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.

Oct 162014
$RUT daily Oct 16th

$RUT daily Oct 16th

Yesterday, the $RUT (Russell 2000 Small Cap Index) hit the second downside target (T2 at 1040) that has been listed on the daily chart under the Live Charts page for months now. As if most often the case, the typical reaction (bounce and/or consolidation) immediately ensued. That bounce is now approaching the base of the double-top pattern that I’ve also been highlighting on that same chart for months now as well. In fact, the base of that double-top patten was the first downside target which was just recent hit & then taken out a few sessions later, triggering a breakdown of that pattern which actually projects down to the 960 area, a drop of about 11% from current levels if reached.

With the bottom of that double-top pattern at the 1080-1082 level & the $RUT trading at 1081 as I type, a short entry here on the $RUT (IWM) with the appropriate stops somewhat would have to be consider a very objective entry with a very favorable R/R (risk-to-reward ratio. As such, IWM will be added as an Active Short Trade here around the 107.50 level.

I will follow up with the specific IWM targets soon but just wanted to get this trade idea out asap in case we do get the expected reversal off of this backtest of the 1080-1082ish resistance level. For those preferring to use one of the leveraged ETFs as a proxy for an $RUT short (TWM, TZA, etc…), keep in mind that this trade is intended as a multi-week swing trade and therefore, at most I would consider using TWM (2x short $RUT) as the decay on the leveraged ETFs, especially the 3x like TZA, will almost certain impact the returns if held for more than just a few days.

The live, annotated version of the $RUT daily chart can be accessed via the Live Chart Page or the Live Charts Links widget box on the right-hand sidebar of the home page.

Sep 222014

With most of the major global equity indices recently breaking below key uptrend lines and/or bearish chart formations, complete with negative divergences in place, the U.S. markets are most likely not far behind. Most of these chart were published in the August 6th “Around the World in 60 Seconds” post and live versions of many of these charts, along with the major US indices not shown here, can be found under the Live Charts page. Remember, despite the apparent resiliency of the US markets, we are still just a bad day or two away from smashing through the primary bull market uptrend lines (generated off the March 2009 lows) on both the S&P 500 & S&P 100 as well as the Nasdaq Composite & Nasdaq 100 while both the small caps (both the Russell 2000 & S&P 600 Indexes) as well as the mid caps (S&P 400 Mid-Cap Index) have already just recently broken below their primary bull market uptrend lines. If & when all major US equity indices have ALL fallen below their respective bull market uptrend lines, all of the ingredients are in place for a very swift and powerful decline so regardless of how many times you have heard that over the last few years, just make sure to have a trading plan in place whether you are bullish or bearish.

While my personal trading activity has been extremely light lately and hence, very few new trade ideas or broad equity market analysis, I have started working on update the trade ideas and plan to remove any stopped out trades along with those that no longer look very compelling in order to add some new trade ideas. For now, I’m still giving gold & the miners as well as the agriculture ETFs a little more room as those are intended as Long-Term Trades/Investments although I continue to prefer to wait for decent evidence of a reversal before adding any more exposure into any of those positions.

Aug 142014

The SPY is now at the bottom of the R3 zone. A reversal is likely either here or at the top of the zone (gap), while a break above that level would likely send prices to new highs. The QQQ is currently backtesting both the blue uptrend line as well as a horizontal resistance level defined by three recent gaps. The recent bullish falling wedge breakout in GLD is still well intact with gold prices continuing higher since the breakout.

Overall I remain somewhat cautiously bearish on equities, primarily the regional banking sector and other financial related stocks although I have a fairly diversified portfolio of individual shorts scattered amongst various sectors. I also remain bullish on gold & the mining sector as well as a few select commodities, including WEAT, CORN & select coal stocks in additional to a few miscellaneous long positions. While new highs in the US broad markets is certainly a possibility in the coming days/weeks, I continue to believe that the rally since the second & final near-term downside target (T2) on the SPY 60 minute chart was recent hit is simply the first counter-trend bounce in the early stages of a more substantial correction in stocks. As such, I have continued to add short exposure up to this level but from this point forward, will only add short exposure below these current resistance levels on the SPY & QQQ or on the most compelling individual short setups. As is most often the case, my stops are based on the individual technicals of each position and not what the broad market does although the bearish scenario will begin to rapidly deteriorate should the markets move much above these current resistance levels.


For those that prefer trading the broad markets (SPY, DIA, QQQ, MDY, IWM) or any of the related inverse or leveraged ETFs, options or futures contracts, I’d have to say that a short around current levels with a stop over the recent highs, particularly for the $SPX & $NDX (SPY, SDS, QQQ, QID, ES, NQ, etc…), offers a unusually attractive risk/return ratio with minimal downside if stopped out compared to the potential downside, should the $SPX & $NDX join the $RUT (small cap), $MID (mid-caps), and $DJIA (DJ Industrials/blue chip, large caps), all of which have recently broken below their bull market uptrend lines generated off the 2009 lows. I would also have to add that any shorts on the broad markets at this time are still counter-trend trades until/unless we see both the $SPX, $NDX, & $RUT join the $DJIA & $MID in breaking down below their respective bull market trendlines and as such, should be considered aggressive trades, unless used as a hedge against existing long positions.

The bottom line on both equities and gold is that the next major leg, up or down, should be decided soon: Some of the major US stock indices like the $SPX & $NDX are just a stone’s throw away from making new all time highs (bullish) while just below sit those all-important bull market uptrend support lines. Gold, although up a respective 10% YTD and the gold mining sector (GDX) up about 33% YTD, still has some work to do in order to help add to the case that a new cyclical bull market is underway, namely a break above the highs made back in mid-March. Both the mining stocks as well as US equities have been much more conducive to active trading (swing trading) so far this year vs. buy & hold strategy and my expectation for the remainder of the year would be much of the same (trader’s market) although I am treating my most recent move back into the mining stocks as longer-term positioning for the next major leg up, unless stopped out or the charts convince me otherwise.