Nov 192014
 

The following charts were all covered in the recent trio of video updates. Starting with US equities, the $RUT (Russell 2000 Small Cap Index) continues to move lower after backtesting the dual resistance level defined by both its primary bull market uptrend line (blue) as well as the Fibonacci fan line that lines up perfectly with the primary uptrend line. As discussed in the recent Equity Market video, these Fib fan lines, generated off of the March 2009 lows, have done an excellent job of acting as support & resistance from above & below. If my call for a major correction in US equities by year-end/into early 2015 does pan out, the $RUT seems to have the most downside potential. It is also worth noting that unlike the large cap indices ($SPX, $NDX, $DJIA), the small caps have failed to make a new high since the March 5 & July 1st double-top high. Mid-caps (S&P 400 Mid-cap Index) are also still below the double-top highs that were printed around the same time although prices are only slightly below those former highs with the potential to form a triple-top pattern.

$RUT daily Nov 19th

$RUT daily Nov 19th

The first chart below is the daily chart of GLD (gold ETF) that was covered in the recent video whereby I had stated that GLD needs to regain the 115 level and remain above that level. So far, as expected, that large gap down from Nov 3rd has been backfilled and GLD is current challenging the 115 area (trading at 114.93 as I type). To reiterate, if GLD can regain & remain above this level, that would be a very bullish technical event that is likely to bring in new buyers as well as squeeze out some of the shorts that initiated positions on the recent breakdown. It is also worth noting the recent strength in gold and especially the mining stocks in spite of a rising dollar.

The second chart below is the weekly chart of GDX which shows prices continuing to move impulsively higher after the third tag (which is often the final touch) of the bottom of the aforementioned descending broadening wedge pattern, a potential bottoming pattern. Just to reiterate, on a valuation basis alone, the gold mining stocks look very compelling. Should gold (and silver) prices also start to move higher and begin to show signs of a likely trend reversal, the miners have the potential to be one the best performing sectors going into year end and well into 2015. However, there’s still a little more work to be done from a technical perspective to say with a fair degree of confidence that this lately rally is anything but an oversold rally/dead-cat bounce.

Moving on to the other dollar sensitive assets brings us to one of my favorite trades at this time,  USO (crude oil ETF), which I still believe is poised for a potentially sharp reversal following a bear market that has wiped nearly 30% off of the value of USO since the June 20th peak. As discussed in the recent video, both oil & coal have an even tighter inverse correlation to the US dollar than do gold & the gold stocks. Therefore, the success of the USO trade is hinges largely on a reversal in the $USD (3rd chart below). The fact that the USO trade is based off an intraday time frame (120-minute chart) is reflected in the fact that I am more confident in at least a tradable counter-trend correction in the dollar vs. an outright primary trend reversal. I still believe the latter is likely to occur soon but as of now, my focus is on a counter-trend pullback with an expected rise in USO from about 11% (T2) to 20% (T4, the current final target), depending on how the charts play out going forward. Also as mentioned in the video, the coal stocks are just coming off a very powerful run-up and KOL (coal sector ETF) recently ran into the former key support, now resistance level (17.25 area) and may need a little more time to digest the recent gains. The next buy signal in the coal sector will come on a solid break above  the 17.25 area as well as a bullish cross on the daily MACD (both lines) above the zero level.

In summary, I remain near-term bullish on crude oil (USO), gold & silver mining stocks (GDX, GDXJ, SIL, etc…) and near-term neutral but longer-term bullish on the coal stocks.  I also favor a resumption of the recent downtrend in US equities, especially small caps, but have yet to see enough technical evidence to justify adding short exposure at this time other than a very speculative/aggressive position. I’d rather focus on the miners & select commodities versus general equities until I get a better read on the broad market. However, I will say that simply glancing at the daily chart of the $SPX, $COMQ, etc.., I think at the very least, US stocks are looking at a period of sideways consolidation from this point and quite possibly, a considerable retracement of the recent sharp rise off of the mid-Oct lows.

Nov 122014
 

The following video covers various diversified US stock indices. Separate updates in either video and/or static chart formats on both the precious metals (gold, silver & the related miners) and select commodities (coal & agricultural) will follow either later today or tomorrow.

As this video went longer than expected, listed below is a brief summary of the talking points:

  • The first 19 minutes or so covers various US stock indices, focusing primary on the recent technical developments, mostly on the daily time frame charts.
  • From about 19 minutes to 30 minutes the longer-term outlook for the US markets is covered with an emphasis on the weekly time frame charts.
  • Around the 31 minute mark, a potential ominous development within the High-Yield Credit Spreads market is highlighted, noting a very similar disconnect between high-yield spread & US equities since 2007.
  • At the 37:30 mark, the video concludes with a quick update to the previously highlighted divergences between equities & the percentage of stocks trading above their 200-day moving average.

Essentially, by my interpretation, the near-term outlook for the US equity broad markets remains fairly obscure at this time with conflicting bullish & bearish developments. As such, the lack of new trade ideas on the site is a reflection of my own personal decision to keep my overall trading light until a more attractive risk/reward technical picture in the broad market develops. That could come very soon or it might take another few weeks or more. By most metrics, the trends on all time frames (short, intermediate & long-term) are currently bullish. While the recent sharp rally in US equities has certainly dampened the near-term bearish outlook on several key indices (but not all), the longer-term bearish developments that have been covered over the last several months continue to persist at this time. Of course, to reluctantly quote that baffoon Jim Cramer, there’s always a bull market somewhere, hence the video to follow soon on the coal stocks like WLT (which at Monday’s highs was up 145% in less than a month and 100% from the long entry just over 3 weeks ago).

 

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 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).

 

 

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
 
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 172014
 
IWM 120 min Oct 17th

IWM 120 min Oct 17th

Here are a few suggested stop levels for the IWM short trade. The first stop would be just above that shaded box which encompasses the 109.80 horizontal resistance as well as a Fib cluster, the 38.2% & 50% retracement levels of the two prior reaction highs. The next stop, stop 2 at 112.42 lies just above the 112.20 horizontal resistance and another tight Fib cluster (50% & 61.8%) with the upper-most suggested stop above 144.55, which comes in around the 61.8% retracement of the move down from the July 1st peak in the $RUT/IWM. Which stop(s) one uses would be based on their preferred downside target(s) in the $RUT/IWM (i.e.- the lower your price target, the higher your stop).

I had mocked up a daily chart of IWM with some potential target areas last night but either inadvertently saved it to the wrong watch-list or didn’t save it at all. If I can’t find it I’ll work up another chart today but as of now, based on my interpretation of the weekly chart, I think a move down to the 875 level on the $RUT (about a 20% drop from current levels) is certainly a possibility in the coming months at this time. Of course, if that proves to be the case, we would almost certainly experience some very quick counter-trend rallies along the way.

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