Nov 072014

As mentioned the other day, gold stocks (GDX & the $HUI) have recently fallen to their prior 2008 reaction lows, a level (or more accurately, a range vs. the exact lows) which is likely to act as key support. Not only do we have gold stocks trading down to those previous decade+ lows but more importantly, we have potentially bullish developments from both a technical & fundamental perspective.

From a technical view, barring some crazy reversal into the close today, GDX will have printed a nice weekly hammer candlestick right off the bottom of a fully mature Descending Broadening Wedge bottoming pattern. The miners (GDX & $HUI) also have strong bullish divergences in place on numerous price & momentum indicators & oscillators, such as the weekly PPO & RSI as shown below.


From a fundamental perspective, there are two bullish conditions that stand out to me: 1) Gold prices are about 60% HIGHER today than they were when the gold mining sector was trading at the same levels today as it was back at the lows in 2008. 2) It is also worth noting that energy prices (as measured by USO, the crude oil ETF) are trading about 30% BELOW where they were when the mining sector bottomed back in 2008. Energy costs are one of the largest expenses to the mining sector so with their cost to extract gold from the ground considerably lower than back in 2008 AND the price that they receive for gold much higher today than it was back then, the miners are starting to look very attractive from valuation perspective as well as technically (charting).

Of course, rising gold prices or at the very least, a leveling off in gold prices soon would really help build the case for a lasting bottom in the gold stocks. My primary scenario at this time remains a wash-out move in gold which will be confirmed if/when GLD can make a solid & sustained move back above the 115. Such a move would likely spark a short-covering rally in both gold & the mining stocks as well as attract some new buyers. The dollar remains a big variable in this equation but so far, I have not seen anything in the charts that dampens my view for a likely reversal in the dollar from at or near current levels.

Nov 052014
ANR 60 min Nov 5th

ANR 60 min Nov 5th

The ANR (Alpha Natural Resources) Active Long Trade is approaching the first profit target (T1 at 2.46), coming within just one cent of that level so far today. Due to the recent bullish developments in the coal sector, I am going to make T2 (2.99) the official next target with the potential for additional targets to be added, should evidence of a bottom in the coal sector continue to build. The high volume surge into and following the recent lows (viewed on the daily chart) are indicative of a selling climax in ANR but as always, the odds of a reaction around the initial tag of each target level is increased. Therefore, consider booking partial or full profits and/or raising stops, according to your trading plan, if/when T1 is hit.

Nov 052014
WLT 60 min Nov 5th

WLT 60 min Nov 5th

WLT (Walter Energy Inc) has hit the second price target, T2 at 2.59, for a 43% gain in just 3 weeks since entry. T2 was originally my preferred target although T3 (4.17) was listed as, and still remains, the final target on this trade at this time. A reaction (pullback and/or consolidation) would be expected around the T2 resistance area (2.65ish) but over time, WLT still has a good shot of reaching the T3 level and still has the potential to morph into a much longer-term swing trade/investment.

Other than the recent bullish technical developments highlighted on the coal sector and several of the individual coal companies, coal stocks are exhibiting very strong relative strength against crude oil lately (the two tend to move in sync) with many US coal stocks moving higher despite crude oil recently trading at multi-year lows. It is still to early to say with a high degree of certainty that the coal stocks have bottomed but the recent price action that comes on the heels of an absolutely brutal bear market, might be an indication that the coals stock are just plain sold out (i.e.- may have reached the point of seller exhaustion).

Nov 032014

Market commentary continues to be on the light side as not much has changed since last week. Although the recent bounce in some of the US stock indices has dampened the longer-term bearish case, it has yet to eliminate it. These first three charts below are weekly charts of large caps (S&P 500 Index), MidCaps (S&P 400 MidCap Index) and Small Cap stocks (Russell 2000 Small Cap Index). Essentially, the large cap stocks have moved slightly above their primary bull market uptrend line while making a (so far) feeble attempt at new highs while both the Small & Mid Caps remain below their previous highs. Small caps (both the $RUT & the S&P 600 Small Cap Index) are currently backtesting their bull market uptrend lines from below while the Mid Caps were already rejected once on their first attempt to backtest from below & remain well below their bull market uptrend line at this time. It is also worth noting that the 20-day EMA on the S&P 500 is currently trading above the 50-day EMA for the first time since the pair triggered an intermediate-term sell signal with a bearish crossover back on Oct 8th. Although such trend indicators shouldn’t be used as exact or stand-alone buy & sell signals, should the 20-day close above the 50-day today and continue to trade above it going into the end of the week, that would further dampen the longer-term bearish case.

