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 team is out with a couple bullish pieces on the metals sector this week. This chart in Gold, in particular has my attention:

This looks like an upside move I want to play.

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.

From the desk of Steve Strazza @Sstrazza

New Mystery Chart!

For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!

We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.

You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?

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.

Feels to me the stock market is at one of those inflection points. Personally, I'm finding it difficult to find trades that I'm willing to bet too aggressively long here. But on the flip side, I'm not willing to get aggressively short here either. In situations like this, the best move is often to patiently wait for the market to tip her hand. Problem is, we all know waiting is the hardest part (cue Tom Petty).

Of course, there are strategies options traders can employ profitably when the expected move is a sideways chop fest. And the best way to line the odds of profitability more in our favor is to find situations where a sideways grind has already begun to take shape and it is coupled with higher than average volatility being priced into the options. When selling premium, this gives us some nice cushion to absorb some moves.

I've found just such a situation for us to take advantage of.