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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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  • Record Short Interest Continuing To Build In Transocean (RIG), But Is It Justified?

    For some context, check out this article from Erik Holm, click here. In the article, we are told that the short interest in the most highly shorted energy stock, Transocean (NYSE:RIG) is 15%. However, when I checked the stock out at shortsqueese.com, click here, it looks like the figure has increased to 24% with 7.2 days to cover. I have been partial to this company, having traded RIG profitably on past rallies. It is a company that I believe in, and over time, should again trade at a much higher level than we see currently. Trading now below $18, RIG has not been this cheap since 1995. Take a look at the long-term chart as follows:

    (click to enlarge)

    The above chart of Transocean Ltd (RIG) shows how RIG rallied from below $10 at the beginning of 1995, to above $18 by the end of 1995. Since that time, at no time has RIG been below $18, until now. The chart also shows the all-time high above $160, but ends in early May 2010. To see what RIG has done more recently, look at the following chart:

    (click to enlarge)

    The above weekly chart of RIG, going back 3 years, shows how RIG traded above $50 in November 2013 and hit $44.06 in June 2014, before tumbling now below $18, just 6 months later. Crude oil is presently fighting to stay above $60, having fallen from the $102.50 area reached in late June. We don't know where the bottom is in crude oil or in RIG, and the momentum by which they have both fallen makes it appear that there is no bottom in sight. Right now it is too early to call a bottom and anyone not involved in the stocks should stay out, until crude oil stabilizes. However, many are looking for crude oil to stop falling in the high to low $50s. RIG could conceivably fall to as low as $9 or $10, but $14 or $15 might be the worst the stock falls to.

    If RIG could bottom in 2003 around $18 and then rally to above $160 in 2008, then expect RIG to again have a big rally when the current carnage ends. A monster rally is virtually assured by none other than the fact that the short interest is so high, and the mother of all short squeezes will at some point commence. Sooner rather than later. If you had picked up RIG at $20 back in 2003, you could have rode it up to $160 just 5 years later, 8 times your money! That pattern could repeat again in the next few years, once RIG and crude oil find their bottom.

    In the long term there is indeed peak oil, like there is peak gold, etc. There is new oil being discovered all the time, but not cheap oil. We are having to drill deeper and use fracking and other methods to extract oil, and the costs continually rise. The worldwide demand for oil (think China) will continue to rise to the point that in 10 to 20 years, it will be hard for producers to keep up with the demand. The current oil glut will be nothing but a short blip and long forgotten soon. I would expect that anyone who buys RIG at current prices and lower, over the next year, should be able to get an average price of $15 or lower if the doomsday scenario in oil continues through the first quarter or half of 2015. However, over the next ten years, holders of $15 RIG should be able to cash out at $120 or higher. I hope to be one of them!

    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.

    Tags: RIG
    Dec 11 1:24 PM | Link | 3 Comments
  • Lower Prices Keep Getting Rejected In Gold, But Gold Struggles To Rally

    Gold Trading Action Is Looking More Positive

    With all of the bearish news last week, including the Swiss gold referendum being voted down, Draghi considering all assets but gold, and Friday's employment number coming out nearly 100,000 jobs stronger than expected, one would have expected gold to have a horribly weak week. However, gold in fact rallied up for the week, closing up $14.90 (1.27%). Here is a look at the daily February Gold Futures Chart:

    When gold bottomed at $1132 on November 7th and formed the big bullish reversal, it then consolidated lower for 4 days. Then on the 5th day gold again exploded higher on Friday November 14th. From that day you can count out 5 days and see that gold again hit another short-term high ($1208.20 on November 21st). Then again we saw 4 days of consolidation lower until last Monday's massive bullish reversal from $1141.70 to $1221, a pop off the low of $79.30 in a single day! Then as the week progressed we got our usual 4 days of consolidation lower which brings us to the 5th trading day being Monday, December 8th, when we should again see an explosive day higher, if we are to continue the pattern we have recently established.

    Whether or not we do or don't see a massive rally on Monday, I am quite pleased to see that Friday's low stopped just under $1187 and gold was able to rally to close above $1190. As long as $1175 to $1180 support continues to hold, February gold should continue its slow and choppy ascent out of the abyss. Current action has yet to turn Gold bullish, but it has definitely changed from a solidly bearish pattern to a neutral pattern. Scalping from the long side under $1200 is still advised, until the $1221 area is retested and hopefully overcome.

