As the standout index (based on a percentage retracement off the March lows), the Nasdaq 100 is the most important one to focus on here. The weekly chart below reveals that it’s clawed back around 50% of its losses since late 2007.

Correction Coming

The late 2007 sell-off and subsequent rally looks like a classic 5-wave Elliott Wave Theory move, with the current rally perhaps being the fourth wave of a 5-wave downside move.

If that’s the case, the Nasdaq 100 shouldn’t close much above the trendline before the fifth wave to the downside begins. At this point, with all the indexes still bullish and under buy signals, we’ll have to wait and see how the Nasdaq 100 is acting if it gets close to the trendline, which is currently around the 1,710 area.

In any event, all the indexes are getting overbought and once the rally runs out of steam, which could happen this week, we should see a correction at least. And the way the correction unfolds will give us a better idea of what to expect over the next few months.

So with that in mind, we’ll focus on a relatively weak sector this week that could be shorted once the rally runs out of steam…

Oil Index Back Above Its 50-Week Moving Average… And Could Test The Top Of Its 10-Month Trading Range

If the stock indexes do succumb to the overbought conditions and reverse course sharply, we’ll probably hear that the recession may linger longer than expected.

If that’s the case, crude oil inventories will probably continue to rise, due to lack of demand. That would put pressure on the oil stocks. Take a look at the weekly chart of the AMEX Oil Index(AMEX: ^XOI).

Having topped out in May 2008, the index went on to give up about 55% of its value just four months later. Since reaching its lows in September, it’s climbed, but has underperformed the stock indexes, as it worked off the oversold conditions. You’ll notice that the latest move up has been unable to get above its January highs while the other stock indices continue to make new new recovery highs.

How To Play Oil’s Next Downside Move

While the stock indexes made new recovery highs in early June and then again last week, ^XOI was unable to follow suit. The chart looks to be in a bearish consolidation pattern and if that’s the case, a test or break of the lows is likely once the current rally runs its course.

The top of the consolidation pattern is around the 1,055 area and selling calls or buying puts would be a low-risk trade if it manages to get back up in that vicinity. However, if the stock indexes turn lower before that occurs, barring unforeseen problems in the oil market, it will probably continue to move lower.

In that case, the first support level is in the 845 area and then at 750, which is at the bottom of the consolidation pattern. A close below 750 would probably take it down to its next support level in the 650 area.

The two weakest-looking stocks within the $XOI are Valero Energy (NYSE: VLO) and Hess Corp (NYSE: HES).

Jim Stanton

Source: Oil Stocks Under Pressure…How to Play the Move

That prospect has kept the gold bugs banging the drum to buy the metal, with the television and radio cluttered with ads that tout the benefit of doing so.

Last week, Lou Basenese noted the numerous reasons why the price of gold should be moving higher – but countered with the reasons why the price has continued to languish around $935.

Today, I’m going to look at another important factor that drives gold prices…

The Dollar-Gold-Inflation Relationship

While the recent rash of government spending hasn’t propelled gold prices to new highs, it has contributed to a decline in U.S. dollar.

Having reached a hit 89.70 less than two months after President Obama took office, the Dollar Index has since pulled back to around the 80.00 level. It could easily be lower, but because it’s measured against a basket of other currencies, the price is relative.

For example, the euro makes up about 60% of the Dollar Index weighting, since there are 16 nations using Europe’s single currency. And because Europe is also battling fiscal problems, in addition to Japan and Britain (whose currencies are also weighed against the dollar), the greenback has held its ground.

Most of the time, a weaker dollar will cause gold prices to rise, while a stronger dollar usually sees gold decline.

Add in the prospect of inflation (or hyper-inflation) at some point and the scene is set for gold to potentially make new, all-time highs.

Except we’re not even close to that point yet. Inflation is nowhere to be found – as evidenced by the Consumer Price Index falling by 1.3% in the 12 months through May. That was the largest drop in 50 years.

So how do we play gold in the short-term?

Don’t Blindly Follow The Crowd Into Gold

The main reason why the gold market concerns me at the moment is that despite almost everyone being bullish, the metal hasn’t been able to set new highs.

The long side is crowded with bulls, just like the technology sector was back in 1999. And we all know how that turned out.

That said, the gold market is much different than the tech sector. I believe every investor should have some gold or another precious metal in his or her portfolio… but there’s a better way to do it than by simply buying it outright at the moment.

The easiest way to do so is by following this ratio…

Use The Gold/Silver Ratio To Make Your Gold And Silver Purchases

In the selloff that began in March 2008, gold prices fell about 34% from high to low. By contrast, silver prices fell 60%.

