There are several markets making headlines recently that I like on a longer-term basis, and I am looking for corrections in the S&P 500, gold and crude oil as buying opportunities into year-end.

S&P 500

We’ve had subprime lending woes putting a damper on the market for several months. Citigroup was the latest casualty, announcing the possible write-down of up to $11 billion in risky assets on Monday, November 5. News from the financial sector is just dragging this market down. If these subprime issues can work themselves out, I see a seasonal rally coming into Thanksgiving and a renewed rally to the 1580 – 1620 range possible over the next month or two.

Before looking at any market, I like to see the big picture in a monthly chart, then drill down to a daily, 60-minute, 15-minute and then 5-minute chart to look for possible trading strategies. Going back on the monthly chart of the S&P, you can see a large bull market from 1998 to 2000, when saw the technology bubble meltdown. Essentially, we’ve been in a bullish trend since.

The December S&P contract tested 1494 on November 5, and I see that area as key to watch for support. On October 24, the market tested 1495. The 200-day moving average is at about 1490.25, another key long-term support area. I’d recommend buying near the areas of 1492- 1498 to enter long positions on ideas the market will cycle back up. You want to buy corrections in a bull run, and that’s what I see this is. Be aggressive with your stops; you can use a stop-close only below 1490.

The 50 percent Fibonacci retracement of the subprime flushout comes in at 1479, another level to watch for support. Watch for another indicator, the moving average convergence/divergence (MACD) to turn back up after we see a flushout. While history doesn’t always repeat, keep in mind that seasonally, the stock market tends to rally in the last month of the year.

Gold

December gold climbed $12.60 to $823.40 an ounce as the dollar fell and crude oil surged. Gold’s chart is similar to the S&P, but we’ve seen some resilience in this market. Gold has been making higher highs, which is bullish within an up-and-down trading pattern. Some analysts have been targeting an upside of $850 for gold, and I’m looking at open interest in futures and options to see where participants think the market might be headed.

December options expire on November 27, and short interest in the 850 calls is at more than 13,000 contracts. I see the options writers wanting to keep the price in check so these options expire worthless, so gold may test this level, but I don’t see the contract month closing above it before expiration. I see a move up toward the $850 area possible, but then a decline. In futures, open interest is at historical levels. According the latest Commitments of Traders Report, combined speculative and fund positions showed 266,000 net longs - that’s just massive. The funds tend to get out first, and I believe that once they start selling, the commercials will follow. The small speculators are usually last to get out and will get hurt the most. I think we’ll see this lead to a correction before another bullish trend can resume. If you are long gold, consider taking profits on some of your position, and work stop-loss orders to protect profits in your core position.

Crude Oil

Nymex December crude oil rose to all-time intra-day high of $97.10 a barrel on Tuesday, November 6, closing at $96.70 a barrel. New lows for the dollar and supply disruptions in the North Sea helped the contract rally. Concerns over global supply also weighed in on the price.

The next big fundamental driver that I think could spark another big move in crude oil will be the release of the inventory numbers on Wednesday, November 7. If we see crude sell off, it might be a good opportunity to get long at that point. Watch for a violation of key support at $90, and watch for a crossover in the MACD. We need two negative days to see the bears wrestle control. One of the momentum indicators I follow, stochastics, shows overbought conditions right now. While not giving an outright sell signal, it warrants caution.

As I stated in the beginning of this article, I am long-term bullish and want to buy dips, but be cognizant of your indicators and watch for signs a short-term top is in. Pick your spot wisely.

Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com if you would like to discuss this strategy or others.

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