Oct 282014

Over the last couple of trading sessions I’ve struggled to find something in the charts worth highlighting but have come up empty. The recent bounce in the markets has exceeded my expectations but it is far from unusual for the market to experience such a sharp snap-back rally following the equally sharp move lower that immediately preceded it. Most of the short-term trend indicators that I follow have just recently flipped back to bullish on the Nasdaq 100 while the S&P 500 has a mixed bag of bullish and bearish short-term trend indicators. However, every major diversified US equity index, from the small & large caps alike, remain solidly on intermediate-term sell signals as defined by the 20/50-day ema pair (although the 20-day ema on the $NDX is getting close to crossing back above the 50-day, should that index climb much higher over the next day or so). One thing to watch in the coming days would be a backtest the 50-day ema by the 20-ema from below in either the $NDX or the $SPX. The recent IWM short has just moved above the 2nd suggested stop level (horizontal resistance plus the 50%/61.8% Fib cluster) but remains well below the upper-most suggested stop of 144.55 for now.

Gold, silver & the mining stocks have been floundering around lately as the $USD chops around just below long-term resistance. However, not all dollar sensitive assets are waiting to follow the US dollar’s lead; $Wheat (WEAT), $Corn (CORN), & $Soybeans (SOYB) have been climbing steadily all month with MTD gains ranging from about 10-15%. Regardless of whether or not this bounce in the equity markets ends up taking us to slightly above the prior highs or not, which at this point is a coin-toss IMO, the charts continue to indicate more downside in the coming months at this time.

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 222014

LL (Lumber Liquidators) was a recent Short Trade idea that hit the second target for a 38% gain back in July. I had discussed the likelihood of extending the final target to T3, which was listed as the potential final target on the previously posted charts. However, LL hit the second target before I had a chance to make that official and so I had to go ahead and consider the trade completed when T2 was hit (as it was too late to make T3 the final target). Fast-forward to today & LL has finally reached that T3 level, which is the level where the R/R no longer warrants remaining short (for those that held) as the odds for a reversal are quite elevated at this time. Final targets are set at the level where the R/R no longer warrants holding the position & more often than not, a substantial & often lasting reversal in the stock is expected.

As the updated daily chart (second chart) below shows, LL is trading at the bottom of what appears to be a bullish falling wedge pattern complete with positive divergence forming on both the MACD & RSI, all while trading just above that key horizontal support level (the previous third target). With the current near-term & intermediate-term trends still bearish for now, I’m still considering long trades as counter-trend trades until/unless the charts say otherwise. I also have some concerns about LL as there is a thin-zone just below the T3 support level which runs down to about the 34.25-34.10 level. If LL were to make a solid break below T3 (about the 48.90 level), there’s a good chance that the stock will back-fill that thin zone. Counter-trade or not, I’m looking for some new long trade ideas for both hedging exposure (for those positioned net short) as well as for those traders position net long, with a longer-term bullish outlook.

With that being said, LL offers an objective long entry here around current levels (51.40ish). This holds especially true for those with a longer-term bullish outlook who believe that this most recent sell0ff is over and the markets are headed much higher. My first target would be the former T2 level, with the actually target set just below the bottom of the July 9th gap at 69.65 (target = 69.55) with a suggest stop on a daily close or solid move below 48.60.

click here to view the live, annotated daily chart of LL

Oct 212014

This first chart below is the weekly chart of the $RUT (Russell 2000 small cap index) with my current final downside target of 862 as well as some of the minor support levels along the way. The second chart is the update 120 minute (2 hour period) chart of the IWM ($RUT tracking etf) with the same suggested stop levels that were recently posted on this chart. The $RUT led the US indices on the way down, peaking back on July 1st, months before the $SPX, $NDX, $DJIA, etc.. and falling over 14% into last week’s lows. As would be expected, having fallen the most both in time & scope, the extremely oversold & higher-beta $RUT has been one of the leading indices the way up on the recent oversold rally since Wednesday’s lows, up about 6.5% since then. As impressive as this bounce may appear, so far (as of today’s highs), the $RUT has only retraced 38.2% of that 14% plunge off the highs… a typically minimum Fibonacci retracement or counter-trend bounce of a larger impulsive move.

Once again, multiple targets are listed on IWM short trade that was added on Thursday to accommodate various trading styles & price targets. For those just looking to position short on this bounce with the expectation of covering on the next price target of 1010 on the daily $RUT chart, a stop no higher that the 111.10 level would be prudent. For longer-term swing traders targeting a move down to the 862 area, about 20% below where the IWM short trade was added, a stop above the 144.55 level (stop 3 on the 120 minute chart) would still provide an attractive R/R of nearly 4:1.

At this time, just about every major index that I track is still trading well below the recently broken long-term bull market uptrend lines and the intermediate-term trend, as well as all but the fastest short-term trend indicators remain on sell signals. That could certainly change should the markets continue to rally sharply but until that time, most active traders should consider shorting bounces back to resistance. Until/unless the current sell signals flip back to bullish, the odds of long-side breakouts failing before reaching the measure target of the pattern is elevated (referring to typical equities that trade in-line with the broad market).

Oct 202014

The SPY has now reached the 38.2% Fibonacci retracement of the 9/18-10/15 drop, a level which may act as a stopping point for this counter-trend bounce. The next solid resistance is the former T3 support zone while the 94 area on the Q’s is both solid horizontal resistance as well as the 38.2% retracement of the Sept 19- Oct 15 drop. 120 minute charts below: