Oil Divergence From Copper Points To Coming Contraction

The most recent post was a video on how commodities were leading the market lower and how oil had remained buoyant considering the volatility in the overall equity market.

Charted below is a divergence between the price of copper and the price of oil. Oil may be getting close to an area that will put pressure on both the consumer and the producer should copper prices remain weak.

Oil began diverging from copper at the beginning of October when all markets made a YTD low. It took oil just 3 weeks to eclipse the September highs while copper lagged both commodities and equities. At the end of the month, oil made another thrust higher that lasted throughout November. That month, copper was down 2%.

For the month of December, oil is flat and copper is slightly lower though copper is in a much weaker technical position and like the economy, copper is directly vulnerable to headwinds such further elevation of oil prices.

Commodities Are Leading The Market Lower

Gold, silver, and copper are lagging the market and could signal a downturn after the light volume holiday period comes to a close. Additionally, the NDX is also lagging the market which is telling us that investors are putting their money into less risky assets like DOW stocks.

Everyone’s Talking About The SP 500 Symmetrical Wedge – US Total Debt Reaches $15T

If you have not heard by now, the S&P 500 is trading within a symmetrical wedge pattern, which has most in the investing community buzzing. Because symmetrical wedges are generally neutral, they attract quite a bit of attention since no one knows for sure which way it will break. The point I want to make about this wedge is that way too many people are watching this pattern for us to simply buy the first sign of a breakout.

When a more than average amount of people are watching a particular chart pattern, the success rate generally declines. This pattern will play out as a bullish continuation, or a bearish reversal, whichever it is, confirmation must be utilized on any breakout or breakdown of this wedge. Confirmation being a secondary close below the low or above the high of the breakout candle. This method keeps traders out of bad trades, and prevents needless stop outs.

Currently I am short the USO. I took profits on 2/3 of my initial position after the pullback from the 200 MA pierce, and added 2/3 back today after the gap higher. Today’s move looks like an exhaustion gap as it tagged gap window of $39.80 and the pivot high of $39.50. Additionally, the USO hammered into the .618 level before closing lower during today’s 3pm selloff.

USO closed today in a doji formation which leaves the door open for a star or “island” reversal tomorrow. In any case, oil is extremely extended and regardless of the CME margin easing, oil really has no business above $100 in this economy.

In other news, the United States went over $15 trillion in total accounted debt today, a number that is up over 40% in just the last couple of years.

http://www.usdebtclock.org/

Stocks And Yields Walk Down A Familiar Path In October

The 10 year is already 25% off of the August lows as yields closed out the week at 2.23%. The stock market has calmed and has acted relatively complacent since the shortened holiday trading week earlier this month. Stocks have shaken off poor earnings from market leaders such as Alcoa, J.P. Morgan, IBM, and Apple. The market is being lead by energy plays like Chevron, Exxon, and Conoco Phillips, up 18%, 16%, and 20% respectively from the September lows. Energy makes up a large portion of the SPX, and CVX and XOM are also two large components of the Dow Jones Industrial Average. It appears that many of the underlying issues with global markets are being ignored so long as the indices can post a gain. Volume on the SPY has been almost pathetic since Columbus Day which can be telling us that the market is up on hot air. On an intraday basis, most of the volume of late has come in the 3pm timeframe and it is clear that institutions have been buying the market late in the day in order to force positive closes above key resistance areas. This is not an uncommon occurrence, however the frequency of these actions have increased exponentially over the last three weeks.

Despite this, the uptrend is monumental and must be respected. There were many investors who bet against the market in the middle of 2009 and in fall 2010 for the same reasons I have listed only to have their portfolio evaporate at the hands of low volume bear market rally which was fueled by the Fed’s POMO.

