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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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  • Copper, Equities, Energies, Currencies: Where Are The Markets Heading?

    Copper

    I am skipping the metals other than copper since I already addressed the other metals in yesterday's article you can find here. We will begin by looking at the daily chart of September Copper:

    If you have been following my recommendations, I have been playing copper about as well as you can play a commodity market. In early June, I began buying just above the $3.00 bottom, and took profits on the rally towards $3.15. I went short at $3.14 and $3.174 as I was then looking for a retest of the lows. However, when we rallied to $3.20, I reversed and went long, quickly recouping my loss and making money on the rally to the $3.29s. I then called for shorting copper against the $3.30 resistance which worked out perfectly. In the low $3.20s, I took profits on my short positions and began playing the long side, believing we would bottom between $3.18 and $3.15. The actual low was $3.1675. I rode copper back as it topped on Friday at $3.2790, but bought back long just under $3.24. The large white candle of Thursday, 7/24/14 should continue to cause traders to buy copper on dips until the $3.30 level can be retested. I do not know if $3.30 can be taken out, or not, but I would get out of longs on a move into $3.30 resistance and then try to catch a move on a breakout above $3.30, or get short if we cannot overcome $3.30 and begin falling back down. When copper approaches significant support or resistance points, it tends to go sideways for several days so I suspect September Copper will trade for several days now back and forth between about $3.24 and $3.30, marking time before the next big move. For those who trade stocks instead of futures, one can follow along in the Copper ETN (NYSEARCA:JJC). The base metals started out 2014 looking very bleak, but nickel and zinc bottomed early on, and have well established up trends. Aluminum and copper are showing some life, but have not yet given strong buy signals. Copper needs to move above $3.30 to prove that the bottom is in. They say copper has a doctorate degree in Economics, and should be leading the stock market higher. So far copper has been more of a follower than a leader, but that needs to change if the stock market is going to continue to move higher.

    Equities

    It has been awhile since I have commented on the stock market, as I feel the market continues to be overbought and like my chances better playing elsewhere. Without a sizable correction over the last couple years, it is getting more and more dangerous staying long. However, we have yet to see any indication we are near a top. Take a look at the daily chart of the September E-mini Dow Jones:

    The Dow has closed down for three straight days, but made very little progress to the downside until Friday. For the last 7 weeks, the Japanese candles have long tails. One of the reasons that I like to look at Japanese candlestick charts is to identify patterns and to look to see if there are long tails on black candles (markets closing far off the lows on down days) or long wicks on white candles (markets closing far off the highs on up days). For several weeks, traders have come in and bought stocks on very minor dips, causing the E-mini Dow Jones chart to display the long tails that you see on the chart. This is extremely bullish action which leads me to believe that we will continue moving sideways to higher for the time being. In fact, after 3 down days, I would be inclined to go long the E-mini Dow Jones Futures on Monday, especially if I can buy it around 16800, nearly 100 points down. Recently the E-mini Dow Jones Futures does not like to correct more than 250 to 275 points, and thus 16800 or a bit lower, should be excellent support, for a few days anyway.

    The market has been steadily moving higher for so long, it would be very difficult to imagine a scenario where the market suddenly plummets down. A more likely scenario is for a final blow-off top, where we rally straight up for maybe a week, causing all the bears to be forced out. At that point, it would be a great time to finally go short the market. Until that occurs, buying the 2% dips remains the only trade to be doing. As we approach the 2% drop level early this coming week, I plan to scalp from the long side in either the September E-mini Dow Jones or the September E-mini Nasdaq 100. We can look at that chart now:

    You can see that the Nasdaq 100 chart is more bullish than the Dow Jones chart. Corrections have been shorter and shallower. The red line on the chart is the 18 day moving average and rarely do we correct down to that line, and when we do traders buy again and move the chart to higher and higher levels. Whereas the Dow Jones chart looks a bit toppy, the Nasdaq 100 made a new high just on Thursday. If one wants to get long, the Nasdaq 100 is the place to do it, as it is showing the most relative strength. When I want to go short in anticipation of a short-term drop, I favor selling the E-mini Dow Jones, and when I see a short-term rally coming, I favor buying the E-mini Nasdaq 100. The trend is straight up with new highs being made almost daily. Nothing better than buying the first dip from a new high!

