis sees the price of silver will reach $52.58 within the same period]  it’s easy to see why there were so many buyers. Gold had enjoyed a huge run in the last few years, and it was argued that even though silver had gotten significantly more expensive in 2010, it was still very cheap. While this is true on a gold to silver price ratio [read this article (7) for both a historical perspective on the silver:gold ratio and what it might mean for the future price of silver should gold go parabolic to $3,000, $5,000 or even $10,000 per troy ounce in price in the years ahead] the… [major] rise in its price made a short term correction necessary. Fundamentally, after its nasty correction thus far in May:

Silver is close to where it “should” be and may be within buying range for aggressive traders.

The MACD Trend for Silver

The MACD indicator [as shown above] demonstrates just how drastic silver’s decline was. It’s visible from the big chunk of negative MACD one can see for the entire month of May thus far. The 13 day moving average fell right through the $26, dropping like a rock for two weeks straight. MACD suggests that the acceleration in the price drop of silver may have hit a peak already, but is not over yet. Based on this stochastic:

Silver will remain bearish until MACD returns to positive territory and begins a positive acceleration.

The RSI Momentum for Silver

RSI paints a less drastic picture, but remains bearish in looks. The silver hysteria kept the ETF’s RSI in overbought territory for most of April. In hindsight, this crash was inevitable! The kind of buying momentum propelling silver in April was nothing short of mass hysteria.

The picture will stay bearish until RSI heads into buying territory again, as there has been a complete 180 [degree turn] in the silver market which may take some time to dissipate.

SLV’s chart [above] contains some possible clues as to where (and maybe when) silver may settle. While the 10 day moving average has blown right through the 50-day moving average, the 200-day is slowly drifting upwards. The current selling pressure is as unsustainable as its parabolic rise in April.

If silver does drop all the way to the 200-day average (where it should find support from technical traders), SLV will bottom around $30 a share – assuming a smooth deceleration of the drop. This seems more likely than any other alternative.

[The "Bump and Run Pattern" of technical analysis in this article (8) recently suggested that $33 would be the low for silver while this article (9) by Martin Armstrong suggests that silver might go as low as $23.50 to $26.50 with a yearly support level of $28.]

Crude Oil

Fund: US Oil Fund (USO)

Oil has had an interesting year thus far. Mubarak, and later Gaddafi were big drivers in oil’s massive run earlier this year as well as fear of uranium issues. Bearish sentiment on the dollar has also had some impact on oil, as those looking to diversify their inflation hedges chose oil investments alongside the precious metals…

Energy enjoyed the spotlight for the months of February and March. The political uprisings in the Middle East have caused a newfound fear of oil supply shocks, and the Fukushima incident has caused immense amounts of skepticism of the viability of nuclear power. Due to all this and more, oil has increased tremendously in price. Overall, it has been stated many times this year that the oil supply and demand equilibrium never justified the incredibly high $112/bbl that we saw just a few weeks ago. With projections of increasing oil consumption, especially by the BRIC nations, is the current price hovering around $100/bbl going to stay? The short term remains hard to forecast with the volatility of the broader commodities market. This is where technical analysis can be useful.

The MACD Trend for Crude Oil

MACD analysis on USO shows a very strong acceleration in the fund’s downtrend. The initial acceleration enjoyed by oil bulls in March (from geopolitical unrest) seems to have finally corrected with the same level of volatility. This indicator points to:

Short and medium term declines for oil until it reverts to zero, similar to silver. The picture, at least for now, is bearish but the decline is unsustainable at this speed.

The RSI Momentum for Crude Oil

RSI indicates that:

Oil is in selling territory, and may remain so for a while as it looks like it may prod even deeper.

USO’s chart [above] shows just how dramatic the selling in oil assets has been. Based upon modern history, USO has always shown strong support at its 200-day moving average. We will see in the coming days whether this will hold true, as it will be a hard test based on the current momentum. The moving averages are all in decline, with the 10-day blowing through the 50-day in an abnormally steep decline.

If the 200-day moving average holds, the current drop will bottom out close to $37.50. If the price manages to fall through this floor it will likely cause technical traders to consider shorts in the position. With little else to base USO trades on for the time being, psychologically important price levels are crucial to determine direction.

Technicals look bearish on oil for the time being, but watch for a bottom. The selling simply can’t last forever.

Conclusion

Overall, Gold, Silver and Crude Oil show no signs of reversal yet. Those looking to establish commodity positions may want to sit on the sidelines a bit longer.

Links to Articles Referenced Above

1. What’s the Difference Between 1 Gold Karat, 1 Diamond Carat and 1 Troy Ounce? http://www.munknee.com/2011/03/whats-the-difference-between-1-gold-karat-1-diamond-carat-and-1-troy-ounce/
2. Yes, You Can Time the Market – Use These Trend Indicators http://www.munknee.com/2011/05/timing-the-market-using-trend-indicators/ 
3. Ride the Market Waves With These 6 Momentum Indicators http://www.munknee.com/2011/05/ride-the-market-waves-with-these-6-momentum-indicators/
4. Here’s How to Time the Market! http://www.munknee.com/2011/05/time-the-market-by-using-these-market-strength-and-volatility-indicators/
5. Goldrunner: “$52 to $56 Silver by Mid-year” Update http://www.munknee.com/2011/04/goldrunner-%e2%80%9c52-to-56-silver-by-mid-year%e2%80%9d-update/
6. Elliott Wave Analyst Suggests Silver to See $52.58 by Mid -June http://www.munknee.com/2011/05/elliott-wave-analyst-suggests-silver-to-see-52-58-by-mid-june/
7. Why Silver at $398.52 is a Realistic Parabolic Peak Price http://www.munknee.com/2011/05/silver/
8. “Three Peaks” Pattern Suggests Gold to Decline 17% into June! http://www.munknee.com/2011/05/%e2%80%9cthree-peaks%e2%80%9d-pattern-suggests-gold-to-decline-17-into-june/
9.  Martin Armstrong Asks: Will Silver Crash in 2011?  http://www.munknee.com/2011/05/martin-armstrong-asks-will-silver-crash-in-2011/

*http://seekingalpha.com/article/270525-what-s-in-store-for-gold-silver-and-oil?source=email_macro_view

Editor’s Note:

1. The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
2. Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

Technicals

It is hard to know what to buy or sell let alone just when to prudently do so. Thank goodness there are indicators available that provide information of stock and index movement of a more immediate nature to help you make such important decisions. This article describes the 6 most popular Momentum Indicators. If ever there was a “cut and save” investment advisory this is it!  Words: 1234

So says Lorimer Wilson (www.FinancialArticleSummariesToday.com) and editor of www.munKNEE.com. Please note that this paragraph must be included in any article reposting with a link* to the article source to avoid copyright infringement. Wilson goes on to say:

There are over 80 market indicators divided into 6 categories (trend, momentum, volatility, market strength, support/resistance and cycle). That being said some are very technical, some are infrequently used and some are more effective than others. The most popular indicators, and also available for use free at online charting service such as stockcharts.com and/or bigcharts.com, are those regarding:

• market trends (for a similar article on these indicators go here)
• market momentum and 
• market strength and volatility (go here for these indicators)

(Also, to even further understand the Patterns, Trends, Indicators and Formations of Technical Analysis read this article and for some insight into the merits of fundamental analysis go here.)

This article will deal with the 6 most popular Momentum Indicators as follows:

Momentum Indicators
At its most fundamental level, momentum is a means of assessing the relative levels of greed and fear in the market at any given point in time. Securities ebb and flow, surge and retreat, and such action is measured by oscillators which are powerful leading indicators of the security’s immediate direction and its speed.

Sign up for FREE weekly “Top 100 Stock Index, Asset Ratio & Economic Indicators in Review“

Oscillators are most useful and issue the most valid trading signals when their readings diverge from prices. A bullish divergence occurs when prices fall to a new low while an oscillator fails to reach a new low. This situation demonstrates that bears are losing power, and that the bulls are ready to control the market for the stock or index again and such divergence often marks the end of a downtrend. Bearish divergences signify up-trends, when prices rally to a new high while the oscillator refuses to reach a new peak. In this situation, bulls are losing their grip on the security, prices are rising only as a result of inertia, and the bears are ready to take control again.

The 6 Most Useful Momentum Indicators

1. Stochastic Oscillator (SO)
- compares a security’s closing price to its price range over a given period of time. The theory behind this indicator is that in an upward-trending market, prices tend to close near their high, and during a downward-trending market, prices tend to close near their low.

There are two components to the SO: the %K which is the main line indicating the number of time periods (usually 14), and the %D which is a three-period moving average of the %K. Buy/sell signals occur when the %K crosses above/below the %D. A %K result of 70 (or 30), for example, is interpreted to mean that the price of the security closed above 70% (or below 30%) of all prior closing prices that have occurred over the past 14 days and assumes that the security’s price will trade at the top (or at the bottom) of the range in a major uptrend (or downtrend). A move above 80 suggests that the security is overbought and therefore should be sold while a move below 20 suggests that the stock or index is oversold and, as such, is a buying signal.

The SO, which ignores market jolts, is an ideal companion to the MACD (See http://www.munknee.com/2010/07/timing-the-market-using-trend-indicators/) to provide an enhanced and more effective trading experience. Using the two together gives traders an opportunity to hold out for a better entry point on an up-trending security or to be more sure that any down-trend is truly reversing itself when bottom-fishing for long-term holds. However, on the downside, because the stock or index generally takes a longer time to line up in the best buying position, the actual trading of the security occurs less frequently, so you may need a larger basket of stocks to watch.

2. Relative Strength Index (RSI)
- compares the magnitude of recent gains in price to recent losses in an attempt to determine overbought and oversold conditions of a security.

The RSI, on a scale of 0-100, indicates that a stock is overbought when it is over 70 and oversold when it is below 30. Because large surges and drops in the price of a security will create false buy or sell signals the RSI works best when it is used in conjunction with short-term moving average crossovers such as the Stochastic Oscillator to confirm a directional shift.

3. StochRSI
- created by applying the Stochastic Oscillator to the Relative Strength Index values rather than standard price data thereby giving the trader a better idea of whether the current RSI value is overbought or oversold – a measure that becomes specifically useful when the RSI value is confined between its signal levels of 30 and 70.

4. TRIX
- displays the percent rate-of-change of a triple exponentially smoothed moving average of a security’s closing price and is designed to filter out stock movements that are insignificant to the larger trend of the security.

The user selects a number of periods (such as 15) with which to create the moving average, and those cycles that are shorter than that are filtered out. TRIX is also a leading indicator and can be used to anticipate turning points in a trend through its divergence with the security’s price.

5. Commodity Channel Index (CCI)
- an oscillator which quantifies the relationship between the security’s price, a moving average of the security’s price, and normal deviations from that average to determine when a security has been overbought or oversold.

The CCI, when used in conjunction with other oscillators, can be a valuable tool to identify potential peaks and valleys in the security’s price, and thus provide investors with reasonable evidence to estimate changes in the direction of price movement of the security.

6. Price Rate of Change (ROC)
- measures the percentage rate of change, indicating the strength of the momentum, between the most recent price and the price over “x” periods (the narrower the better) thereby identifying bullish or bearish divergences. As such, the ROC is able to forecasts sooner than almost any other indicator an upcoming reversal of a trend and whether or not a security’s price action is created by those over-buying or over-selling it. A number other than zero (a personal choice) can be used to indicate an increase in upward momentum and a number less than zero to indicate an increase in selling pressure.

Conclusion
There you have it – an extensive and in-depth assessment of how to evaluate buy/sell decisions for any security be it stocks, warrants, ETFs, gold, silver, etc.

If ever there was a “cut and save” investment advisory this article is it!

* Original Source: http://www.munknee.com/2011/05/ride-the-market-waves-with-these-6-momentum-indicators/

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
• Sign up to receive every article posted via Twitter, Facebook, RSS Feed or our FREE Weekly Newsletter.

Technical

Yes, you can time the market! Assessing the relative levels of greed and fear in the market at a given point in time is an effective way of doing so and this article outlines the 6 most popular momentum indicators and explains how, why and where they should be used. Words: 1113

So says Lorimer Wilson (www.FinancialArticleSummariesToday.com) and editor of www.munKNEE.com. Please note that this paragraph must be included in any article reposting with a link* to the article source to avoid copyright infringement. Wilson goes on to say:

Securities ebb and flow, surge and retreat, and such action is measured by oscillators which are powerful leading indicators of the security’s immediate direction and its speed and are most useful and issue the most valid trading signals when their readings diverge from prices.

A bullish divergence occurs when prices fall to a new low while an oscillator fails to reach a new low. This situation demonstrates that bears are losing power, and that the bulls are ready to control the market for the stock or index again and such divergence often marks the end of a downtrend.