The 10 year is forming a similar pattern as it did last year leading into November. In 2010, the TNX formed an inverse head and shoulders beginning in August, which ultimately played out after the Fed began QE 2. Currently, one could make a case that there is once again an inverse head and shoulders pattern on the TNX (albeit a very sloppy one) leading into November when the Fed makes its next policy decision. At the very least it has made higher lows, and as stated previously, it is already 25% off of the 52 week low.

Ultimately, there are two reasons as to why this may be happening. The market is either expecting more intervention by the Fed, or the market is being led higher which would be a setup for a selloff following any disappointment from the FOMC. The scenarios seem simple, but the market is just floating right now and barring any type of sharp reversal in the next couple of weeks, the market does not seem like it wants to budge from its current course just yet.

There are a few mixed signals regarding market breadth, commodities, and currencies. As far as market breadth goes, the Nasdaq 100 lagged the market this week, closing negatively for a loss of 1.42%. Meanwhile the S&P 500 finished positively gaining 1.12%, and the DJIA also finished positive with a gain of 1.41%. This is an unhealthy signal for the market. In a true bull market, the Nasdaq 100 should be keeping pace (and often should be leading) with the market. The DOW is composed of dividend yielding, safety plays such as WMT, MCD, CVX, and KFT. When the DOW is leading a rally in a bear market, it is a sign that investors are not comfortable putting their money into riskier stocks. Obviously AAPL’s miss had an effect on the Composite, however, GOOG, INTC, YHOO, and MSFT all posted better than expected numbers which gave the NDX an opportunity to drive higher. Small caps are also an important indicator to watch, the Russell 2000 finished flat this week, losing just .04 points, but still well behind the DOW and S&P. Again, if investors do not feel confident enough to take on more risk-heavy plays like small caps, then it tells us that there is still an air of caution in the market, despite the solid gains made in the past 3 weeks.

One thing that is worth mentioning about the chart of the NDX is that there is the potential for a massive W-V reversal should the market pull back – maybe to the 2225-2250 area. This will have to be monitored as it lines up with the idea that the market is leading into Fed intervention for a potential move higher.

On Friday the SPX was pushed higher in the last 10 minutes of trading in order to force a close above 1230.71, which was the previous higher of the recent trading range. However, this is not a breakout. a breakout comes after confirmation, which would be a close tomorrow above Friday’s high of 1239.03. Notice how in the beginning of the month, we closed below the August low of 1101.54, but the next day the pivot low was made and so began the current rally. Confirmation completes a breakout and therefore saves a trader from making a decision that can turn out to be a costly mistake.

In any case, should the SPX confirm above 1230, it has short term resistance at 1249 and then following that it has two master levels. One is 1260, the flatline of the year, which is needless to say, an extremely important level. The final area of short term resistance is the 200 MA. Confirmation above this area could signal a structural change in the market, though I personally do not expect that to play out.

Another slightly conflicting signal is the Euro. It is not conflicting in the sense that it has made a higher low, and looks identical to the yields chart. It also has an inverse head and shoulders pattern on the daily chart that has a target of 147.75. That exchange rate would be close to the YTD high, and though the pattern is somewhat sloppy, it has to be on the table as a possible scenario.

The conflicting signal I’m referring to is that the Euro broke a major trendline over the summer and will have a mountain of a task in getting back above the triple necktie of moving averages on the weekly chart. Also, the longer term view of this chart shows that the Euro may beginning to form a head and shoulders reversal starting in June 2010. If the Euro inches higher, but hypothetically, cannot get through the weekly MA’s, a right shoulder would be in play with a neckline around 132.50.

Oil like stocks, bond yields, and the Euro has recently made a higher low which indicates short term bullish momentum. However, there is a topside trendline that was closed above this week but without confirmation. In fact, the weekly chart of oil shows a doji candle which is more of a neutral signal, and not a candle to base a breakout on. Oil has support between the 50 and 20 MA on the daily chart and a pullback may allow it to build enough momentum to break through this trendline. If oil can get above $90/barrel it should coincide with a breakout above 1230 on the SPX and the next stop will be around $95.