    In any case, gold is now in a trading range from $1180 to $1225 with a wider range of $1140 to $1250. The longer it can hold support, the greater the chances are that $1000 is not in gold's future. Every day I am getting more encouraged that $1075 to $1100 will be the lowest gold trades in the current 3 year bear market, and maybe we have already seen the ultimate low.

    On 12/1/14, Silver Had A Bullish Key Reversal For The Ages

    One thing that encourages me is the recent action in silver. Here is a daily chart of March 2015 Silver:

    The December 1st bullish key reversal on both the daily and weekly silver chart is quite impressive. From a new multi-year low of $14.155 to a one month high of $16.730, in a single trading day, is nothing short of mindboggling. Gold may not have already bottomed, but there is a very great chance that silver did bottom on December 1, 2014. Last Monday's low could hold for several months if not years. During the last 4 days of consolidation, silver has retraced very little of that bullish move. For the week, March Silver closed up 70.7 cents, at $16.196, an impressive weekly gain of 4.6%. On December 1st, anyone who was long in the previous 4 weeks of trading was losing big time on the low, but anyone who was short over the last 4 weeks was losing big time on the close. This extreme volatility is what one would expect at a major long-term bottom. It shows major capitulation, first by the bulls, and then by the short-covering bears.

    So What Is Wrong With The Gold Mining Stocks?

    (click to enlarge)

    On Monday's December 1st, the gold metal made a new recent high, hitting $1221, yet GDX failed to get back above the recent high of $20.42, stopping 14 cents below $20. On Wednesday, GDX missed $20 by just 3 cents, before falling back to $18.75 on Friday. For what it is worth, GDX suffered a flash crash on Wednesday, hitting a low of $17.72 before quickly recovering. You can read about it here. But if you think the large gold miners underperformed, look at the Junior Gold Mining ETF (NYSEARCA:GDXJ) chart as follows:

    (click to enlarge)

    GDXJ is sitting just $2.33 above the recent low of $22.34. Just like the small stock Russell 2000 is greatly underperforming the S&P 500, the Junior miners are not performing well at all, when compared to the majors. A true bottom cannot be found in the miners until the Juniors start outperforming. It may take gold trading above $1250 to turn the negative sentiment around. When it does turn around, the GDXJ and triple leveraged JNUG, will see the greatest percentage gains. JNUG is now trading just above $3. I still say that JNUG offers great bullish scalping opportunities at $3 and lower, just scale in your buys and take profits on any and all rallies.

    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.

    Dec 07 6:07 PM | Link | 8 Comments
  • Natural Gas And Triple Leveraged UGAZ Are Looking Cheap Again

    What price is natural gas expected to trade over the next few months? Check out www.forecasts.org by clicking here. In December 2014, the average spot price should be $4.30. In January the price moves up to $4.88 and February projects a price of $5.60. By adding or subtracting the number of cents at the 50% or 80% confidence levels, one can project an expected range where natural gas should trade. The 50% level is a tighter range, but there is only a 50/50 chance the true average price falls within the expected range. The 80% confidence level is a much wider range because there is an 80% chance natural gas will in fact end up at an average price in that range.

    Being a cold winter last year with high prices probably plays some part in the current high forecasts. Many prognosticators are calling for a similar cold winter this year. Others are not. However, with January Natural Gas closing today at $3.874, you would expect to see a bottom soon, to be followed by many rallies (Note: If one correctly scale in buys into UGAZ at the current trading prices, it shouldn't really matter much if we don't boom much). A cold winter rally in UGAZ is just gravy.

    Hard to believe that just 7 trading days ago, January Nat Gas hit a high of $4.689. From that peak (created when November had a very early cold spell), natural gas has now fallen 17.4% and so triple leveraged UGAZ should have fallen 52% off its high (Note: Big money must have been shorting into UGAZ on the highs as UGAZ underperformed at the top and therefore has only fallen about 44% so far). Just another reminder that triple leveraged ETNs (and ETFs) should not be held longer than a few days at a time, when following the trend. It is challenging trying to recover from a 50% drawdown. When the trend changes (which in nat gas is about every 4 to 7 days), one should get out and look to go the other way.

