Gold & Commodities

The Gold & Commodities category is a sub-section of General Market Analysis that includes charts and commentary associated with precious & industrial metals such as gold, silver, and copper as well as various commodities such as oil, gas, wheat, corn, etc…

Oct 202014
 
IWM 120 min Oct 20th

IWM 120 min Oct 20th

I left town for the weekend on Friday & just returned last night and plan to post some updated market commentary as soon as I review the charts. I received several email questions & comments since Friday, along with a couple of donations as well a testimonial (thank you), all of which I plan to reply to as soon as I get my bearings. In looking at the 120-minute chart of the IWM that was posted before I left town, I noticed that the first suggested stop for the IWM short trade was incorrectly listed as 11.10 instead of 111.10 and that typos has been corrected on this updated 120 minute chart. The $RUT continues to struggle around that 1080-1082ish resistance level so far and remains solidly entrenched in an intermediate-term downtrend along with just about all major US & international equity indices.

The triple-bottom in gold (mid & late 2012 lows along with the recent Oct 3rd low) certainly has the potential to be the final low in a 15-month bottoming process but until we take out the July 10th reaction high & especially the March 14th high, it is just too early to say with a high degree of confidence that a new bull market is likely underway in gold although that continues to be my read on the charts. I remain longer-term bullish on silver as well and believe that move over the 18.00 level in SLV (silver etf), which was the former key support, now resistance level, is likely to viewed as a bear-trap with the potential to trigger a short-covering rally & new wave of buyers on both the metal & the related mining stocks.

US coal stocks continue to exhibit was could prove to be the early stages of a lasting reversal or at the very least, a tradeable bounce. However, the coal stocks have been under intense selling pressure & remain very aggressive, counter-trend trades at this time. With that being said, some of the more promising candidates are WLT, BTU, OXF, ANR, CLD, NRP, & ACI.  KOL (Market Vectors Coal ETF) provides another, more diversified option to gaining exposure to the coal industry with both domestic & foreign companies.

Select agricultural commodity ETFs such as WEAT, CORN & SOYB continue to look promising as longer-term trade ideas although the success of those trades will likely to be determined in large part by the next major direction in the $USD, which so far has peaked earlier this month.

Oct 162014
 
WLT 60 min Oct 16th

WLT 60 min Oct 16th

The WLT (Walter Energy Inc) aggressive Long Trade Setup that was posted yesterday went on to break out above the 60 minute bullish falling wedge pattern (triggering an entry) and just hit the first target, T1 at 1.99, for a very quick 10% profit. T2 at 2.59 is my preferred target at this time but as always, consider booking partial or full profits and/or raising your stops, depending on your own unique trading plan. Updated 60 minute chart of WLT (another coal stock):

Oct 152014
 

Wash. Rinse. Repeat. WLT (Walter Energy Inc) will once again be added as an aggressive Long Trade Setup on a break above this 60 minute bullish falling wedge pattern. T2 (2.59) is the current preferred target at this time with a final target (T3) at 4.17. Stops will be determined upon entry.  As with the previous WLT long trade, Walter Energy, along with several other US Coal stocks, has the potential to morph into a long-term term trade or bottoming play. However, we just don’t have enough technical evidence at this time to make that case with a high degree of confidence although I have been observing some recent bullish price action in other coal stocks, such as ANR (also shown on the 60 minute time frame below, as this stock has recently broken above this descending price channel & will also offer an objective long entry once the 2.04 resistance level is clearly taken out). Target levels are marked but the suggested sell prices will follow.

 

On a related note, I wanted to clarify or really expand on my previous comments about hedging against short positions. For weeks now I have made a case for a reversal in the $USD and a bullish case for select commodities including gold/gold mining stocks, wheat, corn, soybeans and select US coal companies. I continue to believe that these are some of the most promising trade ideas heading into the 4th quarter & likely well into 2015 and as such, although they are not considered typical hedges against short positions in US equities, they very well could prove to be if things play out that way (dollar down, commodities up). That has certainly been the case recently with precious metals and those commodities (and commodity producers) exhibiting very strong relative strength against equities. In this sense, I am running a quasi-hedged portfolio or at least a long/short portfolio, since it is not directly hedged via equity index futures, call options or bullish ETFs against my short positions.