Copper has also made a higher low but the bounce has been only half of what other major asset classes have had. Since the most recent low earlier this month, the SPX is up 14%, oil is up 15%, the 10 year yield is up 25%, and the NDX is up 13%. Meanwhile, copper is only up 8% off of the October lows. Another key difference between now and 1 year ago when the market was leading into QE 2 is that this year copper not only broke through a major 3 year trendline in August, but copper is also near it’s 52 week lows, while this time last year it was in the process of making new 52 week highs.

The weakness in the metal is probably the best indicator that this rally has been full of hot air. Copper leads the market and is still down over 30% from its YTD high, while the SPX is down only a mere 10% from its peak in early May of 1370. The only technical upside that copper has is that after many attempts it has still failed to confirm below the 200 MA on the weekly chart. Should copper stay in this area for the next 2-3 weeks and fail to break through, it will likely catch a bid and back test $3.70-$3.75 which should coincide with a higher equity market. If however, copper confirms below the 200, it will be headed for $2.70 and the equity markets will fall with it for another test of the 52 week lows.

Overall, the next 2-4 weeks should decide where the markets are headed over the next 4-6 months. Any large intervention program would probably make for a similar scenario as the one that we had last year, though I still do not expect the market to make new highs again. Conversely, any disappointment will take the air out of this rally and the October lows will be retested again. Therefore I think that regardless of the FOMC’s policy statement, we will be headed lower over the next 12 months. The market can rally on weak volume so long as Europe stays quiet. However, Greek bond yields reached another high this week of 188% and Merkel and Sarkozy believe that they have come to an agreement to bail out the banks with 100 billion Euros. The plan is pathetic, 100 billion Euros is enough to bail out community banks, not institutions with trillions in CDS exposure like Deutsche Bank, and Credit Suisse and in addition, the longer that they take to complete the EFSF, the more the market will price it’s ratification. Be sure to have a large cash base and keep positions small as news is going to be the driver of the market for the next couple of weeks.

Markets Limp Into The Weekend After EUR/USD Collapses

The EUR/USD collapsed in the shortened holiday week of trading as the dollar index may finally be close to strengthening in the manner that I had originally predicted it would earlier this year. The stock market performed poorly on Friday and did not hold onto to gains made in the beginning of the week. Currently I am almost completely in cash and I have a very neutral stance though things continue to get worse in Europe which gives me a slight bearish bias.

The dollar index is finally beginning to make moves versus the Euro which I had believed to be the fundamentally correct course of action for a while though until now, that scenario had not been the case price-wise. I have previously expressed that the dollar has remained suppressed (particularly over the last 5 months) due to Chinese GSE’s but also because of institutions like Goldman Sachs who have publicly stated that they are increasing long positions in the Euro and short positions in the dollar. It is in their interest to keep the dollar suppressed in order to maintain the illusion of recovery. However, now fresh shorts are already well underwater as the dollar pierced through the 200 MA with conviction this past Friday and a short squeeze could be in play after the dollar consolidates here as the $77 area is a major resistance level.

The 200 MA is obvious resistance, but there is also a pivot low from February at $76.88 which was also pierced and if you use the weekly chart, you will notice that the weekly 50 MA coincides with the 200 MA on the daily. Furthermore, $77.10 is a 50% retrace from the January 2011 high ($81.32) and the May 2011 low ($72.70). Last but not least, $77 is major resistance because the DXY did not consolidate before piercing the level and instead gapped higher in a very short period of time, indicating an overbought condition. Keep in mind though that the dollar was oversold (and suppressed) for a long period of time so despite this short-term overbought condition, any news out of Europe can causes short to cover and the dollar to rip higher yet again.

The bear flag on the SPX has all but broken down though support still remains at the lower trendline. This pattern is not valid until the market can confirm below the support trend and at that point it may be safe to short stocks that are still elevated in price, though I am personally not at all pressured to participate given the increased risk of volatility. The target for this bear flag is 1010, or the June 2010 lows.