    (click to enlarge)

    The above daily chart is of the triple leveraged bullish natural gas ETN (NYSEARCA:UGAZ). One can see that in late July 2014, UGAZ started basing around $14. For over two months, UGAZ traded quite orderly between $14 or a bit lower maybe to $13.30 and as high as the mid $16s. There were numerous 3 to 5 day swings up (where UGAZ would have done well) and then down moves for 3 to 5 days (where DGAZ would have made money). But then in the middle of October, the $13.30 support gave way and UGAZ fell to $10. However, it was not a problem because in just 8 trading days off the bottom, UGAZ traded above $18. Then as expected, UGAZ fell back to support at $13 before making another 5 day swing back to nearly $19. On Friday, November 28, 2014, UGAZ traded to the $13.25 support area where many got back long. However, a warmer than normal weather forecast for the last half of December over the weekend, knocked natural gas down hard this week, and in just two days, UGAZ has fallen from $13.25 to $10.50. We know that $10 should be good support and even if UGAZ should overshoot to the downside to $9 or lower, one can anticipate a $3 rally back up off any low with a $6 or $9 pop if and when the weather turns cold again.

    For those traders who failed to take profits in UGAZ when it traded above $16 recently, the recent selloff has been quite painful. However, with winter just beginning, there are lots of opportunities for rallies where a trader can unload. Let this nasty selloff be a lesson not to hold your position for longer than a few days at a time. Repeat after me, "I will sell out 50% or more of my position in 2 to 3 days and be out completely in 5 days". Learn to balance by buying some DGAZ in a teeter/totter fashion.

    Short-term or teeter/totter or lose most of your money. Those are your only 3 choices. Don't pick the last one!

    Buy in gradually on the way down, and sell out gradually on any and all strength. Buy low. Sell high. I repeat, this is not a trade to hold for an entire winter season. For anyone not already in, the $10.50 and lower price range in UGAZ is quite inviting. If one scale in buys at $10.50 and adds some shares every 50 cents lower, one should do well, especially if one holds back some cash to be able to buy on a break to as low as $7.50. Remember, when $13.30 was support, UGAZ dropped to $10 (25% drop). If $10 support gives way now, adjust your buying so you can still buy shares 25% lower, down to $7.50. By planning ahead for lower prices, one will not be shocked when natural gas turns skanky and makes a new low for no good reason (which it loves to do). By planning ahead, one will remain calm and confident and not panic and sell out at the bottom!

    Wherever UGAZ bottoms between $10 and $7.50, expect to see a minimum $3 rally off any low in short order as UGAZ swings up and down. On strength, take partial profits. On three days up, sell out maybe half, with the remainder cashed in on the 4th or 5th up day. If you don't want to lightly start buying DGAZ to play for the next selloff, then just sit in cash or trade elsewhere and wait for great prices to buy. Look for times when UGAZ has fallen 4 or 5 days in a row to get in cheap and play for an oversold bounce.

    Winners are slow and steady getting in, but snatch profits quick when offered!

    Losers buy early and big, run out of money with nothing to add at lower prices, then hold for weeks or months while suffering slippage and decay.

    When December Natural Gas failed to move above $4.50 on the recent retest of the highs, I got out and have not been in since. In fact, I sold nearly all of my position in the low $16s, a couple days from the high. I have not traded since, because I checked out firstenercastfinancial.com and saw some early projections for warmer weather coming up in the future. They will use any excuse to knock natural gas and UGAZ down so it is better to sell out too soon, than to sell too late. Right now, anything above $16 is gravy and one should cash out when trading at lofty levels. Buying $13 to $14 is just getting value and will make minimal money with lots of frustration and pain. However, buying $10.50 and lower is extreme value. I like to buy when extreme value is being offered...like now.

    I will be playing UGAZ again starting on Wednesday, December 3, 2014, and posting comments in Stocktalk. Happy trading.

    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.

    Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in UGAZ over the next 72 hours.

    Dec 02 7:48 PM | Link | 18 Comments
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