The Ord Oracle - 7/8/2009

Welcome to “Weird Wally Wednesday” (in honor of Don Wolanchuk who first pointed this time frame out).  Weird Wally Wednesday is the Wednesday before option expiration week and on this day and the next couple of days, the market has know to do unusually moves.  Therefore expect the unexpected from today into the first day of option expiration week.   From our experience is one of the most unreliable periods for success for short term trading.   Moving on to the SPY, we have expected another hump on the Right Shoulder to make this pattern symmetric to the two hump left shoulder.  There is no “Law” that says that the second hump of the Right Shoulder has to form but there are probabilities that is should.  An ideal time for a bounce to start is now (the second chart in this report will show why).   There is a gap between 7/1 to 7/2 near 91 on the SPY the there is a chance the market could rally back to that area and finish the Right Shoulder and complete second hump and complete the H&D.  If and when the SPY rallies back to the gap level near 91 we would like to see the Volume drop at least 10% on the gap test to show that the gap has resistance.  In other words, we would like to see the Volume drop to 191 million shares or less on the SPY on the test the gap level as that would add to the bearish picture.  If the gap is tested on 10% lighter volume that would be the best time to add to short positions.  Again there is no “Law” that the market will rally one more time to make the second hump of this Right Shoulder.  The daily and weekly Momentum indicators have turned down and we expect this decline to last into August.     This H&D has a downside target near 82 and a 50% retracement of the rally from the March low would give a target to the 81 level.  We have another down side target near 74 that is also a possibility.  We will see how the pull back unfolds in the weeks to come.    We are short the SPX at 883.92.
 

The chart below is courtesy www.sentimentrader.com.  We mentioned in the first paragraph there is a chance that the market could start a bounce now.  This chart above is a host of short term indicators and when they become oversold at the same time then this chart will reach to an oversold area and the chances for a bounce increase.  Since today is Weird Wally Wednesday and you should expect the unexpected then this would be a good time for a bounce to start.  If the bounce does start, watch the gap level near 91 for a low volume test.  
 

The chart below is courtesy of www.ETFinvestmentoutlook.com.  You are probably getting tired of looking at this chart but this chart says it all.  The GDX McClellan Summation index is moving down which implies most stocks in GDX is moving down and therefore the trend remains down for now.  We are very bullish on the gold stocks for longer term and are expecting all gold stock sectors (GDX, XAU, HUI, XGD.TO) to hit new highs later this year or early next year.  A few weeks ago the McClellan Summation index gave a sell signal by crossing the 20 EMA and remains on a sell signal to date.   In general we expect the GDX to move lower. A possible area where support and a bottom may form is near the 30 range on GDX.   We will see what happens if and when GDX gets there.  We are expecting GDX to follow the SPX to the downside and both indexes to bottom together.   A possible low may form in GDX around August and possibly as late as September.   Physical Gold may hold up well and we will hold our position in GLD.