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…

Sep 292014
 
WLT 15 min Sept 29th

WLT 15 min Sept 29th

The WLT short-term Trade Setup posted on Friday has triggered an entry today on the pop above 2.30. I’ve added a couple of downtrend lines to this updated 15 minute chart, the first of which has served to act as resistance so far. Once/if we get a solid and sustained break above these intersecting resistances levels (the 2.30 horizontal resistance & the first downtrend line), prices will likely rip higher to at least the first target, which has been revised to the first of the 2.60 level OR the upper-most downtrend line.

Once again, this trade has the potential to morph into a longer-term trade, depending on how both WLT & the coal sector trades in the coming days/weeks. I’ve also added a second possible price target for this short-term trade at 3.20 (5 cents shy of the 3.25 resistance level). As of now my preferred target for this quick trade, assuming we get a breakout that sticks soon, remains T1 although that could be extended to T2 soon.

On a related note, BTU, another coal stock, has just broken above a similar 15 minute bullish falling wedge pattern earlier today & is currently backtesting the wedge from above.

Sep 252014
 

KOL (Market Vectors Coal ETF) will be added as an AGGRESSIVE Long Trade & Long-Term Trade idea here around the 17.24 level. I’ve pointed out this long-term basing pattern in KOL recently and I’ve been following several of the individual coal stocks with interest lately, as they are in what looks to be the final stages of being “puked-up” by frustrated longs throwing in the towel and finally writing many of these companies off for good. I am fully aware of the environmental issues the coal industry faces and even some of the unique aspects within the US coal industry (e.g.- cleaner burning Appalachian coal vs. the “dirtier” but cheaper sulfur-laden Illinois basin coal). Here’s a link to an informative overview of the US coal industry for those who might be interested in this “catch a falling knife” trade.

Fundamentals aside, the technical case for an aggressive long entry here for either a bounce trade or very likely, a bottom in the coal stocks can be made from these two charts below. The first chart is a weekly chart of the Dow Jones US Coal Index, showing what appears to be an Inverse Head & Shoulders Pattern in the making. Keep in mind there is still quite a bit of work to be done on this pattern, first & most importantly would be to see prices reverse very soon in order to finish putting in a right shoulder (i.e. – a move back up towards the neckline of the pattern), while keeping the symmetry of the pattern intact.

Also included below is the daily chart for KOL, showing that prices are approaching the bottom of the 15+ month basing pattern while extremely oversold. Buying this support with the appropriate stops below seems like a very objective entry although keep in mind that many of the individual coal stocks in a virtual death spiral, under extreme distribution and in such instances, it is not uncommon to see a substantial but relatively brief overshoot of support. As such, my preference taking a position here as a potential long-term/bottoming play would be to use a stop criterion of three consecutive weekly closes below the 17.00 level. That should allow enough time for any temporary, momentum driven overshoot of support to regain the bottom of the long-term basing pattern, assuming that this is indeed a selling climax in the coal sector.

 

 click here for the live, annotated weekly chart of $DJUSCL       click here for the live, annotated daily chart of KOL 

I also have a short list of my favorite individual names in the coal sector which I might also add as official trade ideas soon. That list includes CLD, OXF, YZC* (a Chinese coal stock), WLT, NRP, ACI, &  BTU. I can not stress enough the risk involved in buying any of these individual coal stocks as most are still in free-fall and the risk of bankruptcy on any of these names in the near future is certainly a possibility. With coal still being the cheapest energy source and a presidential election coming up (lost coal jobs = lost votes, hence, I would expect some pandering/support to the US coal industry from both parties in the very near future), my guess is that even if the coal industry is going the way of the prehistoric plants & animals that created it, the extinction of the US coal industry isn’t going to happen overnight.

On a final note, my preference for positioning into the individual coal stocks as potential bottoming or even just “oversold bounce” trades is to use a shotgun style, scale-in approach: buying very small lots in each of the individual names above over the next several weeks, only bringing my exposure to the sector to a “full position” once we get some fairly decent evidence of a trend reversal. As always, DYODD and only consider trades that align with your own risk tolerance, objectives & trading style.

Sep 242014
 

From the 10 year weekly chart of the US Dollar Index down to the 60 minute time frame on UUP (US Dollar Index ETF), it still looks as if a major trend reversal in the dollar is close at hand. However, as with gold & silver, a brief overshoot in order to clear the stops, suck in more shorts (Yen, Euro, etc..) and longs ($USD) lasting a few days to a couple of weeks is certainly a possibility. While a sustained break & continued move above this nearly decade long downtrend line/triangle pattern in the US Dollar index is also possible, there have only been three previous overbought readings (none of which were as extreme as the current 80+ reading) and all three preceded major trend reversals in the dollar. Once again, this can go either way so make sure to have a trading plan in place if trading dollar sensitive securities such as metals, miners or the currencies directly. A trading plan has both your expected profit targets if correct as well as your exit strategies (stops) if wrong.