If copper decisively closes below $3.99 tomorrow, that would indicate a technical breakdown of the bear flag and the pattern would then be in play. In other words, this chart is indicating a very bearish outlook over the next week to two weeks but again, there are other reasons to not take this as law and short the market.

One of those reasons is because oil held up well on Friday. There is the possibility that oil did not collapse because of the traveling that took place on Labor Day weekend and that it will begin to sell off next week, but that assumption leaves too much in question to base investment decisions on.

Another reason is that the financials have surprisingly held up, relative to the lows put in during the end of August. The pattern on the chart is beginning to look like a potential inverse head and shoulders or perhaps a W-V reversal. The entire situation that we’re in now has everything to do with the financial sector so the fate of financials is tied to the fate of the overall market and additionally, financials are a leading indicator of the market’s performance.

Again, there is no reason to leverage into excessive short positions at this point based on the news. We know Europe is bad, we know financials are a disaster. Every time the media mentions this, the short side looks less and less appealing. Today I saw that Forbes posted a chart of the bear flag on the SPX that I have pictured above. This tells me that retail investors may be looking to short the market. I never want to be on that side of the trade. In any case, be sure to look for oil and financials to confirm the other charts like the SPX, DXY, and Copper before beginning to go short, or long for that matter.

I may take short or long positions next week based on short term momentum but currently I don’t have much of a bias regarding permanent direction. If you do have your mind set on shorting the market in fear of missing the move, use a fractional position to buy November-January out of the money puts that coincide with the strike prices of the June 2010 lows. The small amount of capital committed to the option would not require high risk, and the distance away from the current strike could give you a high reward, regardless of the small capital commitment.

Markets Finish Slightly Negative After Volatile Day

The S&P was down over 20 points this morning after opening lower with a weak jobless claims number and hangover from yesterday’s FOMC meeting. I would be surprised to see a significant amount of selling tomorrow and into next week. The Fed, though bearish did not say anything new that we did not know already. We also know that the jobless claims numbers and economic data is going to be weak so the market has already priced that in, which is why the lows were rejected with a robust rally intraday today. Despite this, I was expecting a selloff today and got it.

I used this chart last week as an example of what happened the last time the market expected news from the Fed and received it. We were expecting QE II to come and when it was announced, the market had a normal positive day, followed by a huge move higher the next day, but topped out just one day after. The exact same pattern has developed in this case only to the inverse since the market was expecting QE II to end.

Like what the expectations were in November, the market expected QE II to end as scheduled without further stimulus. The announcement was made and despite the consensus being met, the market sold off sharply regardless. Today was a big reversal day as the market tagged the 200 MA and finished well off of the lows. Next week is also a holiday trading week which usually comes with an upside bias as of right now it appears that the market has yet again put in a short term bottom.

On the weekly chart of the S&P, you can see the beginning of a bear flag which if it plays out, will take us close to the 50 MA. A favorable bear flag has three bars so another close higher on the weekly chart for next week would be a nice setup for a breakdown of this pattern. I think the market has put in a short term bottom but my mentality here is to not count on one and only stay in trades while there is still momentum in them. The bulls have made it clear that they will not give up $1260 without a fight and there is not a clear side that is in control of the market at this point so once again, protect your profits and refuse to give back gains to the market.

On to some more specific plays, I sold out of TZA at $40.86 for over 7% gains in less than an hour of holding it as I bought near the close yesterday at $38.04. TZA fell sharply afterwards and actually finished negative. I will continue to stress this, but this is why it is important to protect your gains and be in and out of trades. If I had held this for just one day, I would be negative on this trade and would have given about 8% in gains back to the market.

Perfect 3 bar bear flag played out today on the USO. I nailed this in yesterday’s commentary though my price target of $35.20 missed the lows by a penny. I wasn’t planning on entering it as a trade anyway as the upside is only about 5% over the next week, which isn’t bad by any standard, but there have been better setups that I have been watching so I decided not to place an order. Look for this to top out around $37.50.