    Energies

    The chart action in the September Crude Futures of the last two days, reminds me of the action of June 23rd and June 24th, when crude oil was topping. On June 25th crude oil made a marginal new high of $106.64 and then rolled over to eventually trade just below $99 about 2 1/2 weeks later. I now see crude oil vulnerable to forming a topping pattern and rolling over again, down to support around $96.50, or at least a retest of $99. In late June, crude oil went sideways for 9 days. On the 9th day the top was made and crude began the fall. At present we have only been going sideways for 6 trading days. If we do not top out on Monday, then definitely by Wednesday (the 9th day), I would expect to see a move lower in crude developing. Now we can take a look at Natural Gas!

    The above daily chart of September Natural Gas is quite interesting. On Wednesday of this week, the market tried to bottom and rallied, but lost almost all of the strength by the end of the day, forming a gravestone doji candlestick pattern. (Note: It is a doji because the opening and close are about the same price, forming a very small real body). This is a bullish pattern but must be confirmed by a strong up move (white candle) the following day. That was achieved when the Thursday inventory report showed a smaller increase than expected. On Friday, we made an inside day (trading within the high and low of the previous day) closing down. An inside day down is bullish, and I bought Natural Gas on Friday in anticipation of an up day on Monday. It is critical that Natural Gas rallies beginning on Monday, and if it does, it could potentially be a significant move of 35 to 40 cents or more.

    Natural Gas has fallen for 6 straight weeks, and it is unlikely the streak will continue much longer. The drop of over 20%, puts us into bear market territory (if it was the stock market) and shows how brutal the drop has been in the past 6 weeks. It is time for a 2-3 week respite while the bears take profits and some new longs get a chance to get established. If a rally does not develop almost immediately, then the September Natural Gas contract is vulnerable for a further drop of 30 cents, down to $3.45. From $3.45, I would look for a bounce back rally of about 70 cents, to $4.15. Right now, I see either a bounce of maybe 40 cents from $3.75 to $4.15, or a bounce of 70 cents from $3.45 to $4.15. Either way, I am targeting that $4.15 price. When Natural Gas falls through the $4.00 support level as it did recently, there is almost a magnetic pull to recover back to a price back above the $4.00 level. At $3.90 and lower, switching from coal to natural gas by power plants should accelerate. I do not expect to see the nearby Natural Gas contract trading below $4.00 for very long, especially with the tight supplies we still have, despite the large recent injections. We will likely get enough gas into storage by winter, but it is not a fait accompli.

    Currencies:

    I am not showing charts of the currencies as I believe there are better trades to be made in the markets I already covered. The Euro has been in a 4 week downtrend which I see lasting another couple weeks. At that point I see the Euro trying to bottom and the U.S. dollar turning lower. Most of the down move in the Euro has occurred but it could still fall another 50 to 100 pips before bottoming. The British Pound topped out at a high and has now fallen for 9 straight days, a fall of about 200 pips. I would be a buyer of the BP if I could buy September GBP at 1.6900, which is about 70 pips lower than Friday's close. On Friday the Canadian Dollar broke support and fell to .9235 in the September CAD contract. One could be a buyer of the CAD around .9200 and lower, with .9125 the worst case scenario for now, to the downside, as it would be a 50% correction of the rally from March to July 2014. I see the Australian Dollar continuing sideways with the Sept AUD continuing to find support around .9300, a drop of 63 pips from Friday's close.

    Disclaimer:

    The thoughts and opinions in this article, along with all stock talk 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.

    Jul 27 12:58 PM | Link | 3 Comments
  • Was The Thursday (7/24/14) Lower Low In August Gold, A Bear Trap?

    Michael Noonan of Edge Trader Plus is one of my favorite technicians in the gold market. Today he posted a must read article here, (skipping the Gold/Silver Ratio trading stuff) his sixth chart was an interesting read on the gold market daily chart. I will post the chart as follows:

    (click to enlarge)

    The lower low on Thursday in August Gold to $1287.50, and close of $1290.80, were both below the recent support of $1292.60, firmly turning the short-term trend down. The chart shows a downward channel forming. If August Gold would move to the lower end of that channel, we could easily see $1260 in August Gold within just the next few trading days. However, Friday's trading was quite extraordinary. First of all, in the night session, August Gold gapped up, and failed to fill the gap by a mere 20 cents. Moving higher by gapping up and never filling the gap, after such a weak day, is very unusual. I wanted to short December Gold when August Gold traded back to $1295 and for a few minutes I did just that. However, throughout the entire day Friday, August Gold would not sell off at all, just move sideways to higher the entire day. After a few minutes I got out at breakeven, just before August Gold spiked higher to $1298, and then $1300, finally hitting $1303.30 for the 1:30 p.m. EST close. But in the afternoon we drifted steady to higher, first to $1306 and finally $1308.90, ending the day at the highs. The late day surge took out Thursday's high of $1305.60, so Friday had a higher low and higher high than the previous day. This greatly increases the chances Thursday's low move is a bear trap.

