September 23, 2011 1 Comment
Market Technician, Sector and Macro Analyst
August 28, 2011 5 Comments
Gold is in the second phase of a Bump-and-Run Reversal Top pattern, which typically occurs when excessive speculation drives prices up steeply, and is now at a critical juncture where substantially lower prices could be realized. Let me explain.
According to Thomas Bulkowski, the Bump-and-Run Reversal Top pattern (read here for details) consists of three main phases:
1.A lead-in phase in which a lead-in trend line connecting the lows has a slope angle of about 30 degrees. Prices move in an orderly manner and the range of price oscillation defines the lead-in height between the lead-in trend line and the warning line which is parallel to the lead-in trend line.
2.A bump phase where, after prices cross above the warning line, excessive speculation kicks in and the bump phase starts with fast rising prices following a sharp trend line slope with 45 degrees or more until prices reach a bump height with at least twice the lead-in height. Once the second parallel line gets crossed over, it serves as a sell line.
3.A run phase in which prices break support from the lead-in trend line in a downhill run.
As the chart above shows the price of gold has breached the sell line at $1,830 so we can expect to see a correction with downside price targets for support as follows:
1.$1,750 for support from the dotted pink line.
2.$1,650 for support from the warning line.
3.$1,500 for support from the lead-in trend line.
Original Source: http://fx5186.wordpress.com/speical-mid-week-update-8242011/
What took place in silver during the months of January through May should be a lesson that no asset, no matter how good the fundamentals are, can sustain parabolic moves. The article above is one of the few that I have seen recently that has been viewing the current run in gold from a more objective viewpoint. The article uses a geometric form of technical analysis which is an aspect that is often overlooked as the charts do follow certain forms of symmetry that can sometimes be amazing.
August 26, 2011 Leave a comment
On Wednesday I suggested that the market would sell today but not make a new low and that would turn out to be a buying opportunity. So far the market fell after Bernanke vote of no stimulus but has surged back to the flatline and then some. Lorillard (LO) is one of the stronger plays out there that I am watching for a bounce next week.
August 17, 2011 Leave a comment
The market was weak after the comments from Merkel and Sarkozy that were less than accommodative though it seemed that many were expecting the two to not announce any type of new intervention. This may be why the selloff today was short lived and the market recovered for just a 11 point loss. The media may continue to hype the downside but keep in mind that this is an options expiration week and the market is currently showing some resilience after the late day rally so any pullback should be taken as bullish consolidation until 110 is lost on the SPY.
The tail on today’s candle suggests that there are still plenty of buyers out there though I do expect a bit of a pullback this week and perhaps some increased volatility. If you look at the 10 minute chart of the SPY and all of the major sector ETF’s (XLE, XLF, XLU), you can see some major yo-yo action over the last two days that is second only to the 700 point reversal from Tuesday of last week that marked the bottom to date.
If the right patterns presents itself, I’ll be looking for more long positions on a bullish pullback. The SPX should be headed in the range of 1240 to 1260 over the next week to two weeks. Utilities and financials are the sectors that I am watching for possible long swing trades since utilities are the strongest and may outperform based on strength, and financials are the most beaten up and may surge due to technical reasons.
Gold has been one of the barometers for strength or weakness in the market over the last two weeks and though it did have a nice up day, it is still trading within the range of the pivot high of $1817 that was made last Thursday. To put it plainly, if gold does not make a new high, then the markets will get a lift and will convert into a more complacent mood at least in the short term. Also, it’s worth mentioning that short term calls on GLL are looking succulent.
For those still wondering, TBT is still in play. Action over the last three days is nothing more than a bull flag which is something that I predicted would happen last week. The bottoming tail is still holding and any noise about treasuries surging after the Merkel/Sarkozy comments is nonsense. The chart clearly shows bullish consolidation after an oversold bottom and a sharp rally off of the lows. Targets for TBT are $28.50, $29, and $30.75 and stops should be advanced accordingly. Should the bull flag fail, TBT will become a stop-out and yields will fall further.
August 12, 2011 Leave a comment
Despite yesterday’s downtalk, the market surged for a huge gain as gold and treasuries dived.
August 10, 2011 Leave a comment
Hats off to Bernanke for the clever Fed minutes that not only got a reversal in GLD, SLV, and TLT, but also was enough to calm the markets and get a massive rally into the close.
August 9, 2011 Leave a comment
Despite gold making yet another all time high again today the gold mining stocks have looked weak and are lagging spot price by a wide margin. Part of this is to be explained by the current risk-off nature of the market since investing in a company that owns gold is riskier than just buying the metal. At this point traders aren’t looking for profits as much as they are looking for protection so the lag between the two makes sense. However in the past a sink in the GDX has led previous corrections in gold and given that gold seems to be making a new all time high every time I glance at the chart, it also makes sense to conclude that there has been a sizeable influx of longs in a short period of time which could tell us that gold is getting extended.
I do see short setups in the sector but I won’t be taking any yet as we are a few hours away from the Fed minutes and a day away from a speech that will be made by the Fed chair. As such, shorting into the Fed announcement would be suicide since you can almost guarantee a rally in gold and silver regardless of what is said (lets face it, Bernanke is the ultimate stimulus for PM’s). However, gold is extended farther than it has ever been save the 1970′s going into the Fed announcement and given that everyone seems to be bullish on the metal, the FOMC may be the perfect contrarian indicator in this case.
Gold is up 15% in the last month which tells us that it is extended but that alone is not enough to initiate a short.
The weakness in the GDX tells us that traders are bullish only on the metal and despite all that has happened, they are not completely sold on gold in the long term and translate gold as an investment as a safe haven and not something that will garner profits. There is a bear flag on the daily chart of the GDX and its target is the pivot low of $53.37 that was set in May. Again, until the FOMC statement is made, I wouldn’t advise any type of trade given that the pattern can be easily negated during Bernanke’s speech, but what you need to know is that if it stays below the 200 MA on a closing basis, the pattern is intact.
Some may remember by article on silver’s long term trends from a few weeks ago where I used the charts of several silver miners that were showing head and shoulders tops to bring to light the possibility of a large correction. The head and shoulders pattern is still intact on SIL and price activity is hovering right on the neckline. Confirmation above the 50 and 200 MA would likely negate the pattern but confirmation below the neckline would initiate a target of at least $16.
Moving on to the weekly chart of SLV, the recent consolidation is still an inside bar bear flag. The lower trendline is where I expect silver to ultimately reach at some point in the future and I believe that a tag of that trendline could be the best buying opportunity we’ll have in silver since the 2010 Jackson Hole meeting. Just be sure to keep in mind that the circumstances in which the level is reached will play a huge factor as to whether or not it becomes the ultimate bottom.
The sum up what I’m seeing on the charts above, SIL served as a leading indicator for the drop in silver as it came 7% off of the highs in the weeks leading up to silver’s apex. Currently we’re seeing similar action from the GDX in relation to gold as the GDX is 9% off of its own peak and gold is continuing to make all time highs as more bulls enter the market. Therefore I’m seeing a few red flags pop up and would advise remaining careful until equities find their footing and gold stablizes.
Regarding the precious metals market as a whole, everything has played out as expected. Gold is making all time highs due to the fear of default and financial problems in Europe, poor economic data in the US, and the downgrade of our debt, which is exactly why we all have been bullish on the metals to begin with. The important thing to remember is that although things are playing out as expected and the fundamentals have never been better, the same thing could have been said for silver in April before the collapse, which if you had bought at the top, you would still be underwater and will still have to wait many months for those highs to be reclaimed.
Caution is the best strategy here. The stock market is getting pummeled and there is no reason to be a gunslinger. A pullback or dip is not a 2% drop in gold in one day after a 15% rally. A pullback is a 5-8% correction over a period of time (I.E.) weeks or months. After silver collapsed some of you may remember me saying ‘I don’t care how far silver comes down, what I care about is how long it consolidates for’. What this means is that time plays much more of a role in a market correction than price does so do not feel pressured to buy more shares of your favorite gold stock in fear of being left behind. That kind of mentality is based off of emotional trading and leaves logic behind.