I won’t claim victory on this after one day but there’s no doubt that this was a huge move and I’ll even be impressed with myself if $152 does turn out to be the medium term top. GLD tested the trendline that goes back to March but managed to reject a break of that and the 50 MA. I think that after today’s monster selloff it will at least rally to the 20 MA but a second test of that lower trendline might send this thing lower and confirm a medium term top.

Bloomberg Economist Survey – 79% Say Fed Extends Asset Purchases

Federal Reserve Chairman Ben S. Bernanke will probably delay the central bank’s exit from record stimulus, economists said in a survey, giving the flagging economy a boost without resorting to additional asset purchases.

Seventy-nine percent of 58 economists expect Bernanke to sustain the Fed balance sheet at current levels until October or later, compared with 52 percent who held that view before the Fed’s last policy meeting in April, according to a Bloomberg News survey conducted last week. Ninety percent of those surveyed predict the Fed will wait until the fourth quarter before dropping its pledge to hold interest rates low for an “extended period.”

Bernanke and his fellow policy makers have given no indication they’ll tighten policy anytime soon. With manufacturing slowing and unemployment increasing during May to 9.1 percent, the Fed chief said this month growth is “frustratingly slow,” and Richmond Fed President Jeffrey Lacker said the economy could be “stuck below trend for some time.”

“The longer they signal they will be on hold for an extended period, they are de facto easing,” said Carl Riccadonna, senior U.S. economist at Deutsche Bank Securities Inc. in New York. Expectations the central bank will delay a policy reversal help reduce long-term interest rates and spur growth, he said.

http://www.bloomberg.com/news/2011-06-21/bernanke-may-try-to-spur-u-s-economic-growth-by-extending-record-stimulus.html

This would make sense according to the charts, I gave the alert out to go long QLD at $79.75 and I am currently over a dollar in the money as it is above $82 as I write this.

QQQ upside target is between $55.25 and $55.50.

Upside for the SPY is going to be $130 to $130.50.

I talked about the USO over the weekend and it is off of the lows and appears to be headed for a pierce of $38 with the 200 and 20 MA’s closing in on that level.

The market putting in a short term bottom here could most certainly indicate that we are in for a surprise regarding this Fed announcement as previously almost everyone expected the Fed to end QE. This means that we will get the rally I talked about but this does not mean that we have put in a long term bottom. I will discuss this more as it unfolds.

The Copper Divergence And The Fed’s Impact On The Market For Next Week

To follow up on yesterday’s analysis, I’d like to add two key points as to why we’ll get a bounce in the next week to week and a half. The first is point is that copper is yet again diverging from the equity markets. On May 10th, I pointed out the divergence between copper and the SPY as the copper ETF JJC literally tanked versus the SPY in just a few weeks. I noted that every parabolic move in the SPY to JJ ratio was met with another sharp movement downward, meaning that the divergence corrected itself. Coincidentally, or perhaps not, May 10th was the exact peak in which the SPY gained versus JJC and the ratio has fallen from 2.625 to 2.355 since then.

You can see that despite the recent decline the ratio is still in an uptrend and will find support at the 200 MA and the 2.3:1 pivot. What this means for the market in the near term is that copper is going to fall, and the market is going to rally.

Copper has outperformed the market during the market selloff and has actually maintained an uptrend. Copper is a leading indicator and is telling us that the market is about to rally, at least enough to shake off the oversold condition. I think that this also means that copper is about to break down and underperform the market. It is having trouble staying above the MA’s which are tightening, and has major resistance at the $55 pivot. Additionally, the uptrend it has traded in is simply an inside bar bearish consolidation from the move down in late April. I think in the short term JJC is headed to $51 before any major bounce occurs.

You can see above where the ratio began to increase exponentially, and where it peaked. It began right when the market staged a rally from a pullback off of the March lows and it peaked just after the market peaked in May. If the ratio does in fact find support at 2.3:1, then simply put, the market will rally and copper will fall, but ultimately that means that the market is headed lower after the bounce in equities plays out.

The second key point I’d like to make is the end of QE II and the Fed meeting’s impact on the markets. Clearly it is bearish for the market that QE II is coming to an end because POMO will no longer be active and there will not be that extra support for the market during trading hours. However, that is most certainly priced in at this time. Just take a look at the market before QE II was announced:

Immediately after QE II was announced the market got a nice pop but it was an obvious example of buy the rumor, sell the news as the market corrected just days after the gap higher. Don’t use this chart as a model for what will happen next week, just use it as an example. In other words, I’m not saying that we’ll have a rally that is proportionate to the correction we saw in November, just that the same concept applys to the situation we’re in. In any case, as I said yesterday, the market is still extremely oversold going into next week’s fed meeting and the idea that we’ll just crash through support on news that we all already know about is a poor mindset to have.

One last chart supporting an oversold rally is coming is the USO. After the completetion of a perfect bear pennant, oil has fallen dramatically in the last couple of trading sessions. Oil is very oversold and after the gap lower and the spinning top candle, it’s hard to say that this can go much lower especially since it is right above support at $36.

Once again, I’m still generally bearish overall and I am waiting for the next shorting opportunity. I am out of DXD now and may choose to take a long position this week but I am not planning on holding any long positions for more than a few days to a week depending on what the market looks like. My advice for the long side would be to pick extremely oversold stocks that are close to, or have pierced support and be sure to use tight stops on them and be ready and able to exit at any time. From the short side, I would stay out until the market gives you an opportunity. I talked about this yesterday, but you need to let the market come to you and for no reason whatsoever should you be chasing charts.

Divergence In Top SPY SPDR Holdings – LNKD Trading 135% Higher Following IPO

Last week I discussed the divergence between copper and the S&P which added to my argument which is that the S&P is closing in on a medium term top. In addition to the divergence in copper, AAPL, XOM, and CVX, the three largest components of the SPY, are also diverged from the overall market activity. This divergence is important to note because it means that money is moving out of large cap companies which are normally considered to be the safe haven in the equity markets when there are headwinds. If money is moving out of these companies at any time, then it can signal that bullish confidence is weakening.

AAPL has been weak since late February and has clearly underperformed the rest of the market. Perhaps the company is becoming more fair valued as competitors are moving in but with POMO still active, AAPL should at least be at sector performance but that has not been the case over the last 2 months and unlike the SPY, it has not recovered since the Japan scare. Note the bear flag that is setting up on the chart which is a continuation signal of a downtrend.

I gave out the alert to short XOM at $83.18 and it has since fallen to the target that I had put out of $80. It has bounced off of that support level on average volume and is testing the 100 MA. I don’t think that this 3 day rally is sustainable as the price of oil hasn’t gained back any ground and on the chart, XOM like AAPL is setting up a bear flag on this small move to the upside.

CVX hasn’t quite hit it’s target of $97.50 but it has fallen from when I gave out the short alert on the 9th of this month. It has outperformed the market and the chart isn’t as weak as XOM, but it is finding resistance at the 50 and 26 MA’s. If it cannot manage to confirm a close above these moving averages, then it is safe to say that it is in a downtrend and is unlikely to recover in the near future.

Confirming the moves in CVX and XOM is crude. It has not recovered from the $12 drop and is consolidating in a bearish pattern that is in the spirit of a bear pennant. With the dollar strengthening and QE 2 still set to expire in June, oil will likely consolidate over the summer as some economists have already been predicting.

On to the S&P SPDR, by observing the charts above, you can visually see the divergences taking place without using a performance chart. The S&P may continue to rally higher as divergences can take some time to fully correct themselves but the important thing to remember is that it will in fact correct itself one way or another. These divergences reinforce my belief that we’re going to see a weaker market and a stronger dollar over the summer. For those who do not wish to play the dollar from the long side, you can use this as an opportunity to buy stocks and commodities as they play out their own consolidations.

There are no charts for LinkedIn (LNKD) yet but the stock has soared over 135% since the open this morning. It sold for $45/share but with one hour left of trading, it is currently selling for $103/share. Market cap has more than doubled from $4 billion to $9 billion on it’s first day as a public company. Here’s the company profile from Yahoo for more info: http://finance.yahoo.com/q?s=lnkd&ql=1

*** On a side note, I am sorry for the delay in putting out any commentary but this past week has been beyond exhausting unfortunately due to non-finance related work, but such are lifestyles in this economy. I’ll be as active as I can and I’ll try to get back to the emails, so thank you to all who read my work and send me comments. – Aaron

Dollar Continues To Advance As Equities Retreat

The dollar index gained 1% on the day which collapsed the equity markets and sent commodities tumbling yet again after a bounce that has turned out to be short lived. All commodities but gold have been extremely weak which is the opposite of the price action over the last 8 to 9 months where gold had been the laggard. Conversely, as the dollar rose, the SPY fell over 1% and the Euro crashed through support at $1.42.

The SPY had an awful open and an even worse morning session. It managed to find support at the 26 MA and regain bits and pieces of the losses from earlier trading but it still lost 1.05% on the day after another flood into the dollar. The action in today’s trading is somewhat unprecedented and though no trendlines were broken, the equity markets were unusually weak and it is now a possibility that a top has already been put in at 1370 on the S&P 500.

The Euro lost 1.36% today and broke through support at $1.42. Support that was at the 50 MA gave way without so much as a one day bounce. The next target for FXE would be $140 before any kind of significant move to the upside.

The UUP found resistance at the 50 MA but the fact that it closed convincingly above $21.50 assures me that it is headed for $22 in no time. There may be a brief consolidation before it can close above the 50 MA, but there is a legitimate chance that it closes at or near $22 by options friday if it keeps up the momentum it has had for the last 5 trading sessions.

The move in silver turned out to be more than a dead cat bounce as it has played out into a bear flag pattern. Two days ago I gave the alert that we would reach and find resistance at the 50 MA on SLV. Today we hit the 50 MA in both silver while yesterday SLV made a run at its own 50 MA. Both charts have since reversed and spot silver closed down 8.6% on the day. The recent rejection of a bounce in silver is why I have been cautious to get back into the market. Many others jumped in at $40, $37, and $35, but only now am I considering opening long term positions within the next week or two. The steepness in which the price fell should have telegraphed an equally steep bounce off of support and it was clear that the 3 day rally was nothing more than a backlash from the original selloff.

Moving on, I am going to briefly recap my short picks XOM and CVX from Monday. The bear pennant that I called for XOM played out exactly as planned. It rallied the day after I made the call then lost all gains from the last 3 sessions in today’s trading. To add to that, it also closed below it’s 100 MA which means it could reach the $80 short term target sooner than expected.

As for the other oil short alert given on Monday, CVX like Exxon also played out according to plan. The bear flag broke down as expected and CVX lost 2% and closed below support which had been at $102.50. It is still a good percentage point away from its 100 MA and there isn’t any support levels between its current price of $102.26 and $100, where the 100 MA is currently resting.

MCP is another play I can say that I timed well and am happy to see it trading lower. MCP is 14% lower than when I warned of a top and sold my own holdings. Today it broke through support at $66 and formed a shooting star candle to finish off with losses of 5.73%. There will be support at the 50 MA plus there is a gap between $61 and $63 that needs to be filled so expect a rally after those levels are tested. The next levels of support after that are $60 and $55 though I would be surprised to see it trade as low as $55 unless there is a news-driven scare regarding China or rare earths. If MCP does reach $60, I will buy out of the money LEAP options and reload common shares as well.