Mar 082013
 

I was asked my thoughts on copper tonight so I figured that I’d share my opinion here, as copper has historically been considered one the most important leading indicators for the health of the global economy.  My reply below:$copper daily

Both scenarios presented.  Tough call but trying to be as neutral/unbiased as possible, I would give the edge to the recent price action (bull trap) which is bearish over the historically reliable oversold buy signal.  Keep in mind that oversold as a buy signal will typically work during a bull market, as we’ve had since early ’09.  One day, just like overbought gets more overbought in a bull market, we are going to start seeing oversold become even more oversold or stay oversold for longer than expected.  That will be one of the first signals that the bear has emerged from hibernation.  Too early to say that time has come yet but I’ll be watching copper and the gold stocks closely here for some possible early signs of this as both are currently at rarely seen oversold levels that have historically accompanied lasting bottoms.

Mar 082013
 

CVU 60 minCVU was a recently completed long trade that was good for a 13.3% gain when the first target was hit on Feb 1st.  The stock pretty much stopped cold at that resistance level where it consolidated before a big gap and crap move lower just a few days later.  I’ve been keeping an eye on it since and it seems to be coiling near the apex of this falling wedge pattern on the 60 minute chart.  As this is a volatile stock and one under heavy distribution at that, this would be considered an aggressive trade and best to consider a smaller than usual position size.  The first and only target at this time is T1 (9.25) which is about 8.3% above current levels.  Assuming the stock breaks out soon, around 8.60 today or maybe 8.55 on Monday due to the steep downtrend line, a stop below 8.40 would give this trade a downside of about 0.15-0.20 and an upside potential of 0.65-0.70 or slightly better than a 3:1 R/R.  Based on my interpretation of the charts, I would expect this trade to play out rather quickly (1-5 days), assuming that it is successful.

One final note.  Regardless what happens today, I would not consider entering a position in CVU until at least next week.  Late day breakouts, particularly on a Friday, are often prone to fail.  Plus, I typically try to avoid entering short-term trades on a Friday with the additional overnight risk associated with the markets being closed over the weekend.  Therefore, I wanted to share the setup in advance so those interest have time to review the charts but I will not consider this trade active until/unless a breakout is triggered after today.

Mar 082013
 

NM daily 4NM has hit the first target of 4.30 for a 13.2% gain from entry.  Although I have my concerns about a pending pullback in the broad markets, this chart still looks constructive at this time.  Remember, I have been setting the prices targets below the expected reversal areas as to help assure a fill so NM could easily push a little higher to the resistance level shown on the chart (4.40ish area).  Given the short-term extended nature of the stock, I’d say the odds favor a pullback soon but if NM can clearly take out that resistance level, it will have entered a very thin zone (as shown on the volume at price histogram) which could bring the stock to the 2nd and final target rather quickly.  For those wishing to hold any or all of their position, a suggested stop level is hard to advise as the next decent support level is all the way down around the 4.00 area.  I will keep this trade as active for now but might decide to close it early depending on how things look next week.

Mar 082013
 

Google seach preceding 3-8-12In the perpetual cycle of the masses buying toward market tops and capitulating toward market bottoms, I often think of the old Wall Street adage; “It’s always darkest before the dawn” which refers to the fact that market bottoms come when the news regarding the fundamentals and the outlook for the markets and economy is horrible yet the deterioration looks almost certain to continue going forward.  I’m sure there is a good corollary to that statement out there somewhere which essentially says that things are looking great at a market top and just about all forecasts and trends point to things only getting better from there… or something along those lines.  With that, I leave you with these two Google searches using the same keywords, the first one limited to headlines over the last month and the next one limited to headlines over the month preceding the market top on May 2, 2011, just before the 5 month & nearly 22% plunge in the index.

 

Google search preceding 5-2-11 market topKeep in mind, being contrarian just for the sake of being contrarian will usually cost you money, either in the form of missed out gains from sitting on the sidelines and missing out on a rally (or shorting a correction) or even worse, from fighting a trend that there is little technical or other substantial supporting evidence to support your case.  In other words, you can’t just go shorting the market every time things look good or buy the market when the fundamentals look ugly.  However, when it comes to choosing between fundamentals (which I view as dated information, almost always fully priced into the market or a stock by the time you or I hear or read about it) vs. technicals (charts), I will side with the charts nearly every time.

Mar 082013
 

For those in either the MAKO or NM long trades, be aware that they are both rapidly approaching their first target levels with NM up about 11.6% & MAKO up about 12.7% from entry.  I am aware that I’ve been overly cautious on the long-side lately (too bearish) but the fact that the market continues crawl higher while ignoring numerous red flags and recently triggered longer-term sell signals (that can take weeks to begin to play out) does not make me any less cautious.  Putting aside all the bullish cheerleading recently as the DOW (the single most insignificant and least representative yet most widely followed of all indices, at least by the mainstream media) has made new highs, I continue to believe that the R/R for being positioned heavily long or un-hedged at this time is very poor.  That does not mean that the market can’t or won’t continue to move higher…it just means that the “amount” of reward for the “risk” you are taking to achieve it is not favorable.  The best way to explain this is that I would put the odds at very good that within the next few weeks, quite likely by the end of next week, the market drops sharply enough to wipe out the last several weeks or more of gains in just days, quite possibly even most of 2013’s gains in just weeks.  My next pullback target is 1475 on the $SPX, which would take us back to just above the Jan 10th highs and it would not surprise me to see that level hit by the end of this month.

I know bearish prognostications are being ridiculed lately and that’s fine.  I’m not advising anyone to short the market with both fists (nor do I ever give advice, just my opinion on things). I just wanted to share that my current plan is to book partial and possibly full profits on my positions in MAKO and NM if they hit T1 (and possibly sooner if I see something in the market that convinces me to exit before then).  Trading is all about positioning to maximize the differential between the amount of risk (potential loss) that you take to achieve an expected reward (potential gains).  If you find yourself buying when it feels comfortable to buy & it looks like the market will go up for ever and selling your positions for a loss just when things couldn’t seem to look worse, you are repeating the cycle that is common amongst the retail investor/trader (buying high and selling low).  Right now, being long just seems too easy and I plan to update some of the warning signs as to why caution should be exercised on the long side at this point.

Mar 082013
 

SSRI is a silver mining stock that, along with the previous posted gold stock setups, appears to be setting up in a bullish pattern on the 60 minute chart after making a very overextended plunge to key support on the weekly time frames.  The reason for this common theme of focusing on mining stocks that have fallen to support on the weekly frames is that I still see numerous stocks in the sector that are still a bit shy of their key weekly support levels.  It has been my experience that key support levels (or resistance) often act as a magnet to prices once a stock on index gets close enough to that level.  This is one of the reasons that I am open to a scenario of one last thrust down to new lows in the sector over the coming weeks/months before a more lasting bottom is put in place.  That may or may not happen & hence the reason for adding some gold & silver stock setups at this time with the preference on those that have already fallen to a well defined weekly support level.  SSRI 60 minute & weekly charts: