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Robert Edwards
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Contrarian daytrading technician who specializes in locating high probability short term trades while predicting price movement directions with over 85% accuracy. Most of my trading involves either extremely short term micro scalping of stocks or commodities (using 1 minute bar charts), or swing... More
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  • Are There Any Clues In The Monthly Charts Of The Currencies?

    Another month of trading just ended and I enthusiastically printed off the monthly charts to see if I could discern future directions in various futures and commodities. I did find a few interesting developments, and will discuss in this article, some thoughts on the currencies.

    The Canadian Dollar

    The above chart is the daily chart of the March Canadian Dollar. In the past 4 weeks, it has dropped about 800 ticks, from .8600 down to .7800. Pretty amazing drop in a short period of time. Here is a look at the monthly chart to give some perspective:

    Back in late 2008, early 2009, the Canadian Dollar traded down to as low as .7653. This week we came within about 150 ticks from that major low. Having been caught in a 7 month downtrend, we are overdue for at least some 2-way action, even if we keep going down. I have a feeling we will now trade a few months on both sides of .8000. If you want to look at an even longer term chart of the Canadian Dollar, click here. You can see from this chart that in late 1976, the Canadian Dollar traded at just a shade over par with the US Dollar, at about 1.0170. But it then started a long downtrend that lasted over nine years, to just under .7000. During the drop, the Canadian Dollar bounced first off of .8350 and then just under .8000. Next stop was .7600 and finally .7100 and the low of about .6900. From that low, the Canadian Dollar rallied for 5 1/2 years to just above .8800 in late 1991. Then started another selloff with bounces at .8100, .7600, .7400 and finally .7000. The .7000 support would hold for nearly 3 years, before it rolled over again and fell to about .6250 in the summer of 1998. After bouncing back to the .7000 area which then became resistance, the ultimate low was made in January 2002 at the .6200 level. Hard to imagine that just less than 6 years later, in November 2007, that the Canadian Dollar would rally all the way back to 1.1000. Then in late 2008, to early 2009, the Canadian Dollar would fall down to the .7653 low previously mentioned.

    What does this exercise tell me? Well, it lets me know that the .7600 area is an area that the Canadian Dollar bounced from, in early 2009, and earlier back in 1992 and in 1982. If that support level gives way, there is extreme support in the .7000 zone. It is unlikely that the Canadian Dollar trades below .7000 without first bouncing several times off the lows. Since we have fallen 800 points in just the last month, we could be at the .7600 support level (another 200 points lower) in a week, and at .7000 (600 points lower) within a month, based on the speed the Canadian Dollar has been falling recently. I will be looking for a low risk setup where I can go long the Canadian Dollar to try to catch a falling knife, but will have to be careful for at least another month, as the current downward momentum is substantial. For those who do not play currencies on the Forex market, or Canadian futures contracts, one can play the ETF, symbol FXC.

    The US Dollar

    The US Dollar monthly chart is shown above. You will notice that the US Dollar has risen for 7 straight months, with the largest rise coming in January 2015. This reminds me of October 2008, when the US Dollar also rose for 7 straight months with the biggest move higher coming in the 7th month. The next month, in November 2008, the monthly chart shows a Doji pattern, with a slightly higher high, a long tail at the bottom, and a close almost unchanged. No surprise that in December 2008, the US Dollar fell really hard. From the November high of just above 89.00, it fell over 1000 ticks to just under 79.00 before rebounding. Just 3 months later in March 2009, the US Dollar made a marginal new high just under 90.00. When the stock market began the recovery from the financial crisis, and oil and gold moved off their lows, the US Dollar topped out. By the end of 2009, the US Dollar would fall all the way down to the 74.00 area. But just 7 months later, in June 2010, the US Dollar had rallied all the way back to nearly 89.00, only to fall below 76.00 just 5 months later, with an ultimate low in the high 72.00s just 5 months after that.

    So when there are people calling for a continuous rise in the US Dollar throughout 2015, I have to almost laugh. The US Dollar has already rallied into some pretty good resistance areas. And in the past several years, after a 7 month rally, it is time to begin looking for a move the other way, or at least a small correction and consolidation period.

    To get a perspective on where the US Dollar has traded in the past, click here. In September 1985, the US Dollar hit its all-time high trading price of 164.72. Amazing to see that in late 1987, just over 2 years later, the US Dollar would fall to 85.42. After that, the US Dollar traded in a wide range from about 78 to 105 for over 12 years. In late 1998, the US Dollar hit just above 103, but then corrected back down to 95 before beginning a rally that would eventually reach 121.29 in 2001. When the 92.50 support level was broken in 2003, that level became resistance and held all rallies until the recent rally we now have experienced to just under 96.00. Could the US Dollar keep rising? Sure. However, there is formidable resistance just ahead at 98, 100, 103 and 105. One of these levels should stop the US dollar from rallying and cause a significant correction or worse. The US Dollar has rallied 16 handles in the past 7 months, from under 80, to just under 96. Over 5 handles were surpassed just in January alone. I am just saying that the US Dollar is due to stumble with another 2, 4, 7 or 9 full points. I will be looking for two-way action in the US Dollar, to be evident when future resistance levels are reached. We should hit some significant resistance in February 2015, and could then begin moving in a sideways pattern for a few months. However, by April or May 2015, I expect the US Dollar should have exhausted itself and should then begin a significant correction, allowing crude oil and other commodities to hopefully bottom and begin a significant rally.

    The US Dollar presently has a lot of bullish momentum and should probably continue rallying a bit further. However, traders have loaded the boat with long US Dollar positions vs. about every other currency that trades. When the boat gets loaded this heavy, it is apt to tip over, causing maximum pain and grief. Just ask the Swiss Franc traders who were short the Swiss Franc recently and got caught on the wrong side of the trade. Look at the daily chart:

    The Swiss Franc

    The January low in the Swiss Frank was .9777, but the high was 1.2282, an almost instant rally of 25%. The Swiss Franc has since dropped to the 1.0800 level but that is little consolation to the companies and institutions that got wiped out on the volatile move up and slower move back down! In a couple weeks, the Swiss Franc has given back nearly 1500 ticks, or about 60% of the 2500 tick rally. It still cautious one not to put on the obvious trade. If something is that obvious, it is probably wrong. Right now I see being long the US Dollar as the most obvious current trade to put on. Being too obvious, I feel the tradewinds are likely to begin to blow the other way sometime in the not too distant future.

    The Euro

    Looking at the monthly chart of the Euro, one can see how in 2008, the Euro fell from the 1.6000 level to a low of 1.2326 in just 4 months. After bottoming in October 2008, just 2 months later, in December, the Euro would hit a high of 1.4687, retracing nearly 65% of the downmove before falling back to the 1.2500 support level a couple months later. After bottoming in 2009, the Euro had a nice 9 month rally from the 1.2500 level to 1.5144. But just seven months later, all that rally and more was given back, with a new low of 1,1874 hit in June 2010. That was followed by a 5 month rally, a one month correction, and another 5 month rally, to just under 1.5000. After 4 months of sideways action into resistance, the Euro then started a down move in September 2011 which coincided with the major top in gold. After bottoming again just above 1.2000 in July 2012, the Euro began rallying, topping out in the 7th month at 1.3715, and another 15 months after that at 1.4000 in May 2014. It has pretty well been all down hill for the past 9 months, knocking out the 1.2000 support handily, and dropping to as low as 1.1102 so far. If you click here, you can get a look at the long-term support levels for the Euro. Since 1990, the Euro has spent almost no time below the important 1.1000 level. We are almost there right now. When it did break below 1.1000 in 1997, it quickly rebounded to the 1.1500 level and eventually the 1.2100 level, before making a new low near 1.0100 in 1999. The real low came in the year 2000, at .8252. Hard to believe that after consolidating near the lows for over a year, that the Euro would begin a nearly 8 year rally that would take it to near the 1.6000 level. If you look at the long-term chart of the Euro, you will find a tendency to move up or down 3000 ticks, or 30 handles. Subtracting 30 handles from the recent high of 1.4000, gets you to 1.1000, just one handle below the recent low. The Euro could be much closer to a bottom than anyone now realizes. At some point, all the bad news gets factored in, and even if the fundamentals continue to deteriorate, a stock or currency can bottom and begin a rally as traders look past the abyss, into the more positive future. One such time could be fast approaching now.

    Disclaimer:

    The thoughts and opinions in this article, along with all Stocktalk posts made by Robert Edwards, are my own. I am merely giving my interpretation of market moves as I see them. I am sharing what I am doing in my own trading. Sometimes I am correct, while other times I am wrong. They are not trading recommendations, but just another opinion that one may consider as one does their own due diligence.

    Feb 01 5:06 PM | Link | Comment!
  • Gold Could Fall Back $25 To $50 But Then Should Move Up $100 To $150

    Important Articles Uncovered In My Research

    The parabolic bullish move in gold this past week is nothing but impressive. The fact that it occurred at all, tells me there is a serious bid under the market and that for the time being, I want to remain a bull! However, reaching the $1300 to $1315 resistance point, it looks like we are probably in for a small consolidation period before again moving much higher.

    In doing my research, I have uncovered several articles that I have found helpful that I want to share with followers of this blog. I first saw this article from Ed Steer with Casey Research, found here. The key part of the article is when he wrote:

    "Gold is some distance above its 200-day moving average---and the RSI trace is well into overbought territory. Silver has now kissed its 200-day moving average---and it's moved into overbought territory as well.

    With the ugliest Commitment of Traders Report in years, all the warning flags are snapping in gale-force winds---and using the past as prologue, it isn't looking good.

    Could gold and silver power higher in price from here? You bet. Could JPMorgan and the other short sellers of last resort get over run? Yes, but as Ted Butler has been saying for at least fifteen years, if they do, it will be for the very first time. "

    During the current gold and silver rallies, commercials and other large players have gotten more short now than when the rallies started. These big players don't tend to lose in the long run, so at least a consolidation period is probably in store.

