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What Will December Look Like for Stocks and Gold?


2012 is looking none too good, but there may be some last-ditch hope in a Christmas rally.

Thus far in 2011, the overall stock market movement has been much different from what we had in 2010. This year we have seen nothing but sideways to lower prices with wild price swings on a day-to-day basis. There just have not been any really solid trends to take advantage of this year.

Instead we had to actively trade the oversold dips and sell into the overbought rallies to just pull money out of the market on a monthly basis. Last year we saw three major rallies that lasted several months, making it easy for anyone who bought into the trend to make money if managed properly.

Looking forward to 2012, it looks as though we are going to see some major changes unfold globally that will change the way we live our lives. Unfortunately it's a very negative outlook, but I do have hope that something will be done to preserve our somewhat normal lifestyles. I'm not one to talk doom and gloom. There are enough of those guys out there already, so let's stick with the charts and focus on what is unfolding now in the present and how to take advantage of it.

The charts below show what I feel is likely to happen going into the new year if we don't get any major headline news in Europe that triggers another sell-off.

Intermarket Analysis
There are a lot of different things unfolding within stocks, commodities, currencies, and bonds right now. And it is important to know that investments are interconnected in some way -- if one investment moves sharply in one direction, it will have an effect on other investment classes.

My eye is focused on the US Dollar Index, which has recently had a strong run-up in price. For the past couple of years, we have seen stocks fall when the dollar moves up. With the dollar index now trading at a key resistance level, we should see the dollar top out for a few weeks and spark a Christmas rally into year-end. After that, all bets are off and we re-analyze.

On the flop side of things, if Europe comes out with major negative headline news, we could see the dollar index continue its rally and break through this resistance level. If the dollar moves higher from here, we could easily see a multimonth run-up in the dollar. You do not want to be long stocks if this happens; get short stocks and hold on tight.

Gold Daily Chart Analysis:
Here is my positive outlook for gold and what I feel is likely to unfold near term. But keep in mind what I just said about the US Dollar Index above. If the dollar continues its rally and breaks out, it could actually put some pressure on gold. I know gold is a safe haven, so I do expect it to hold up, but a strong dollar will neutralize a lot of the buying in gold in my opinion.

Click to enlarge

S&P 500 Daily Charts
Stocks should have a solid bounce this December if the dollar finds resistance and pulls back in the coming weeks. I am expecting a bounce of 5% to 10% if all goes as planned.

Click to enlarge

Christmas Holiday Rally Trading Conclusion
In short, we are entering a tough time to trade the market. Volatility is low, there are a few holidays, and typically we see volume thin out as December unfolds. Light volume generally favors higher prices for stocks and commodities, which is one of the reasons we get the holiday lift in prices.

The recent sell-off in stocks is looking overdone to the down side and ready to bounce any day. So I am looking for signals to get long the S&P 500. Overall risk remains very high as sellers are still in control of the market and because we are looking to put on a trade against the intermediate trend, which is down.

On Friday morning, I and my followers exited our short position on the S&P 500 at the open, locking in 13.5% profit. We exited the position because the intraday charts are showing signs of a potential bottom, and we want to avoid the tear-your-face-off short covering rally that I feel is just around the corner. Now we are waiting for a another low risk setup and will take action to go long or short, depending on how things unfold in Europe.

Editor's Note: Chris Vermeulen offers more content at his site,

No positions in stocks mentioned.

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