    You also must consider that we are in the midst of light summer trading volumes which can cause volatility and moves that in the end just turn out to be noise. Breaking below and even closing below $1292.60 on Thursday, may turn out to be a bear trap, as it was nothing more than running of stops to force the bulls to take their loss at the bottom. At the very least, I would look for an up day for at least part if not all of Monday, 7/28/14. I am looking for August Gold to possibly approach resistance in the $1315 to $1318 area, with a small chance we see $1325. If we hit $1315 to $1325 in August Gold, I would favor shorting gold for a scalp trade, or buying DUST and/or JDST if you trade the bearish leveraged gold miner ETFs. Once short, one would look to see a break of $1300 again to confirm we are moving lower. However, if we stop falling in the $1303 to $1300 support area and turn back up, a major low may been struck on Thursday at $1287.50 in August Gold.

    Again, in the short-term, there is significant resistance at $1315, $1318, and again at $1325 where I would look for a temporary top in August Gold. Once gold stops at one of these levels, one will want to watch closely for the retest of $1300 to gauge the strength of gold.

    I will be playing December Gold beginning in the Sunday night session, 7/27/14. December Gold trades about $1.90 to $2.00 higher than the price of August Gold. I bought December Gold and captured the late day surge of Friday, and have not taken profits yet. On further minor strength, I plan to take profits. Against $1315 and higher I plan to go short, however, for Monday's trading, I will be buying dips when August Gold trades between $1300 to $1305 thinking that initially we will remain above $1300. For Monday only, I want to buy on minor weakness as long as $1315 has not yet been seen. I intend to switch to the short side between $1315 to $1325.

    Starting Tuesday, 7/29/14, I expect to begin to see more weakness creeping in and I am anticipating a likely move next week, back under $1300, and possibly again below $1290. My initial price target on the downside is in the $1278 to $1280 area where I anticipate becoming a short-term bull again, or at least scalping from the long side for a few days.

    The giant wedge, sideways action in gold continues. Also what continues is the fact that gold is usually my least favorite metal. I continue to like buying dips in September Palladium when it dips into the $860s, and taking profits in the $880s.

    Platinum is in a more defined downtrend right now, and formed an inside day (trading within Thursday's range), closing up on Friday, which is bearish. Platinum could be weaker than Gold just for the coming week and I may go short Platinum and then lock in profits by buying Gold on dips. As Gold remains locked into a sideways range, I see $1290 to $1310 as the value middle price area for the nearby Gold contract. As we approach $1270 to $1278, I am much more bullish. From $1318 to $1330, I am more bearish. I consider $1300 an important pivot point price that I will use to gauge future directions.

    Realize that a news event, like downing of an airliner, can spike gold up, while gold tends to collapse through support when things become more calm. Other than the bullish seasonal trend that could kick in come September, there is very little fundamentally bullish about gold right now. Get the stock market to crash, or at least correct more than 1-2%, if you want to be a gold bull. Without weakness in the stock market, gold rallies should remain subdued. But right now, with safe haven buying due to all the political unrest in the world, dips should also be well supported so being a bear may also be challenging. I am right now neither bull or bear, but just an opportunist trying to get clues to the latest swing up and down in gold, and trying to be on the right side of those swings. In the end, more sideways action is likely ahead, so keep the teeter/totter rocking!

    Disclaimer:

    The thoughts and opinions in this article, along with all stock talk 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.

    Jul 26 10:52 PM | Link | Comment!
  • Where Are Copper And Gold Likely Going Next?

    September Copper Should Bottom About 3 Cents Lower At $3.15

    (click to enlarge)

    The above daily chart of September Copper futures shows a major low struck in the middle of March 2014, at about $2.88. From that low copper rallied about 20 cents and then fell back 10 cents (a 50% correction). Eventually September Copper continued higher and would rally about 30 cents off the $2.88 low, to just under $3.18. I marked that high day with a black triangle on the chart. From this high, again we got about a 50% correction of the entire move, when September Copper bottomed at a shade under $3.02.