This relationship is important because by the time the market set lows in October 2008, the gold/silver ratio(how many ounces of silver it takes to buy an ounce of gold) was trading at 81:1 – an extremely high level.

A ratio of 80:1 is considered high, while and 40:1 is considered low.

From the October lows to the recent highs, the gold/silver ratio has corrected itself, with silver more than doubling (and making new recovery highs in June), while gold has risen just 49%. However, the ratio remains around 69:1.

Here’s how to use the gold/silver ratio to make savvy metals purchases…

How The Gold/Silver Ratio Works

Investors who always keep a percentage of their assets in precious metals should keep a close eye on the gold/silver ratio.

Having a “ratio” position is a strategy that you want to adhere to all the time because it’s such a dependable trade and carries less risk than just being long, or short on the metals.

It works by basically timing your gold and silver purchases according to the ratio. For example, when the ratio is relatively high (as it is now, at 69:1), we swap gold for silver. When the ratio is relatively low, we buy back into gold.

So right now, the 69:1 ratio is too high to buy gold. I’m looking to make my next swap from silver back into gold when the ratio drops to around 40:1.

Personally, each time I cycle through a complete swap – gold to silver and back to gold again – I increase the value of the trade and hold more ounces of gold or silver than I started with.

Go The ETF Route With The Gold/Silver Ratio

If you don’t always have a percentage of your portfolio in precious metals, you can simply play the “ratio” using the SPDR Gold Shares (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV).

When the ratio is high, you can short GLD while buying SLV, using the same dollar amount for both positions. When the ratio approaches 40:1, just reverse the positions.

Source: Use This Reliable Ratio To Time Your Gold And Silver Purchases

But the renewed interest in ethanol proved to be short-lived, as oil retreated below $20 a barrel just four months later. As a result, many of those smaller ethanol companies couldn’t survive as profitable alternative energy investments.

Flash forward to today, where we’ve seen crude oil prices double in just the past four months. Worldwide oil demand has soared, particularly from fast-growing countries like China and India, and although the global downturn has seen the pace of demand slow, when the global economy gets back on track, it should prove even more bullish for oil.

But there’s another sector that should rise, too…

Rising Oil Prices Spark Interest In Alternative Energy

With oil prices rising again recently, it’s sparked yet another conversation about the viability of certain alternative energies.

One ETF that tracks the performance of clean energy firms is the PowerShares WilderHill Clean Energy (NYSE: PBW) – a widely traded vehicle that gives you exposure to this still-growing sector in a safer way than investing in individual companies.

While firms like Exxon Mobil (NYSE: XOM) rake in billions of dollars per quarter from oil, PBW invests almost entirely in experimental, technology-focused “green” companies. And while these guys stand to benefit from higher oil prices just like specific oil companies, their success depends more on regulatory changes, subsidies and a global recognition of the need for alternative energy solutions.

The Alternative Energy Market Gets More Attention

When it comes to the alternative energy market, wind power, solar, hydroelectric, geothermal and nuclear power have all received attention over the past couple of years.

But when the oil market first began its march towards record high prices, it was the ethanol industry that took center stage and triggered the wider debate over cleaner energy resources.

However, the ethanol market faces a battle. Despite the government’s intervention and subsidies for the industry, newer technologies are needed in order to make ethanol more viable – and the industry’s companies profitable. A good example is Pacific Ethanol (Nasdaq: PEIX) – a company that Bill Gates invested in heavily a few years ago, paying $12 a share. Today, the stock trades for just $0.40.

Below is a daily chart of PowerShares WilderHill Clean Energy (NYSE: PBW), which is currently at a critical juncture:

Chart: http://www.investmentu.com/images/iu063009chart.gif

Three Scenarios for the Clean Energy Fund

As you can see, when the stock market bottomed out in March and oil prices retested their lows, PBW’s Clean Energy Fund did the same.

Since then, however, PBW has doubled off those lows to the June 10 high of $11.37. This is right around the swing high of $11.40 that it tested back in November, before it pulled back to the trendline drawn off the March lows.

In addition, the 50-day and 200-day moving averages are very close to crossing one another – a development that sometimes indicates a short-term top.

So what we have here is a relatively clear-cut conclusion…

• A close above $11.40 would be bullish and should lead to higher prices.
• However, a close below the trendline, currently around $10, would be bearish over the short-term.
• A close or two below the 50-day and 200-day moving averages, which are currently around $9.50, could lead to a move down to $8 or lower.