July 30, 2011 1 Comment
In yet another example of why the news cannot be trusted, US bonds yields were crushed on Friday even though the headline news that has been at the front of everyone’s minds is the possible default on US debt obligations. So in the face of a possible default yields on the 10 year were down 5% on Friday as equities were also down substantially on the opening bell before recovering throughout the session. The market is so used to bonds being fundamentally linked to monetary pressure that traders may have forgotten that there are several other factors that drive bond prices. Ultimately, the US has the ability to pay off its debt by raising the debt ceiling, but the reason why it wouldn’t be paid (hypothetically) would be to lack of agreement in Congress and the White House. Therefore, it’s not the bond that is insolvent per se, it’s the ineptitude of the clowns in Washington to simply raise the debt ceiling and then debate the budget afterward.
That all being said, one could have come to the conclusion that bonds would rally by observing the bullish consolidation pattern on the chart of TLT.
TLT made a 9 month high Friday and was able to pierce resistance at $98. There is still strong resistance at $98 as it came off of the highs after breaking through them earlier in the session and it is possible that bonds may have put in a short term top since some of the fear should subside after the debt ceiling is agreed upon.
Also, a downgrade is looking more and more likely. Moody’s is either making themselves look more foolish than they already are by constantly attempting to grab attention, or they are actually serious about a downgrade and will do so next week. Moody’s, like S&P have missed many obvious ratings in the past (take MBS for example) and it seems foolish for anyone to care what credit ratings they decide to give out. Additionally, a downgrade of US debt without labeling many others across the globe as junk is hypocritical and adds to the ridiculousness of their image. In any case, I would advise staying out of bonds until the outlook becomes clearer but if I had to choose, I’d have to favor the downside in the near term.
The S&P was down about 20 points by 10 am Friday after the news that Boehner’s bill failed in the House overnight but the market rebounded after Harry Reid announced that his own debt agreement bill would be pushed through the Senate. Not coincidentally, the market initially fell into the 200 MA which also coincides with the trendline going back to March 2009. A confirmed break of this trendline will signal a fundamental change in the market. I do expect this to eventually play out but with yesterday’s price activity, it was obvious that it was not set to happen then and there.
Remember the fundamentals of the chart, any time you gap down into or trade straight into a key level without first consolidating, there is usually a 90% chance of that level holding and it usually results in a bounce. For this reason, I have not sold any of my long positions and you can see the market is already sharply off of the lows and managed to only lose .65% with the close on Friday.
To further support my theory, the weekly chart of the SPX shows an inside bar bull flag off of the sharp move up from the Independence Day rally. The pattern is valid as long as it stays above 1258 on a closing basis though I personally won’t hold long positions if the market moves much lower.
I think the more likely scenario is the market sees some upside next week though it may be a bit of a stretch to think that it will break resistance at 1345 which has been an amazing resistance level so far.
Once again, if the powers that be really believed that there would be a default, gold and silver would have been up 5% yesterday and I believe that gold, like treasury yields, confirm the likelihood of a rally in the equity markets next week. Gold should have traded much higher yesterday if there was a legitimate default risk and like I mentioned earlier, situations like this are why the news is secondary to the chart. I have been talking about this for a few weeks but gold is still very extended which should tell us that any bad news is already baked into the chart – and that is why gold did not explode on Friday.
So, to follow up with Thursday’s analysis on silver and due to requests, gold is still extended and Friday’s close of $1628 was less than impressive considering the noise that was going around regarding the debt ceiling. Gold is up 10% in the last four weeks which is the most it has been up in the shortest amount of time since the bottom in October 2008. I have talked about this many times before, but to summarize once again, gold typically makes two peaks during the bullish moves in its cycles. This here is the making of the second peak and it is no coincidence that it is happening as the debt ceiling is being debated. Any debt ceiling resolution should be negative for the precious metals and should be a catalyst for a correction in both gold and silver.
The bottom line is until I see bottoming patterns that coincide with cycle lows in gold and silver, I won’t spend any investment capital on them and they will remain nothing more than trading vehicles until that time.
July 29, 2011 Leave a comment
August historically is one of the worst months for technology and precious metals stocks while financials tend to have a seasonal rally. Investors looking to pick up some quick alpha can play some odd cross currents during this seasonally weak month.
Goldman Sachs (GS) – An earnings miss last quarter should deter investors from going long one of Wall Street’s premier names. Goldman’s earnings growth was very strong on a year-over-year basis. Year-to-date the firm is the leader in M&A and equity underwriting with a strong Tier 1 capital ratio. The recent selloff should be looked at as a buying opportunity.
