, Investing Strategies

Bounce!

September 23, 2016 / by TradeSmith Research Team

It’s pretty incredible watching the psychology of the markets isn’t it?

Two weeks ago, on September 9th, the S&P 500 dropped two and a half percent in a day. The Dow was down nearly 400 points on that day. Everyone thought the sky was falling.

The markets continued to test the lows of that drop for the following week. On September 16, when I had to publish my weekly Friday market observations, I wrote Halloween is coming … but not yet … and I said that we’re more likely to see a bounce than a crash.

I was very nervous about publishing that article. Today, a week later, we’re back near all-time highs … and I think that we’re very likely to get them.

In fact, there have been several strong bounces across the markets and sectors that I follow. Let’s take a look at a few of them.

When I wrote to you last week, the S&P 500 was sitting right on top of its volume-at-price (VAP) support as well as strong SSI Trend support. That’s what lead me to forecast a bounce in the markets … in spite of my emotional fears of impending doom.

As of yesterday’s close, support has prevailed and my emotional concerns have once again been proven to be premature. Here’s the updated VAP chart:

The rising SSI Trend also provided strong support for the bounce this week. The chart below shows the current state of the SSI system on the S&P 500 along with an extra indicator showing that the number of open contracts in the futures is steadily increasing.

Increasing open interest means that there is more participation and engagement in the S&P 500 markets … which is generally a bullish sign.

We’ve also seen a strong bounce this week in GDX, the ETF that tracks the larger precious metals miners. Prior to this week’s bounce, the gold miners had fallen about 20%. That seems like a lot … until you remember that the VQ on GDX is 36.7%.

GDX didn’t even make it into the SSI Yellow / Low Risk zone before bouncing off of strong SSI Trend and VAP support this week.

Here’s the VAP chart for GDX. The current support around $24.50 has held and GDX has moved higher.

Out of all the stocks in GDX, there were 4 that corrected as far as their Low Risk Zones and made strong moves back into the SSI Green Zone this week – ABX, AU, GG and KGC. Here’s the chart for ABX:

If you’re looking for good entry points on some individual gold stocks, these 4 candidates are worth a look.

Finally, we have China.

My good friend (and trusted analyst) Dr. Steve Sjuggerud has been pounding the table about some unique opportunities he has uncovered in China. Just last month I alerted my Lifetime members about recent strength in FXI, the iShares China Large-Cap fund.

The latest VAP chart on FXI shows the continued strength and upside follow through in FXI after breaking out of its VAP congestion area around $35.

The SSI chart on FXI shows the recent strength and strong support as well. If FXI breaks out above $39, there’s not much keeping it from testing its 2015 highs in the $50 range.