    Also Michael Noonan of Edge Trader Plus, click here, at the end of his article, finishes with a gold weekly and daily chart. On the weekly chart he points out that last week's range is a small range while volumes increased. Greater effort yielding less upside results is a red flag, telling us a correction could be at hand. Mr. Noonan concludes that a

    "retest lower on less volume and smaller range bars could set up a buy(ing) opportunity in the paper market. The 1240 area would be one to hold, if price retraces to that level."

    There is also the article written by Andy Waldock of Commodity & Derivative Advisors, that you can find here. Andy likes platinum over gold, as it is rare that platinum trades at a price below the price of gold (due to scarcity of platinum). On Friday's close, April Platinum futures closed about $25 below the price of April Gold futures. He is very cautious being long gold in here.

    Even Bernard Stegmueller Jr of Fusion Trading Zone, click here, thinks it is dangerous getting long gold at these lofty levels, despite the fact that he titled his article, Gold Looks Like The Real Deal. He gave some excellent trading advice when he suggested:

    "I would recommend the 1271-1273 level with stop loss under 1240. On the up side, my next two resistance levels are 1316-1319 and 1338-1340. I think if we can see a retracement back near the 1270 level I would recommend looking at June call options. My overall opinion is I like the gold market higher, but my recommendation is to buy in on a dip, be patient, and let the market come to you." Very well said!

    I will end this segment with a Friday video from my favorite, Gary Wagner on Kitco, click here. Gary points out how gold recently broke out above a downtrending line and could have completed wave 4, which only leaves the explosive wave 5 to much higher levels. And also check out this quick article from Jordan Roy-Byrne, click here.

    So Where Do I Believe Gold Is Heading Next?

    First of all, Sunday, Jan. 25, 2015, we have Greek elections and there is the possibility that a new government could choose to move out of the Euro. Not that great of a chance of course, but the uncertainty could pop gold come Monday morning. Beyond that, we should now consolidate lower, with the first support level being in the $1270 area, with major support in the $1250 area. I plan to aggressively buy April Gold futures in the $1250 to $1270 area, as I don't see the $1240 support area giving out.

    After this small correction which should be concluded in about 5 to 7 trading days, I see gold beginning a rally towards $1350 and possibly as high as $1400, over the next 4-5 weeks, taking us into the first week of March 2015.

    On Friday, I bought some Iamgold (NYSE:IAG) at $2.83, and will add on any further dips to the $2.60 level or lower. It is unlikely IAG falls much below $2.40 to $2.50 if it should fall that far, before again retesting recent highs towards $3.50.

    Disclaimer:

    The thoughts and opinions in this article, along with all Stocktalk posts made by Robert Edwards, are my own. I am merely giving my interpretation of market moves as I see them. I am sharing what I am doing in my own trading. Sometimes I am correct, while other times I am wrong. They are not trading recommendations, but just another opinion that one may consider as one does their own due diligence.

    Jan 24 11:01 PM | Link | Comment!
  • Gold Is Showing No Real Signs Of Topping

    At Kitco.com you can check out the VantagePoint indicator where a prediction is made as to whether or not gold and silver will be higher, lower or mixed, for the following day. Today I clicked here and found that Monday both silver and gold should be higher. Lately VantagePoint has been correctly bullish. Do not be surprised to see the bull trend in gold continue into the immediate future, despite today's minor correction off resistance.

    In my last article on gold, click here, I mentioned how gold is barreling towards the $1300 to $1315 resistance area in February Gold futures. Well, so far February Gold has reached $1307.80 and then fell back on a bit of profit-taking and consolidation of recent gains. As I mentioned in my last article, a year ago there was an early January surge higher similar to what we are seeing now. Then the 3rd week of January we saw a bit of consolidation. Then another surge occurred through February 2014. I am looking now for a similar one week consolidation that we are seeing now, and then an explosion higher. If $1315 is taken out on the upside, expect to see a quick move towards $1400 on massive short-covering by the bears. In any case, I like buying all dips in gold and the miners right now. I don't see February Gold futures falling much below $1275 before we begin another surge higher.

    I mentioned on Stocktalk yesterday that traders should take profits in Iamgold (NYSE:IAG) at $3.22 or higher. It turned out to be a very timely call as IAG topped at $3.25 and rolled over. Today I suggested buying IAG in the $2.80 to $2.90 area, and recommend buying more shares every 10 cents lower. IAG should bottom between $2.60 and $2.80 and then begin a surge higher towards $4 to $5, if we get the bullish breakout in gold that I am looking for.

    Disclaimer:

    The thoughts and opinions in this article, along with all Stocktalk posts made by Robert Edwards, are my own. I am merely giving my interpretation of market moves as I see them. I am sharing what I am doing in my own trading. Sometimes I am correct, while other times I am wrong. They are not trading recommendations, but just another opinion that one may consider as one does their own due diligence.

    Jan 23 11:01 AM | Link | 2 Comments
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