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Robert Duval
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Professional Independent Trader, 16 years. Started as a equity index futures floor trader, now swing / intermediate trade, US stocks, international ETFs and stocks. Believe in correlation of markets, must undertand all markets to trade one well. Self taught by studying myself and other... More
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  • An Intermediate Term Bottom In The Commodity Complex May Be In Place

    This will be a short post outlining an opportunity in a most distressed asset class; the commodity complex and its related stocks.

    Firstly; I likely do not need to express to many how low the sentiment is on commodities. To summarize, they are hated, feared and despised as an asset class, from Oil to Corn to Gold and Copper.

    All have very high levels of negative public opinion, high levels of speculative shorts, and opposite high levels of smart money hedgers with net long positions. This is very bullish for at least a countertrend rally.

    Next, a partial cause of this persistent pain, besides of course China restructuring to a domestic economy and a sluggish world, is the incredibly strong US dollar -- Until the last 2 days that is. The Dollar may have put in an intermediate top here -- and the Fed as expressed in their minutes today, would be fine with that. It is abundantly clear the Fed will overtly fight a strong US Dollar:

    UUP Chart

    UUP data by YCharts

    A significant lasting break; above 23 would likely invalidate this top.

    I like to buy assets in times of panic, and I have a few charts to show you. One is Crude oil, (NYSEARCA:USO) and the small producer EXXI, which after a breathtaking selloff on oil prices and production concerns, staged a massive reversal from the lows on titanic volume: (5 day chart) Many other energy names staged similar reversals.

    USO Chart

    USO data by YCharts

    EXXI Price Chart

    EXXI Price data by YCharts

    One catalyst for energy achieving at least a decent oversold bounce, simply is the pending onset of winter, which according to Farmers Almanac, is expected to be cold as last winter was. This is catalyst for both oil and Natural gas names, which I bought aggressively yesterday and this morning.

    The other commodity of interest to me are the grains, which over the last 3 days have sharply rallied out of multi-month downtrends, and are attempting to change their major trend to the upside. This is without any help, until today from the Dollar. I am most interested in Corn and Soybeans for my long positions: (here are the ETF's for both) Again, the bullish sentiment is rock bottom for both of these:

    CORN Chart

    CORN data by YCharts

    SOYB Chart

    SOYB data by YCharts

    Always remember -- the Fed is looking to raise inflation expectations. They may fail -- but not likely quit trying. Recent developments have convinced me -- that Fed rate hikes are likely "off the table" -- for all of 2015!

    To summarize to Followers, as I have posted on the "land of Milk and Honey" Instablog where I sometimes write, I completely covered my short positions in (NYSEARCA:IWM) and most momentum / social media stocks over the last day and a half, as we have sharply sold off.

    I began buying yesterday afternoon, energy and materials stocks in Oil, Natural Gas, and a couple of Coal names. Some names to follow of interest would be (NYSE:ECA) BTU) and (OTCPK:BIREF)

    ECA Chart

    ECA data by YCharts

    BTU Chart

    BTU data by YCharts

    BIREF Chart

    BIREF data by YCharts

    Bring on the cold Winter and a weak dollar!

    Best wishes to all investors.

    Disclosure: The author is long CORN, SOYB, BTU, BIREF, ECA, USO, EXXI.

    Tags: USO, JJG
    Oct 08 9:47 PM | Link | 4 Comments
  • Technical Evidence Grows For A Serious Market Correction

    This uninterrupted rally in the large cap indexes took a pause this week. Will this simply be the pause that refreshes; or is this week a precursor to greater volatility ahead?

    This post will focus not on the fundamental news of the US economy; which are lately encouraging, but purely on the technicals of US indexes and related markets.

    However; I do not see the chance of the first sustained correction in three years during the backdrop of an improving domestic economy as mere coincidence. It is clear market participants for some time in this cycle have been more concerned with central bank liquidity than actual economic strength.

    This has been a trend for so long, it is possible even a minor pullback in central bank accommodation that we are seeing -- will lead to a more substantial correction than in past cycles. Although in past cycles markets have not responded with risk-off movement until the Fed has raised the discount rate several times, this is not a normal cycle, few would argue. I continue to recommend caution, both for these reasons and the technicals I will lay out.

    First chart is the large cap SPX, which this week held its 50 dma:

    ^SPX Chart

    ^SPX data by YCharts

    However; please examine the Russel 2000 via its ETF, the IWM. Note both the recent lower high and proximity to key support at the 110 -108 level: IWM Chart

    IWM data by YCharts

    Sustained trade below 108 would confirm a major trend change for this index. I note volumes on selloffs have been heavy and light on rallies.

    Next in Junk Bonds (NYSEARCA:HYG) , which have a long correlation with stock market indexes, again nearing key support in the 90-91 area:

    HYG Chart

    HYG data by YCharts

    Next, Lets examine a key long time bull market leader, Amazon: As you can see, AMZN is now in a weekly downtrend:

    AMZN Chart

    AMZN data by YCharts

    Other Tech stocks like (NASDAQ:AAPL) and (NASDAQ:FB) continue their leadership, but Nasdaq leadership is narrowing.

    Second tier Social Media and Momentum names like (NYSE:YELP) and (NYSE:WDAY), among many others, have already broken down:

    YELP Chart

    YELP data by YCharts

    WDAY Chart

    WDAY data by YCharts

    Next, some international markets -- Canada (NYSEARCA:EWC) which this week violated key weekly support:

    EWC Chart

    EWC data by YCharts

    Germany, which continues in an incipient weekly downtrend; despite ECB support: EWG Chart

    EWG data by YCharts

    And broader (NYSEARCA:EEM) emerging markets, which were rejected off of weekly resistance, are headed lower. Overall, The US S&P 500 is one of the only world indices with a clear intact weekly uptrend -- such divergences in past history do not last too long.

