There’s been tremendous fear all week from traders and investors as they dumped their long positions in stocks and commodities. On Wednesday and Thursday alone we experienced extreme overbought and oversold conditions, and that generally means a big move is brewing.
Fear (panic selling) has very distinct characteristics when looking at the intraday charts and we are seeing those price and volume patterns forming now. When waves of buying and panic selling start to take place back to back, I prepare for a trading setup which should form within a couple of trading sessions.
Fear is a much more powerful force in the market and once extreme levels are reached, we typically tend to see continued selling for one to three more days afterwards. This is the reason I tend to scale into oversold market conditions as I can potentially enter at lower prices within the next couple of sessions to build a position with a reduced cost basis.
Panic selling, coupled with oversold NYSE market conditions and fearful options trading investors make for an extreme reading in stock prices. Here’s a look at my SPDR S&P 500 ETF (NYSE: SPY) chart:
GLD 10 Minute Chart of My Market Sentiment Readings
Sentiment readings often carry over into the precious metals sector and can be used as a gauge also for tightening stops, adding to long positions, etc. Check out this chart of the SPDR Gold ETF(NYSE: GLD):
Market Trading Update
I feel the market is at a major tipping point along with the U.S. Dollar. It is just a matter of time before we get another low-risk setup and take a position for the next move in either direction.
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