Source: Alternative Energy Investments: Three Scenarios For Clean Energy

With its subsidiaries, UniFirst designs and manufactures workplace uniforms and protective work wear clothing.

With quarterly earnings due out before the opening bell on Wednesday, let’s see how the stock is trading up to the announcement…

As the stock rebounded off the March lows, it gave a daily buy signal, but has yet to reach its minimum upside target around $40.90 and possibly as high as $41.85.

Importantly, the 50-day moving average has crossed above the 200-day moving average, which is normally a bullish sign.

Having reached a high of about $39.60 a week ago, the stock has pulled back to test the 50-day moving average over the past few days. From here, shares could move up, but the earnings announcement adds some uncertainty into the mix.

If Earnings Are Worse Than Expected: In this case, the stock could drop down to test the $32-33 area, which it did back in early June. At this point, it would set up a great, low-risk buying opportunity.

If Earnings Are Better Than Expected: We could see a rapid-fire move up to around $41.

Jim Stanton

Source: Ticker of the Week: UniFirst Corp (NYSE: UNF)

But the renewed interest in ethanol proved to be short-lived, as oil retreated back below $20 a barrel just four months later. As a result, many of those smaller ethanol companies within the alternative energy market couldn’t survive.

Flash forward to today, where we’ve seen crude oil prices double in just the past four months. Worldwide oil demand has soared, particularly from fast-growing countries like China and India, and although the global downturn has seen the pace of demand slow, the global economy gets back on track, it should prove even more bullish for oil.

But there’s another sector that should rise, too…

Viable Alternative Energies: The Clean Energy Tracker

With oil prices rising again recently, it’s sparked yet another conversation about the viability of certain alternative energies.

One ETF that tracks the performance of clean energy firms is the PowerShares WilderHill Clean Energy(NYSE: PBW) – a widely traded vehicle that gives you exposure to this still-growing sector in a safer way than investing in individual companies.

While firms like Exxon Mobil (NYSE: XOM) rake in billions of dollars per quarter from oil, PBW invests almost entirely in experimental, technology-focused “green” companies. And while these guys stand to benefit from higher oil prices just like specific oil companies, their success depends more on regulatory changes, subsidies and a global recognition of the need for alternative energy solutions.

The Government Is Helping… But This Industry Still Faces A Battle

When it comes to the alternative energy market, wind, solar, hydroelectric, geothermal, and nuclear power have all received attention over the past couple of years.

But when the oil market first began its march towards record high prices, it was the ethanol industry that took center stage and triggered the wider debate over cleaner energy resources.

However, the ethanol market faces a battle. Despite the government’s intervention and subsidies for the industry, newer technologies are needed in order to make ethanol more viable – and the industry’s companies profitable. A good example is Pacific Ethanol (NASDAQ: PEIX) – a company that Bill Gates invested heavily in a few years ago, paying $12 a share. Today, the stock trades for just 40 cents.

Below is a daily chart of PowerShares WilderHill Clean Energy (NYSE: PBW), which is currently at a critical juncture.

Three Scenarios For The Clean Energy Fund

As you can see, when the stock market bottomed out in March and oil prices retested their lows, PBW did the same.

Since then, however, PBW has doubled off those lows to the June 10 high of $11.37. This is right around the swing high of $11.40 that it tested back in November before it pulled back to the trendline drawn off the March lows.

In addition, the 50-day and 200-day moving averages are very close to crossing one another – a development that sometimes indicates a short-term top.

So what we have here is a relatively clear-cut conclusion…

• A close above $11.40 would be bullish and should lead to higher prices.

• However, a close below the trendline, currently around $10, would be bearish over the short-term.

• A close or two below the 50-day and 200-day moving averages, which are currently around $9.50, could lead to a move down to $8 or lower.

Source: The Alternative Energy Market: Bullish & Bearish Scenarios For NYSE: PBW

The company released lower than expected earnings last week and the stock has lost some ground as a result. However, it hasn’t violated the consolidation pattern that’s it’s traded in since late March.

Subscribers to my 1-2-3 Trader service originally bought COST at $45 and some May calls on April 20. We took profits of 33% and 74% on the calls, but still own the stock.

As you can see, COST has solid support around the $45 area and if the stock tests that level again, it would represent another good buying opportunity for more calls.

If it doesn’t come back down to support, aggressive traders could buy the stock or some calls above the support level.

I expect the stock to reach at least the $50.50 area, possibly as high as $51.30, once it makes new highs.