Wells Fargo & Co. (WFC) – One of the stronger financials in a weak sector with strong Net Interest Margins and ROA when compared with peers. Credit quality continues to improve and its depth and breathe in US retail banking will allow Wells Fargo to lead when the sector turns.
Best Buy (BBY) – The leader in the big box electronics retail segment. Technically, we are putting in a triple bottom and with back-to-school season in full swing electronics sales should see an uptick. Best Buy’s dominant position in this retail segment will drive revenue and profit growth into the fall and Christmas buying season.
Microsoft (MSFT) – The new Windows phones are right around the corner and there will be a massive retail push in an attempt to grab significant market share during the Christmas buying season. However, PC sales growth continues to sputter as tablets are making inroads and Online is bleeding red ink.
Intel (INTC) – Strong second quarter earnings masked significant portfolio weaknesses. Overall desktop sales are flat as smartphones and tablets begin to push out replacement cycles. Intel continues to miss the switch into smartphones and tablets.
Silver Wheaton (SLW) – This stock is everyone’s darling as the unique business plan has been copied by a few other companies. However, silver’s meteoric rise this year means that it becomes more difficult to sign contracts with mining companies to sell silver for $3.90 per share. The change in leadership this year has not brought new contracts and clarity for the future business plan. There are better values elsewhere in the streaming sector.
Silver Standard (SSRI) – Management has overcome problems at Pirquitas in Argentina, but questions concerning sovereign risk at San Luis in Peru have popped up. Technically, we are in the process of completing the right shoulder of a head and shoulders pattern so investors should be wary ahead of earnings.
Yesterday I discussed the possible down move as part of a larger wave in the silver market and credited Seeking Alpha contributor David Urban for some of the research. David has Silver Wheaton (SLW) and Silver Standard Resources (SSRI) as two short ideas for August. David, like myself also called for a reversal in the dollar in advance of it happening a few months back. He also correctly called for a rally in gold and the equity markets over the last two months when equities were at the lows.
Many tech plays are extended going into the month of August. After a debt ceiling hike is agreed upon, the market will likely rally off of the lows but will soon have to deal with poor economic data. The Nasdaq has outperformed the market so far, and technology may be a good area to look in to for shorting opportunities in the near term.
I like the call on financials for the month of August. Financials put in a bottom a few weeks ago and are currently off of the lows made throughout this past week. Bank of America (BAC) is sharply higher today after Harry Reid announced that his plan would make its way through the Senate. Citigroup (C), Wells Fargo (WFC), and Goldman Sachs (GS) have all staged a nice rally over the last week to two weeks and could potentially be putting in a higher low with today’s close.
July 28, 2011 2 Comments
Silver, like gold has been in a bull market since the earlier part of the 2000′s decade and aas everyone knows it has recently peaked just below $50 before a large correction brought it all the way down to $33. Silver has since recovered and is hovering near $40 on the back of the political posturing over the debt ceiling. Silver and gold serve as safe havens versus currency debasement and the risk of a default that could send the OTC derivatives market into another Lehman-type phase should the debt ceiling not be raised. Most believe that the debt ceiling will be raised – let’s face it, the politicians like Obama, Reid, and Boehner will not only not be automatically counted out for re-election, but they would go down as the stooges who couldn’t come up with a simply compromise that had catastrophic repercussions on the global economy. I think that whatever happens, they will manage to get the debt ceiling hiked and that will cause precious metals prices to come down off of the recent highs.
I have recently talked about gold and the three year trend that it is extended from and how it is even now following its own typical cycles going back to 2008 and I have used that as an example as to how a correction in gold would coincide with a debt ceiling agreement. However, it also appears that silver may have even larger cycles that could coincide with the debt ceiling and an agreement could serve as the catalyst for another large move down in silver. From a purely technical standpoint, this is very possible.
Those of you who have been following my recent work may recognize this chart. I have stated that I think that silver ultimately gets back to this trendline on another move down. However, it is not clear if this trendline will be the low, or just a major support level on a large move down that may occur due to an event (however big it might have to be) that sends silver crashing to new 18 month lows. It sounds crazy, and I hate to sound like the bear, but let’s just look at the charts.
