From the desk of Steve Strazza @Sstrazza

Thank you to everyone who responded to this week’s mystery chart.

We had a lot of "do nothing" responses this week, many of which were caveated with the fact that the structural trend is lower, thus anticipating an eventual breakdown but waiting for more data to come in to confirm it first.

We also had a number of responses with conviction to buy the test of support and plenty of others who wanted to sell into it or "look to get short." The majority took a neutral approach, preferring to see how prices react at this key level of interest before choosing a directional bias.

I think that is the most prudent thing to do in this situation as well, so with that as our backdrop let’s take a look at this week’s chart.

The near-term issues we're seeing in the broader market make this an interesting environment.

On the one hand, there's reason for caution as breadth and momentum concerns weigh on the leaders and major indices but on the other hand, there are still plenty of opportunities for those with short-term time horizons and those with longer-term ones. Our primary intermediate-term timeframe is where things get messy.

With that said, let's take a look at two stocks we discussed during our Members-Only Conference Call earlier this week as they test key levels with mixed results.

From the desk of Tom Bruni @BruniCharting

We've been fading gold since September for a variety of reasons, but primarily due to the overwhelming amount of selling being done by Commercial Hedgers.

While many of those conditions still exist our risk management for this thesis has always been Gold closing above 1,600.

This week we're getting that, so let's take a look at what's next and how we're taking advantage of it. 

From the desk of Tom Bruni @BruniCharting

This post is a follow-on to this week's "Chart of The Week" which covers the recent breakout in Gold.

Here we'll take a macro look at the Precious Metals space, update our thesis, and outline the best ways to take advantage of it.

Despite our cautious outlook for Equities, there's one stock setting up for a potential short squeeze...and the skewed reward/risk has gotten our attention.

Let's take a look.

We've been outlining our thesis for weakness in Indian Equities for over a month now, but that was a tactical call within the context of bullish longer-term picture.

Unfortunately, with the last week or two of action, we've seen an expansion of stocks participating to the downside which suggests this near-term weakness could continue for the rest of the fourth quarter. Rather than the weakest stocks catching up to the leaders, the leaders are now catching down to the weakest names.

Let's take a look.

Jeff Hirsch is the Author of the Annual Stock Trader's Almanac. He, and before that his father Yale Hirsch, has been publishing the must-read almanac every year since 1967. This year is the 53rd edition of the Almanac and a lot of the smartest traders I know keep the most recent copy on their desk. I personally have issues I've kept going back decades. When it comes to Seasonality, whether it's the 1-year cycle, Presidential cycle, or even intra-month and intra-week cycles, Jeff is the person I turn to first. The month of January brings along a ton of information we can use to help us make decisions in the stock market the rest of the year. The track record is pretty spectacular, as we discuss in this episode. Today, Jeff uses these seasonal trends to help him in his role as Chief Strategist at Probabilities Fund Management. In this episode of the podcast we...

We've been outlining our thesis for a choppy environment in stocks both in India and globally for several weeks now and evidence continues to build that the market agrees with us.

With weakness in the broader market, sectors and individual stocks that have not participated remain at risk to lead to the downside.

Today we're looking at the Auto sector, which looks vulnerable to a swift 10% move to the downside if support at its multi-month lows breaks.

It's been a while since we've had a conversation about new all-time lows for stocks. But this week we saw the Regional Bank Index Fund close at new all-time relative lows. This is the lowest they've ever been.

What's fascinating is how this is happening just as the Financials Index Fund is attempting to break out to new all-time highs, finally exceeding their 2007 peak before the financial crisis.

Here in this chart you can see the $XLF trying to finally get through those 2007 highs for the first time ever. But Regional Banks are not confirming these new highs. Neither is Momentum or Relative Strength.

Over the past month, Bonds are up a bunch as the collapse in Interest Rates has resumed. We jumped on board this bond trade last month and so far it's working.

Meanwhile, a majority of U.S. stocks are actually down over the past month. While the S&P500, Dow Industrials and Nasdaq100 have gone on to make new highs, the NYSE Advance-Decline line (stocks only) did not, Small-caps did not, Dow Transports did not, and a majority of individual stocks did not. It's only a minority of names doing the work, particularly large-cap stocks and some higher dividend paying areas like REITs and Utilities.

When you run the numbers, most stocks in the U.S. are down over the past month, with negative average and median returns for the Russell3000 components. It's the bonds that are up and I think they're just getting started.

Today's chart focuses on the Intermarket Relationships we lean on to supplement our absolute price analysis. With rates rolling over again, are stocks and commodities...

As you guys know, we've had a much more defensive approach to the stock market over the past few weeks, especially compared to how bullish we had been for so long. There is a time to be big and aggressive and a time to be small and cash heavy. I believe we're currently in the latter of those two categories.

Here's the clip in full:

From the desk of Steve Strazza @Sstrazza

Thank you to everyone who responded to this week’s mystery chart.

There was a nice diversity of responses. Many said they were anticipating a break of the support line and would get short against that level while others were buyers as long as prices held above it. But the majority took a neutral approach, preferring to wait for the current range to resolve before having a directional bias.

A sound argument could be made for any of these answers in my opinion, so with that as our backdrop let’s take a look at this week’s chart.