Sep 232014
 

A breakdown below this 60 minute bearish rising wedge pattern in UUP would likely bring prices down to at least the 22.19 area. Each horizontal line marks a key support level & potential target. This chart also shows the very tight inverse correlation between gold (GLD) and the $USD (UUP) over the past several months. Therefore, a breakdown of this bearish rising wedge pattern in UUP will likely spark a rally in gold prices. Although any of these support levels are likely to be hit, my preferred near-term target at this time would be the top of that Sept 4th gap at 22.19. Also keep in mind that a case for a long-term top in the $USD was recently made here & here. Therefore, this 60 minute pattern certainly has the potential to morph into something more based on the weekly & monthly charts of the $USD.

Also note GLD has already broken out to the upside of this 60 minute bullish falling wedge pattern. However, the odds for a tradeable rally (and possibly more) in gold & the miners will rise considerably if/when UUP confirms via a breakdown of the rising wedge pattern.

Sep 222014
 

The first chart below is a 10-year weekly chart of GLD (gold ETF) showing illustrating the scenario that would have gold prices temporarily breaking below the mid & late 2013 lows before reversing. Such a move could serve as a powerful, stop-clearing, short-selling bear-trap, providing the necessary fuel to finally take out the three previous reaction highs put in over the last year or so. If this were to be the case, that might take GLD down to about the 110ish area, about 6% or so below current levels. Of course that is just one of many possibilities and I would continue to put nearly equal odds that gold reverses just shy of the 114.50ish double-bottom lows from last year. Zooming down to the 60 minute time frame, GLD continues to drift lower within this falling wedge pattern with bullish divergences still in place. The recent volume surge may indicate seller capitulation. A solid break & close above the wedge would an early sign of a possible trend reversal.

Sep 182014
 

Let’s take a look at the charts of gold from a top-down approach, starting with the weekly chart. As mentioned in some of the previous updates on gold, a solid weekly break & close below the long-term uptrend line on the weekly chart of $GOLD (spot gold prices) would likely open the door for a move down to test the mid & late 2013 lows in gold prices. With $GOLD closing slightly below that uptrend line last week and, barring a very sharp rally into the close tomorrow, it looks like $GOLD will print another weekly close below that key support level, hence, I remain open to the possibility of additional downside in gold before any meaningful reversal. I had also previously stated that because so many eyes are on that mid & late 2013 double bottom, that I wouldn’t be surprised to see gold either reverse just shy of that level or to break below that level (either intra-week or for up to a few weeks) in order to shake out the last of the weak hands via a bear trap/flush-out move before a lasting bottom is put in place in the shiny metal. Of course that is making the assumption that the bear market in gold that began in Sept 2011 has run its course and that it was just another cyclical bear market within a much larger secular bull market in gold that has more room to run. Only time will tell if that proves to be the case but one of the factors that keeps me in the longer-term bullish camp on gold at this time (other than fundamentals) is the fact that even if we do take out the mid/late 2013 double bottom lows, gold prices have a very, very long way to fall before negating (i.e.-undoing) the very powerful bullish divergences that would remain in place on both the weekly PPO (similar to the MACD) and the RSI, as well as several other long-term price & momentum indicators and oscillators.

$GOLD weekly Sept 18th

$GOLD weekly Sept 18th

 

Moving down to the daily time frame on GLD (Gold ETF),  a case can certainly be made that, at the very least, the chances for a short-term bounce in gold are quite elevated at this time. Although this chart only shows 2 1/2 years of price history, if you look back over a decade on a daily chart of GLD you will see that, without fail, every single time the RSI 14 moved below the 30 (oversold) level, Continue reading »

Sep 172014
 
GDX 15 minute Sept 17th

GDX 15 minute Sept 17th

After hitting the first target/resistance level shortly after breaking above the 15 minute bullish falling wedge pattern last week, GDX pulled back to make a marginal new low. Although we didn’t get the immediate upside follow-thru that I was expecting, a potentially bullish case can still be made on GDX as even larger bullish divergences were put in place on yesterday’s new lows. I’ve redrawn the wedge pattern (new uppermost downtrend line) and the divergences on this updated 15-minute chart (the old lines from last week’s chart are now yellow) and my thoughts are summed up in this reply to a question on that unofficial 15-minute GDX trade from last week. Typically, “unofficial” trade ideas are those where my confidence is not a high as it is with the official trade ideas (those assigned to the Trade Setups and/or Active Trades categories).

Q: Randy, You had recently posted a short term trade idea for GDX bounce, resulting from oversold conditions along with three potential targets. Normally I sell my positions when each target is hit but this is such a small time-frame that I am debating if I should hold till T3 or to sell the same way when it reach a target and buy back at the pullback. What do you think ?

A: Tough to say as there isn’t a “one-size-fits-all” answer to that question. It’s really a matter of personal preference (trading style) and you overall take on where GDX might be headed . Although I had thought GDX would have already hit the second or third targets on that recently posted 15 minute chart by now, the trade is still intact with GDX only making a slightly lower low since entry (about 2% below the posted entry level). With that marginal new low even more powerful positive divergences were formed so GDX still has some bullish potential at this point although this trade can still go either way.

The bottom line is this: The second target/resistance level that I posted on that 15 minute chart which comes in around 25.00 is at the bottom of a thin zone. Therefore, if prices can manage to punch above the 25.10ish level, then GDX will likely hit the 25.70ish 3rd & final near-term target from that chart. As far loss mitigation, a move below yesterday’s lows of 23.68 could spark some additional selling so a stop slightly below that level, say 26.60-26.65, would be prudent.

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