As mentioned last week, my former alternative scenario on gold became my primary scenario when gold prices dropped below the triple-bottom defined by the mid & late 2012 and early Oct 2014 lows. This current scenario was discussed in the past as a temporary break below that key support level which (assuming prices make a sustained reversal soon) would serve as a final flush-out move in gold prices, shaking out the last of the weak-handed longs and sucking in some new short sellers, which would be forced to cover, should this move prove to be a bear-trap. How long & how much further gold prices drop before reversing, assuming this scenario does pan out, is hard to say but most likely a few days to a few weeks. Adding long exposure to gold here while trading below that key triple-bottom support (now resistance) would be very aggressive & highly speculative. For longer-term traders & investors, the most prudent entry or add-on to any gold or gold mining stocks would come on a solid move back above the 114.50ish resistance level (former triple-bottom) on GLD.

Following the daily chart of GLD below are the charts of the three agricultural commodities that I’ve been highlight for the past several months, Corn, Wheat & Soybeans (etf symbols: CORN, WEAT, & SOYB). These commodities have been continually moving higher despite the US dollar breaking out to recent highs lately, a very bullish sign IMO. I continue to remain longer-term bullish on these (but not all) ag commodities as well as the select coal stocks (another commodity sector moving higher lately despite the strength in the dollar).

The bottom line is that I remain longer-term bearish US equities while bullish select commodities, including gold, silver & the mining sector. However, the recent sharp rally in equities followed by Friday’s break of key support in gold has put me on the sidelines for now as the near-term outlook has become somewhat obscure. I will continue to sit tight waiting for some decent evidence of a bearish reversal in stocks as well as waiting for a bullish reversal in gold (back above the former triple-bottom support) before adding any new exposure (short equities or long metals/miners).

Oct 312014

I’ve received a few questions since yesterday which I plan to reply to as soon a I get caught up on the charts. With the markets not very conducive to trading lately, I had taken the day off & I don’t plan to trade today either. With that being said, we have some market moving news today with the Bank Of Japan unexpectedly announcing additional stimulus measures. I recent commented on the Yen along with the Euro as those two currencies make up the bulk of the US Dollar index. Here’s a quick look at two variations of the Yen via the USD/JPY (US Dollar/Yen pair) along with a 10-year weekly chart of the $XJY (Philadelphia Japanese Yen Index).


Gold & gold mining stocks are trading lower due to the effect the falling yen has on the dollar (yen down=dollar up, dollar up=gold down). As of today, GLD has gapped down below the well-watched mid & late 2013 lows which now moves up my former alternative scenario of a temporary flush-out move below that support level, as my new primary scenario. More on gold & the gold stocks later.

I was also asked if I though that this overnight move by the BOJ could turn out to be a major bull trap in equities & if it is, my thoughts on adding back exposure to the recently stopped out IWM trade.  My reply: The market reaction to the BOJ’s move could very well prove to be fleeting. I took the day off yesterday and plan to catch up on the charts today so I’ll try to get back to you asap on my thoughts. Glancing at the USD/JPY currency pair, I can see that it just popped slightly above the 2008 former high which is bullish (for the dollar, bearish for the yen) but it’s too early to say if that breakout will stick. There are also some significant divergences on the price & momentum indicators & oscillators for that pair when viewed on the weekly chart which increases the odds of a reversal soon (dollar down, yen up). However, like your plan, I would only add back a short position following a reversal of today’s pop on the RUT, maybe even wait to see the last couple of day’s gains wiped out in an impulsive manner before adding back short exposure.

Oct 292014
WLT 60 min Oct 29th

WLT 60 min Oct 29th

WLT is scheduled to report earnings tomorrow before the open. With this trade up 34% since the entry just two weeks ago & close to the 2nd target, those long might consider whether to hold through earnings or book early profits in order to risk a possible gap against your position. T3 remains the final target for now although additional targets may be added. So far the case for a lasting bottom in WLT & several other of the recently mentioned coal stocks seems to be firming up although it is still too early to say with a high degree of confidence that the latest rally in these names is anything but a dead cat bounce.

Oct 282014

Here’s a quick look at some of the major US stock indices from a longer-term perspective, all of which except the Nasdaq 100, have recently broken below their primary bull market uptrend lines. Some of the large-cap indices, such as the $OEX & $SPX, have rallied up to close just below those key resistance levels today (i.e.- backtesting) while the small & mid-caps ($RUT & $MID) remain comfortable below their respective bull market trendlines at this time. As mentioned earlier today, all major US stock indices remain on intermediate-term sell signals as per the 20/50-day EMA pair although the $NDX is very close to Golden Cross, should that tech heavy index print a solid positive close for another day or so (it is always best to use the closing values of whatever period the signal is based off of, e.g.- daily close for daily charts, 60 minute candlestick close for hourly charts, etc..). Even then, I never put too much stock into any one single indicator triggering a buy or sell signal, preferring to see multiple buy or sell indicators or chart patterns triggering (or at least aligned in close proximity).