Oct 082014
 

The SPY found support on at the Oct 2nd reaction low with relatively minor bullish divergences in place on this 60 minute chart. As of now, the bearish case & near-term downtrend in the US equity markets remains solidly intact despite this post-FOMC minutes driven rally. The release of FOMC minutes often causes sharp market reactions which are more often than not reversed shortly thereafter. As has been widely expected, the Fed has begun to “jawbone” down the $USD in today’s release of the FOMC minutes and the impact on commodities & the mining stocks has been very direct & impulsive so far with GDX blasting above this 60 minute downtrend line in addition to the late Dec 2013 previous lows. While it is probably best to let the dust settle before making any major changes to positioning today, everything I see still points to the dual-theme that I’m positioning for into year-end & likely well into 2015: Equities down, commodities up.

Quite a corner the Fed has boxed themselves into here: Let the dollar keep soaring and the economy will eventually start to suffer from the effects of a strong dollar -or-  Put the brakes on the dollar & commodities will start to rise, thereby rearing the ugly head of inflation, which of course, will force their hand in raising rates… (which will also stifle economic growth).

Oct 082014
 

A quick look a some of my favorite agricultural commodities, along with updated price targets. The scope and duration of any rally in the commodity sector will likely be commensurate (and dependent) on a reversal in the US dollar index.

Oct 062014
 

It looks like commercial traders (i.e.- the “smart” money) are also looking for an imminent reversal in the nearly parabolic rise in the US Dollar. Over the weekend, a couple of fellow traders had forwarded this article from McClellan Financial Publications which discusses the extreme high net short interest amongst commercial traders. As Tom McClellan states, although often early (like I believe that I have been on the most recent long positioning in gold, miners & select commodities) the commercial traders are almost always proved correct when positioning for major reversals.

Please keep in mind that nothing in trading is 100% and parabolic moves can often last longer than most expect (or can afford, if positioning in advance of the reversal). Therefore, any bets against the $USD or long dollar sensitive securities such as gold & commodities, should be considered aggressive, counter-trend trades at this time. Aggressive/anticipatory traders might continue to use a scale-in strategy to gold, silver, & the related mining stocks as well as select commodities while more conventional or risk-averse traders or investors might opt to wait for decent technical evidence of a likely trend reversal before establishing a position into dollar sensitive securities.

click here to read Commercials Betting On Big Dollar Downturn by Tom McClellan

Oct 032014
 

I’ve recently discussed the strong (inverse) correlation between the US Dollar and gold prices along with my thoughts that both gold & the dollar are likely to reverse course soon. In the previous update showing the $USD (US Dollar Index) 20-year monthly chart, I had stated that next solid monthly close above or below the large symmetrical triangle pattern would most likely determine the next major direction in gold. As of the close on Tuesday (Sept month end), the $USD did print a solid close above the triangle pattern, certainly a bullish technical event on face value. Although I continue to hold off on adding any exposure to gold or the mining sector, I have yet to throw in the towel at this point either.

There are a few reasons for not writing off gold at this time nor jumping on board the crowded “bullish $USD” bus just yet. First of all, as of today, despite the recent breakout in the $USD, gold (GLD) has just fallen to test the mid & late 2013 lows, thereby completing the triple-bottom scenario that I’ve been discussing as a possibility for many months now. I also continue to remain open to the possibility of a brief washout break below those previous lows before a lasting bottom is finally hammered out in gold but again, I’m just not confident enough to add any more exposure to the metals or miners until I see some decent technical evidence of a reversal in gold (and silver) prices.

Another reason that I have not yet jumped on the bullish dollar bandwagon, despite the recent breakout above the long-term downtrend line in the dollar index is two-fold. First, the $USD has significant horizontal resistance just overhead to contend with. The monthly $USD chart below is an EOD (end-of-day) chart and has yet to reflect today’s sharp rally in the dollar but the UUP (Dollar Index Tracking ETF) weekly chart below does a fairly decent job of tracking the index and shows today’s move pushing into the resistance zone. Finally, the $USD Index is simply a sum of its parts. In fact, although the $USD is comprised of a basket of six currencies, the top two largest components account for over 70% of the performance of the index: The Euro at a very top-heavy 57.6% weighting, followed by the Japanese Yen at a 13.6% weighting. Therefore, where the Euro & Yen are heading will most certainly determine the future path of the US Dollar Index.

 

The chart below is a 10 year weekly chart of the $XEU (Phily Euro Index). What stands out to me on this chart is the fact that the $XEU is only about 2 1/2% above a major multi-year uptrend support line which defines the bottom of a large triangle pattern. Not only are prices just above a major support level but the $XEU is also at rarely (if ever) seen oversold levels on the weekly RSI. Although admittedly we have a small sampling of such readings reference, previous such readings Continue reading »

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