Going back to 2004, silver has gone through four waves that have extremely similar qualities. From late 2003 to April of 2004, silver had a run from $5 to $8, which is a 38% leg up. Immediately after peaking, it collapsed to $5.50, a 32% loss. Throughout the next 2 years, it consolidated in a tight trading range and did not make a new high. Then in the summer of 2005 it began another move up, this time it was from about $7 to a high of $15 (over 100%) in the spring of 2006. Towards the end of spring it collapsed to $9.50 – a 37% loss. For the next year it consolidated in a tight trading range before bottoming out in the summer of 2007 around $11.75.
From there it rocketed all the way up to $21 in early 2008 for a roughly 90% gain. Once again, immediately following the peak, it fell from $21 to $16 within a few short weeks for a 25% loss. Silver then consolidated for a few months then peaked again just shy of $20 which was only 5% off of the high. Following that last peak came the financial crisis, where silver lost nearly 60% as it dropped all the way to $9.00 once again.
After bottoming out at $9, it recovered under the QE program and traded higher for the next year or so before consolidating within a tight trading range beginning in late 2009 and ending in summer of 2010. After Jackson Hole, silver shot from $17 to $30, then after a brief pullback, it made a high of $49.50, or a 290% gain from August 2010. This is where it becomes interesting. As we know, silver fell from the highs of nearly $50 all the way to $33/oz for a 32% collapse in less than two weeks. What amazes me is how unbelievably similar the chart looks now as the move up, consolidation, and collapse from 2007 to late 2008. Silver has recently consolidated after the initial blowoff top this past spring, and has made another move higher to about $40 on the back of the debt ceiling argument. It is still 20% off of the highs but the pattern is almost a mirror image of the on made in 2008. If silver is part of a massive five wave cycle, then there is a possibility that silver falls back to levels not seen since 2009-2010. Determining the price target is difficult but there is support at $30, $26, $21, $17, and $15.
Once again, it does sound crazy, but based on the chart patterns, such a move is on the table. However, if silver were to collapse to $17 and then recover once more – perhaps to $25-$30, the next move could be “the big one” as many in the precious metals community have been talking about. Then again, maybe silver doesn’t collapse to $17 and instead only falls to $25 and then recovers to $33 before making another 200-300% leg up which could even take it to over $100/oz.
In any case, its food for thought. However, there is more to this theory than just spot silver’s movements. A huge credit goes to Seeking Alpha and Financial Sense Contributor David Urban for finding the first two charts that I am about to show, the rest I found after researching this further.
This chart is of Silver Wheaton (SLW) which is commonly known as a benchmark silver stock and it is clearly showing a head and shoulder reversal on the weekly chart.
Silver Standard (SSRI), another benchmark silver producer is showing the exact same pattern. Again, credit to David Urban for these two charts, the rest below are ones I found after seeing SLW and SSRI.
Coeur d’Alene (CDE) also a top silver mining stock, SHS top is clear as day.
First Majestic (AG) is showing a sloppy, but valid SHS reversal. The pattern is valid because the high of the head is higher than the high of the right shoulder and the neckline is ascending instead of descending, which would void the pattern. This pattern is sloppy, but the patterns in the other miners confirm AG’s chart.
Great Panther Silver (GPL) also has a sloppier pattern but again, it is confirmed by the other head and shoulders reversals shown above.
Head and shoulders on Alexco (AXU) as well which is another up and coming silver producer.
Global X Silver Miners (SIL) another perfect pattern.
Endeavour Silver (EXK) is a near mid tier producer and again has a slightly ascending, but valid pattern.
This topping pattern is not limited to one class of silver assets, there are juniors, seniors, mid-tiers and ETF’s that are showing the head and shoulders top. This coincides with the analysis I have on silver’s long term cycles and these charts could be potentially be leading indicators for the next leg in the silver bull market.
Does this all play out? Maybe, or maybe not. Like I have said before, the best patterns are failed patterns, and the fundamentals for silver are most certainly favoring the bullish side, but I feel that the size of these moves should not go undocumented since they coincide with current events and with the movements in spot silver over the last 7 years. At the very least, I think we can all agree that they are definitely incredible patterns and are worthy of recognition.