Bearish divergences signify up-trends, when prices rally to a new high while the oscillator refuses to reach a new peak. In this situation, bulls are losing their grip on the security, prices are rising only as a result of inertia, and the bears are ready to take control again.

There are a number of different approaches to this concept, as follows:

1. Stochastic Oscillator (SO)
- is a momentum indicator that compares a security’s closing price to its price range over a given time.

The theory behind this indicator is that in an upward-trending market, prices tend to close near their high, and during a downward-trending market, prices tend to close near their low.

There are two components to the SO: the %K which is the main line indicating the number of time periods (usually 14), and the %D which is a three-period moving average of the %K. Buy/sell signals occur when the %K crosses above/below the %D.

A %K result of 70 (or 30), for example, is interpreted to mean that the price of the security closed above 70% (or below 30%) of all prior closing prices that have occurred over the past 14 days and assumes that the security’s price will trade at the top (or at the bottom) of the range in a major uptrend (or downtrend).

A move above 80 suggests that the security is overbought and therefore should be sold while a move below 20 suggests that the stock or index is oversold and, as such, is a buying signal.

The SO, which ignores market jolts, is an ideal companion to the MACD to provide an enhanced and more effective trading experience. Using the two together gives traders an opportunity to hold out for a better entry point on an up-trending security or to be more sure that any down-trend is truly reversing itself when bottom-fishing for long-term holds.

However, on the downside, because the stock or index generally takes a longer time to line up in the best buying position, the actual trading of the security occurs less frequently, so you may need a larger basket of stocks to watch.

2. Relative Strength Index (RSI)
- is a momentum indicator that compares the magnitude of recent gains in price to recent losses in an attempt to determine overbought and oversold conditions of a security.

The RSI, on a scale of 0-100, indicates that a stock is overbought when it is over 70 and oversold when it is below 30.

Because large surges and drops in the price of a security will create false buy or sell signals the RSI works best when it is used in conjunction with short-term moving average crossovers such as the Stochastic Oscillator to confirm a directional shift.

3. StochRSI
- is created by applying the Stochastic Oscillator to the Relative Strength Index values rather than standard price data thereby giving the trader a better idea of whether the current RSI value is overbought or oversold – a measure that becomes specifically useful when the RSI value is confined between its signal levels of 30 and 70.

4. TRIX
- is a momentum indicator that displays the percent rate-of-change of a triple exponentially smoothed moving average of a security’s closing price.

TRIX is designed to filter out stock movements that are insignificant to the larger trend of the security. The user selects a number of periods (such as 15) with which to create the moving average, and those cycles that are shorter than that are filtered out.

TRIX is also a leading indicator and can be used to anticipate turning points in a trend through its divergence with the security’s price.

5. Commodity Channel Index (CCI)
- is an oscillator which quantifies the relationship between the security’s price, a moving average of the security’s price, and normal deviations from that average to determine when a security has been overbought or oversold.

The CCI, when used in conjunction with other oscillators, can be a valuable tool to identify potential peaks and valleys in the security’s price, and thus provide investors with reasonable evidence to estimate changes in the direction of price movement of the security.

6. Price Rate of Change (ROC)
- measures the percentage rate of change, indicating the strength of the momentum, between the most recent price and the price over “x” periods (the narrower the better) thereby identifying bullish or bearish divergences.

The ROC is able to forecasts sooner than almost any other indicator an upcoming reversal of a trend and whether or not a security’s price action is created by those over-buying or over-selling it. A number other than zero (a personal choice) can be used to indicate an increase in upward momentum and a number less than zero to indicate an increase in selling pressure.

So there you have it – an extensive and in-depth assessment of how to evaluate the momentum impacting your securities of interest. The next time you analyze an asset you will be in a better position to determine which direction it is trending (see my article “Timing the Market Using Trend Indicators”), how strong the momentum is and how overbought/oversold and volatile the trading activity is (see my article ”Timing the Market Using Market Strength and Volatility Indicators”), and be better equipped to make astute decisions when to buy and when to sell – all this in a relatively easy, timely and profitable manner.

Never again will you have to rely totally on the ‘advise’ of your broker. With what happened last year to most portfolios it is imperative to do ones own analysis and be in a position to become better informed. If ever there was a “cut and save” investment advisory this article is it.