Jim Stanton

Source: Ticker Of The Week: Costco (Nasdaq: COST)

I mentioned that when the markets are healthy and moving higher, the Nasdaq 100 usually leads the way in both points and percentage ratio. If you recall, the spread had retraced exactly 62% (Fibonacci retracement number) of the selloff from August 2008 until December 2008.

From high to low, the spread fell about 80 points this week before rebounding over the past two days. The high on the spread (the Nasdaq 100 minus the S&P 500) was about 530 points – and for the indexes to turn bullish again, the spread should trade above 530.

Since the spread action can be a leading market indicator, what about the best leading indicator for the Nasdaq?

There are a couple that I use, but the one that has a bigger influence on the Nasdaq indexes is Semiconductor Index – and I use the ETF that represents it.

So take a look at the daily chart of the Semiconductor HOLDRs (NYSE: SMH)

As you can see, SMH has closed above its 200-day moving average a few times, but has since reversed and closed below its uptrend line last Friday.

It has also broken below its uptrend channel, drawn off the March lows. The stock looks like it’s still headed lower, at least over the short-term, with the next support around $18.40.

Always keep an eye on SMH as it could help in making your trading decisions.

Jim Stanton

Source: Ticker Of The Week: Semiconductor HOLDRs (NYSE: SMH)

When a stock is this strong, it will usually not pull back to the normal Fibonacci ratios of 38% to 62% because there are buyers waiting just under the market (of course, that’s assuming that the stock indexes don’t fall apart).

The stock has gained over 30% since March and is overbought. Whatever the short-term high turns out to be, I’d be looking to buy it on a 23% to 38% retracement. Those numbers are currently sitting at $77.40 and then $74.20, respectively.

A 50% retracement is unlikely, but it’s possible if we see a serious market selloff. From today’s high, that would be around $71.65.

Source: Ticker Of The Week: Alliant Techsystems (NYSE:ATK)

Take the S&P, which posted its previous high on April 17. So far, this is the longest the index has traded below a swing high since the rally began.

For weeks, I’ve been saying that we needed to see at least a four-day pullback in order to qualify as a “2-Wave” pullback. And aside from the Nasdaq indexes, which have remained stronger than the rest, both the large and small indexes have stayed below that April 17 high long enough to qualify as a “Wave-2″ pullback.

Now don’t go thinking that without a doubt, the indexes will head higher right away. That’s a possibility, especially since the Nasdaqs already have, but even if they do, the minimum upside price target on the S&P 500 is around 894.

As these indexes are now approaching areas where their weekly charts could give buy signals, there is good news out there…

You might be surprised at some of them, but there are a number of stocks still locked in “Wave-1″ of at least a three and possibly even a five-wave move to the upside. One of those stocks just happens to be American Express (NYSE: AXP). 

 AXP has rallied just about 150% since early March, and it still appears to be in that first wave higher.

If you’re going to take this particular opportunity, wait until after the inevitable profit-taking or correction sets in before buying it for at least a move above the “Wave-1″ highs.

At current levels, support on AXP comes in around $21.75 and then again at $19.45. Of course though, if the indexes undergo a sharp decline, a 50% retracement could take it down to the $17.60 area.

Jim Stanton

Source: Ticker Of The Week: American Express (NYSE: AXP)

This week, we’re going to focus on the S&P 500 (GSPC), which has traded below its November lows and bottomed out at 667 points on March 6.

By trading below 670, the index reached an intermediate-term downside price objective and set up a daily buy signal. Earlier in the week, that buy signal got triggered, meaning that there is now an 82% chance that the S&P 500 will trace out at least a three-wave Elliott move (possibly increasing to five waves) to the upside. As you can see on the chart below, we’re still in Wave 1.

Although the S&P 500 may move higher over the near-term, keep in mind that the index has risen sharply over the past few weeks and is due for a pullback soon. This would be Wave 2 of a three-wave move.

A normal Fibonacci retracement would come in between 38% and 50% of Wave 1. However, in a very bullish market, it may only pullback 25% to 30% before reversing back up.

Either way, when the current rally runs out of steam (which may have been yesterday), look for the index to see at least four days of price action below the Wave 1 high before new highs are possible.

In Elliot wave terms, if we’re only in a three-wave move up, this would be called an A-B-C rally, which is just a corrective move within the the downtrend.

However, if we’re seeing the start a five-wave rally, the S&P would have to close above the January highs. If you want to play a move at least above the highs of Wave 1, you can buy on the first decent pullback.

Source: Ticker Of The Week: S&P 500 (GSPC)