Crude oil

Last Friday crude oil hit new record. Early morning was $147.27 a barrel and closed the week at $145.08.

Crude Oil Futures

S&P 500

As long as crude oil is rising, I don’t look too much for gains on indexes. Since last time I was analyzing S&P 500, index broke the support near 1270 and last week definitely confirmed further movement down. I will wait more time for some strength’s signals on the index, before putting my money there.

S&P 500

Gold

Gold continues to behave as I expected. On Friday, gold touched the resistance – half of black marubozu from March. It is very likely that now, there would be small downward movement before breaking this resistance. Then I expect to find it at least near $1000 an ounce. Of course I treat gold as a long term investment and further actions depends on market situation.

Gold Futures

In my last post I presented why I have bearish approach to the stock market. This situation encouraged me, to look for other possibilities where to invest money. One of the assets, that look very promising for me, is gold.

In June, gold futures gained more than 4% and nearly 11% in first half of the year. In my opinion it is a very nice result. However it is obvious that we won’t take any actions until we take a look at the chart.

After strong gains in first quarter of year, a correction took place. At 1st May we had a minimum, which is still possible to be tested. However currently SMA15, SMA 30 and SMA 50 start to go up. The maximum from 22nd May is broken and now we are about peak from 17th April (near 950). Today’s session shows that gold probably has to make a small downward movement and then will attack this level again.

Currently I keep a small package of gold certificates (they are available on Warsaw Stock Exchange) which I bought few days ago at 902. Breaking 950 will be a good signal for me to put more money into gold. For sure I will keep watching gold and post about it regularly as long as it looks attractive.

Gold will continue to attract increasing monetary demand and the result will be a much higher price,” said Peter Spina, an analyst at GoldSeek.com. “Sub-$1,000 gold days are drawing to a close [and] by the end of this year, I would find it difficult to explain a sub-$1,000 gold price.

WIG (pol. Warszawski Indeks Giełdowy, which is main index on Warsaw Stock Exchange) and S&P 500 are two indexes that I constantly monitor while trading stocks. As you may not know, currently I trade only on Warsaw Stock Exchange, but watching S&P 500 is very important, because most times WIG behave very similar to S&P 500.

Recently, I closed all my positions on stocks taking some serious losses. I didn’t have enough time to watch daily all stocks I picked and react when it was necessary. When the trend is not clear or even worse when trend is opposite to your position, ‘buy and keep’ strategy is definitely not an option. It wasn’t easy to take such a serious loss, but now I know that I saved my money from further losses.

Let’s take a look at both indexes and see how they look like from technical point of view. I don’t want to go too much into details, only basic and simple overview.

S&P 500 with SMA 100. Starting in second half of 2006 SMA100 is going up indicating uptrend. In October SMA 100 is flat. Index reached maximum and from there SMA started to slowly go down. It was the beginning of downtrend. As you can see, SMA still moves down.

Now we take a closer look in shorter perspective. There is a strong support near 1270 points, which worked well in past three times. Last days this support stops more losses. Now, the movement in upward direction is very likely, however resistance in half of black marubozu from Thursday is important. Breaking this resistance would be a nice signal to continue upward movement.

As you can see, it is very possible that there would be short-term upward movement on S&P 500. However the situation on WIG is a little different.

First, short look at WIG with SMA 100. Looks similar to S&P 500. What is interesting, that WIG reached own maximum in July, before S&P 500.

In shorter perspective situation is worse than on S&P500. WIG broke the level of minimum from January. The support didn’t work; therefore further movement in downward direction is possible.

Now it would be very interesting to watch both indexes and compare their behavior, but until there are strong signals for upward movement, I’m mostly away from the market. Right now I keep almost all my money on saving accounts and I invest in…

…this is the subject for another post.

I have already presented some basics how to use moving averages and how to calculate them. Today, I want to show you that we can also use this technique to look for resistances and supports.

Wasting time is not the way to go, so let’s take a look at some examples:

S&P500 - SMA15 supports multiple times.

S&P500 - SMA30 supports sometimes together with SMA15, sometimes after price breaking SMA15

NIKKEI - SMA 50 - Acts both as a strong support during May and June 2007 and resistance since December 2007

Dow Jones Industrial (Candlestick chart) - SMA30 - works not only with closing prices but also with lowest prices.

As you can see, moving averages as a supports and resistances are quite good to use when analyzing indexes. In general, this technique works better on shares with higher volume. Why? When there are more transactions and more experienced investors, it is difficult to artificially make a strong price fluctuation that would cross moving average. Moreover, there are more investors who also use this technique. They are looking for similar places as a supports and resistances and they are placing orders based on this.

It is very interesting what price we should take for such analysis. Usually, I take closing price as it is most important price. But very often the lowest or highest price during day touches certain moving average and since then the price continues movement in opposite direction. This you can see very often on candlestick charts. You shouldn’t also expect that price will always precisely touch moving average. Stock market is not a pharmacy.

Which moving averages to use? I prefer 10, 20 or 15 for short term; 30, 45, 50 for average term and 100, 200 for long term analyzing.

Remember, you shouldn’t use only one tool for investing. Support it with something else. In this case, it is very good practice to look also for candlesticks that signal a new direction of price movement.