    Looking closer to that correction from the $3.17s to about $3.02, you will notice that the 4th day following the top was a secondary peak, and this bar is marked with a "4" on the chart. I then circled on the chart, days 6, 7, & 8. I circled these days as they appear quite similar to the last 3 days we just experienced, which I also circled on the chart. From the $3.02 low, September Copper recently rallied about 28 cents to just under $3.30. I now expect to see another 50% correction back to the $3.15 or $3.16 level where I want to go long. In this recent rally, I again marked the top with a black triangle on the chart. And again we got a secondary high on the 4th day following the initial top, but this time we traded to a marginal new high. The secondary top is again marked with a "4" on the chart. Days 6, 7, and 8, are circled and look almost exactly like the previous circled pattern of days 6, 7 and 8.

    If we continue the previous bottoming pattern, I would expect for September Copper to bottom within the next 2-3 cents from Friday's close in the $3.18s. Like before when we bottomed around $3.02, I would expect 3-4 days of sideways action where copper fails to make progress to the downside.

    Gold Remains Stuck In A Tight Range!

    (click to enlarge)

    Please excuse my crooked chart. Despite the gyrations of this past week, August Gold continues moving in a large sideways range. For many reasons I feel that pattern will continue going forward. There are few if any fundamental reasons for gold to move higher. However, political tensions abound in the world and should keep a bid under gold, preventing gold from going much lower for now.

    On the above daily chart of August Gold, I have marked four bottom spikes in the $1280 range as "A1", "A2", "A3" and "A4". After going sideways for several weeks, the wedge pattern in August Gold was ultimately resolved by moving to the downside, where it bottomed at $1240. After a recent rally lasting 6 weeks, August Gold now bottomed this last week at $1292, marked as "B1". If this is the first spike low, I would now look for 2 or 3 more spike lows in August Gold in the $1280 to $1290 range, which I will mark later as "B2", "B3" etc.

    I like buying gold futures or going long the mining ETFs of GDX & GDXJ, or leveraged bullish ETFs of NUGT & JNUG when August Gold trades below $1295. I also like selling gold futures to go short, or buying the bearish leveraged mining ETFs of DUST or JDST, when August Gold trades above $1320. I see August Gold trading back and forth in the $1280 to $1330 range for the foreseeable future. Thus the Lefty teeter/totter approach balancing purchases of NUGT against DUST and JNUG against JDST are advised. The way it is looking now, if there is range expansion outside of the range I just mentioned, it would probably be to the downside.

    Charts Of The Four Triple Leveraged Gold Mining ETFs

    (click to enlarge)

    Late Friday, a week ago, I suggested one not own the triple leveraged gold mining ETF (NYSEARCA:NUGT) above $50, but instead buy it on a dip between $42 to $47. With a low of last week of $42.16 and closing above $47 on Friday, I would say my advice was right on! For the next few weeks, I would look to buy NUGT on dips, especially down to $40 and a bit below, into the gap area created on June 19th. If August Gold futures get bought up on a dip to $1280, NUGT should not trade below $39.50 in the foreseeable future. On the topside, if August Gold rallied to $1330 to $1340, then NUGT should have difficulty moving higher than $53 to $55.

    (click to enlarge)

    The triple leveraged bearish gold miner ETF (NYSEARCA:DUST) should have a lot of support in the $13.50 to $14 area, but resistance at $18 to $19. When gold dips to support towards $1280 to $1290 and starts to rally, that is a good time to sell out of your DUST and JDST. I like to sell out of up to 100% of all DUST that I have a profit in, and 25% to 50% of the shares I am losing on, in order to reposition by buying back cheaper on the next rally. Likewise, when August gold rallies towards $1330 and higher, I would be taking advantage of the cheap prices to buy more DUST and JDST. (click to enlarge)

    Although I prefer the Large Miner bullish leveraged ETF (NUGT) over the Junior Miner bullish leveraged ETF (NYSEARCA:JNUG), I see JNUG having value especially if purchased at $25 and lower.

    (click to enlarge)

    JDST is my least favorite of the four ETFs and is slowly going from toxic to radioactive. It is the one leveraged ETF that I see underperforming over the next year, especially if gold ever gets its act together and moves soundly above $1400. At that point many traders would lose most if not nearly all of their money invested in JDST. The slippage in JDST is much, much worse than what one would experience in DUST, and I favor selling 100% of one's position on a JDST rally if and when August Gold falls to the $1280 to $1290 support area, and to only buy DUST back in the future when gold rallies.

    True day traders and short-term swing traders who do not hold JDST more than a couple days, should be fine, but long-term holders of a few weeks or more could be extremely disappointed in their purchase of JDST. Caveat Emptor!

    Disclaimer:

    The thoughts and opinions in this article, along with all stock talk 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: NUGT, DUST, JNUG, JDST, GDX, GDXJ
    Jul 19 4:28 PM | Link | 5 Comments
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