    EEM Chart

    EEM data by YCharts

    In addition; I continue to be cautious about housing, because the homebuilders index is not responding to positive housing news, and the index could be forming a top that goes back close to 2 years. Key levels here would be the July lows in the low 29's, then the 28 level from 2013. Housing is a critical component of the economy, and it could be that higher mortgage rates lately are having, or will have an impact:

    XHB Chart

    XHB data by YCharts

    US 15 Year Mortgage Rate Chart

    US 15 Year Mortgage Rate data by YCharts

    Note also Zillow's weakness, tied to housing: (NASDAQ:Z)

    Z Chart

    Z data by YCharts

    Other sub-indexes are still in clear uptrends, but edging closer to support, and bear monitoring. Also Note the VIX index, which despite new (SPX) highs, maintained a "higher" low:

    VIX Chart

    VIX data by YCharts

    One more Chart -- the widely diversified, developed nation ETF (NYSEARCA:EFA), which sure looks to be forming a very large H&S pattern. One should question, how long the US indexes can rise on their own:

    EFA Chart

    EFA data by YCharts

    Conclusion -- these are all incipient caution signals for the large cap indices. Small cap indexes are another story, and risk should immediately be reduced in small cap and momentum type stocks. A hard protective stop should be set on small cap exposure on any violation of IWM below 107.5.

    Stay closely tuned.

    I maintain a net short position in (NYSEARCA:IWM) (YELP) (NASDAQ:AMZN) (Z) (WDAY) and other momentum stocks, against a smaller long position in China "A" share and India small cap share ETF's

    Best wishes to all investors.

    Disclosure: The author is short AMZN, Z, YELP, WDAY, IWM.

    Tags: SPY, EEM, IWM
    Sep 27 3:09 PM | Link | 36 Comments
  • Shift In The Wind -- Leaning Defensive Again.

    Wow this has been a tough market to navigate -- at least for me.

    I admit it's been a difficult market to maintain a clear "vision" about -- and "without vision the people perish". In one sense I accept that I've done a certain amount of "flip - Flopping" -- but it seems the issues I wrote about in my "get defensive -- raise cash" article continue to strengthen.

    Although the SPX and DOW are showing little concern, the divergences are literally screaming at me, they are so overt now. I cannot ignore them and therefore am firmly back in the defensive camp, with high PE / momentum shorts put back on against "value" long Emerging Market exposure.

    This week, the Dow Industrials, Transports, and Financials had a great week. All is well; correct?

    Look at the following charts -- Small Cap Russel 2000.

    IWM Chart

    IWM data by YCharts

    Also Study the deterioration in NYSE New highs / lows and the Cumulative advance / decline line -- speaks to the narrowing of the rally. More on this from Northland Trader -- excellent work:

    northmantrader.com/2014/09/20/weekend-ch.../

    Note persistent weakness in EEM, which I am long term bullish on, particularly India and China. Regardless, the large Cap (NYSEARCA:FXI) remains very weak, even with stimulus this week:

    EEM Chart

    EEM data by YCharts

    FXI Chart

    FXI data by YCharts

    Europe is also struggling, even with their version of "QE lite" announced: (Here's Germany)

    EWG Chart

    EWG data by YCharts

    The accumulated evidence had me blow out my energy exposure this week, at modest losses, as this sector shows unrelenting weakness, along with all commodities:

    XLE Chart

    XLE data by YCharts

    Oil may well break down below $90 basis WTI -- I just am unwilling to take that risk: WTI Crude Oil Spot Price Chart

    WTI Crude Oil Spot Price data by YCharts

    Can large cap US markets ignore all this, for a period of time, weakness in every international market (except India) and in the broader Small Cap universe, which is supposed to lead during strong dollar periods and economic acceleration?

    Sure it can -- but investing is a risk reward exercise -- and it's time to strongly consider the "risk" side. Another factor this week, and in the weeks to come, is supply. The largest IPO in history, Alibaba, debuted, and in response on Monday, many Social Media stocks cratered, as (NYSE:BABA) investors made room for their new addition. Not too surprising -- but afterwards there was little "bounce" even as the leaders like FB came back. In Fact; the whole Social Media group "could" be forming a head and shoulders top here:

    I have shorts on in several weaker members of this group. I will be watching the tech "generals" like FB, AAPL, AMZN, TWTR for confirmation on this group's direction.

    SOCL Chart

    SOCL data by YCharts

    Another macro factor I am watching -- is Five year treasury rates. This week they made new post 2011 highs. In a market where there has been so much corporate borrowing -- interest rates are still low -- but need to be watched closely:

    ^FVX Chart

    ^FVX data by YCharts

    Mortage rates are on the move too:

    US 5/1 Adjustable Rate Mortgage Rate Chart

    US 5/1 Adjustable Rate Mortgage Rate data by YCharts

    Interesting as the ridicule of those getting cautious ramps to new levels. Listen to this on CNBC, as Bill Fleckenstein is lamblasted by the CNBC experts for being cautious here:

    www.businessinsider.com/bill-fleckenstei...

    Seth Klarman is AGAIN warning investors to be careful.....I find it hilarious some would call warnings like this an "agenda".

    I respond -- "That's Ridiculous!". Seth Klarman is not a boiler room internet blogger trying to manipulate stocks. Look at the messenger -- and his record. Enough said.

    www.businessinsider.com.au/seth-klarman-...

    Really interesting phase we are in here.

    I remain long India Small caps and China "A" shares; (not FXI) against larger shorts in selected Social Media and Momentum stocks.

    Be careful out there...Best wishes to all investors!

    Tags: EEM, SPY, IWM, SOCL
    Sep 20 1:00 PM | Link | 7 Comments
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