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 232014
 
GDX 60 minute Oct 23rd

GDX 60 minute Oct 23rd

GDX (Gold Miners ETF) managed to claw its way into positive territory today (trading up as much a 1.3% at the highs today) to close up 0.59% after being down nearly 2% earlier today. One day does not make a trend but it could be an early start to a game of catch-up following the recently move higher in gold prices.

This is a 60 minute chart showing some near-term resistance levels which could also be used as price targets for a quick trade although my preference would be to see GDX take out the 22.00 resistance level (first horizontal line on this chart) as well as making sure that gold prices hold up (i.e.- don’t start moving much lower). GDX recently broke above a bullish falling wedge/slightly contracting descending channel, followed by a backtest of the channel with prices recent making a marginal new low while extending the positive divergences that were in place on both the MACD & RSI. Again, best to wait to see prices clear that 22ish resistance level before establishing or adding to any long position in GDX but if/when that level is taken out, the odds would favor a relative quick move up to the 23.75 level, about an 8% gain.

Oct 222014
 

I was recently asked my thoughts on the triple-bottom in gold/GLD last week, to which I replied: On the gold triple bottom, there isn’t really much to say other than so far, so good. I haven’t commented on it much lately because my focus has been on the broad market & nothing much has changed on my outlook for gold (I still believe a case can be made that gold is bottoming and so far, nothing technically has negated that). I still own the PM stocks that I started scaling into a bit too early this last time around and although I haven’t been adding for a while, I may start to add some more exposure if the current strength in gold continues. I have been meaning to update gold, silver & the miners but I’m leaving town for the weekend today so that might have to wait until early next week.

To add to the fact that so far, gold is exhibiting bullish price action lately by bouncing off the mid & late 2013 lows, it is also worth noting that much of the recent rise in gold prices is largely attributed to the decline in the US dollar. As recently discussed, the longer-term bullish case in gold hinges largely on my expectation Continue reading »

Oct 222014
 

I’ve been making the case for a potential bottom in the US coal sector recently, including several of my top picks in the sector (and three active trades: WLT & ANR, both of which continue to look very bullish near-term as well as potential longer-term bottoming plays, and the etf- KOL). As the technical case for a potential bottom in coal has already recently been made, this 10-year weekly chart makes the case not only for a bottom in crude oil as well but also highlights the tight correlation between crude oil & coal, which typically move in sync with each other including major tops & bottoms.

As this 10-year chart of USO highlights, every single oversold reading over the past decade (and likely beyond) has either accompanied or slightly preceded a major bottom in crude oil prices. Currently we have the first oversold reading (<30 on the weekly RSI 14) since mid-2012 (which coincided with the start of a 36% bull market market in USO that peaked in Sept 2013). As I always say, oversold can always become “more oversold” but at the very least this chart helps make the case that the current bear market in oil (and coal) is more than likely in the final stages, if not already finished. It should also be noted that USO has currently fallen to the top of this multi-year support zone which has contained prices since the financial crisis ended.

Remember, this is a case for a potential bottom in the energy sector, namely coal & oil. By most metrics, these commodities are still solidly entrenched in a downtrend & therefore, any trades at this time should still be considered aggressive, counter-trend trades. My preferred strategy for establishing a longer-term position in the coal sector is to use a scale-in strategy (buying very small lots over time as long as a bullish technical case can be made) using a shot-gun approach (spreading out my exposure to the sector amongst various coal mining stocks with the most compelling charts). With coal prices in a prolonged & severe bear market, the possibility of one or more bankruptcy filings or dividend cuts (which will most likely cause the stock to drop sharply) among my top picks in the coal sector is a very real possibility in the foreseeable future. Therefore, the shotgun approach and/or the use of KOL (coal ETF) as a proxy to gain exposure to the sector is the best way to mitigate risk (along with appropriate stops based off of your average cost basis on each position). As always, DYODD (do your own due diligence) and only consider trades that align with your own trading style & risk tolerance.

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).

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