Seeking Alpha

Robert Edwards'  Instablog

Robert Edwards
Send Message
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
View Robert Edwards' Instablogs on:
  • Assessing Where Natural Gas Prices May Go In The Near-Term

    Natural Gas: It Is Always Darkest Before The Dawn

    The U.S. Energy Information Administration puts out a natural gas price forecast each month. The latest forecast found here, indicated that April Natural Gas in early January was averaging $2.88/MMBtu, compared to $4.19/MMBtu this time a year ago. What a difference a year makes! For the entire year of 2014, the average price of Henry Hub natural gas was a respectable $4.37/MMBtu, compared to an average price of just $3.73/MMBtu in 2013. So where is the EIA projecting the price of natural gas to be this year and next? Well, the agency is not bullish on prices, as they project the average price in 2015 to average $3.44/MMBtu, with a higher price of $3.86/MMBtu in 2016.

    It is hard to believe that just Monday of this week, nearby February Natural Gas futures bottomed at $2.783. Traders ran the stops under $2.80 and made many bulls capitulate, for fear of falling to lower support levels at $2.50 and $2.00. But thanks to slightly colder temperature forecasts, we got a very strong short-covering rally that culminated in a high today of $3.352 hit soon after today's large inventory drawdown reported at 10:30 A.M. EST. The futures contracts had rallied strongly in the last couple days prior to today's bullish reading (buying the rumor), so it was not surprising we would top out with today's announcement (selling the fact). I predicted just such of an outcome, which was easy to do since recently any and all rallies in natural gas are sold off.

    Yet hope springs eternal, as Andy Waldock (article found here) is not only looking for a rally in natural gas to the middle of February, his article shows the historical seasonal tendencies for natural gas (chart supplied by Moore Research) to rally strongly to the 3rd week of March. Again, the seasonal chart shows a tendency for natural gas to top out in mid February, dip for a week, and then rally strongly to the 3rd week of March. Since we find ourselves at such unbelievably cheap price levels, it would not be difficult to imagine that natural gas would move upwards until the middle of February, take a dip for a few days, and then resume a move higher to the 3rd week of March. It is surely something to watch out for.

    Where Does Today's Rally Leave Us?

    At firstenercastfinancial.com, today's natural gas summary, click here, explains that this week's natural gas rally was caused by freeze-offs at the well heads. It finally got cold enough to not only bolster demand, but to also cause cuts in supply totaling 2 billion cubic feet per day. As long as we stay cold and supply is limited, natural gas prices will remain firm. When the cold passes then supply levels could rapidly climb and prices will surely top out. With the extreme volatility in natural gas prices, I would expect many more short covering rallies and selloffs before this winter season ends. Traders should take advantage of these pops in the tripled leveraged bullish UGAZ by taking some profits on low priced shares and likewise hedging by buying some triple leveraged bearish DGAZ when it is cheap. I quit trading natural gas when it topped out in November, as I did not like the fact it could fall so easily back under $4.00/MMBtu after hitting above $4.50/MMBtu. I figured natural gas had a low probability of falling briefly into the $3.35 to $3.50 range, but could not fathom falling below $3.00/MMBtu, in the middle of winter no less! Through now and the middle of February 2015, I prefer buying the dips in UGAZ, and I may lightly scalp some mini 1/4 size natural gas contracts. However, on strength, I will also go short for quick swings lower as any and all rallies in natural gas don't last. The EIA is probably right that natural gas bulls will have to get in and out quickly as the oversupply situation may not get resolved for another year.

    The secret is not to marry a position, but face each day fresh and anew. Try and access which side is winning on that day and join the winning side. It is preferred that one does not hold a position overnight, but if one chooses to hold overnight, liquidate the position over the next day or two. On sharp intraday dips in UGAZ, buy a few shares and then liquidate on the recovery bounce. On sharp intraday dips in DGAZ, buy some shares and then liquidate on the recovery bounce as well. With natural gas making intraday swings of 5 to 10%, the leveraged ETNs of UGAZ and DGAZ can swing up and down 15 to 30% in a single day. If your account does not allow you to daytrade, then try to swing trade over a couple days, averaging down in both UGAZ and DGAZ, and liquidating on rallies in each the following day.

    And remember, less is more! Professional poker players play a very small percentage of hands, but then hit it hard when things are strongly in their favor. Professional card players wait for the really, really high percentage plays. Try to catch a nice swing just once or twice a week and be happy even if the gain is just 2-3%. All gains, large and small, can add up very quickly.

    We can now take a quick look at the charts of UGAZ and DGAZ.

    (click to enlarge)

    Despite the fact UGAZ closed lower today, the gap left from Wednesday's bullish action was not filled. Bulls do not want UGAZ to slip back under $4 and fill the gap as that would project falling back to the bottom and likely making new lows. Also, it is important that UGAZ closes up on Friday, January 16th, so that today's bearish Harami Japanese Candlestick pattern is not confirmed. But if it should close down, I would especially not like to see a close below $4.39 in UGAZ, (Wednesday's low). If UGAZ should close below $4.39 then anyone who went long on the big Wednesday gap up, would be losing money and liquidations could cause a further selloff. We can now look at the daily chart of DGAZ:

    (click to enlarge)

    On the cold snap in November, DGAZ fell down to a low of $2.50, only to rally to $8.92 on Monday of this week. Today, just 3 days later, DGAZ dipped briefly under $5. Personally, I would prefer to wait for around $4 or lower to begin scalping on the long side in DGAZ in any real size. However, if one is overweighted in UGAZ, one needs to strongly consider buying some DGAZ on this dip in UGAZ. When natural gas prices correct back down, it will cause DGAZ shares to rise and create profits to help offset UGAZ losses.

    Summary:

    It is okay to try and predict where natural gas will be tomorrow, next week, or next month, but very difficult trading on that prediction. So I am not going to make any predictions right now. However, I am going to watch natural gas very closely for clues as to where the next direction it is heading, and try to join the winning side.

    The bulls are in charge 30% of the time in about any market. The bears are in charge 30% of the time as well. On days one side has the advantage, jump on the winning pony! About 40% of the time neither side is winning as the market is range bound. One can just not play those days and take a break. Or for others, they might want to use the ranges to play both sides, buying UGAZ or DGAZ whenever either is on its lows, and then take profits when one side rallies back up.

    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 16 2:00 AM | Link | 2 Comments
  • Five Stocks That I Am Following: TWTR, RIG, CLF, FCG & IAG

    Twitter (NYSE:TWTR) Needs To Close Up This Week To Establish A Bottom

    (click to enlarge)

    The above weekly chart of Twitter (TWTR) shows that we ended a 13 week downtrend this past week, with finally a strong up week. Will the strength last? Who knows. Throughout the 13+ months that TWTR has traded, it has had two major down drafts. During the down drafts there were several times that TWTR would close up one week and form a nice white Japanese Candlestick candle, but then would fall the next week forming another red candle. Only when there were 2 consecutive white candles was the up move sustainable.

    So in review, the good news is that TWTR finally did close up this week, but it is important for the bulls that TWTR continues to gain this coming week. If it does then there is a good chance a bottom was formed at the $35 level. If we instead close down this coming week, then last week's rally was nothing more than a short-covering bounce and TWTR is probably headed to $35 again, and possibly major support at $30.

    Too Soon To Buy Transocean (NYSE:RIG) Or Other Drillers

    (click to enlarge)

    You can see from the above daily chart in Transocean, Inc. (RIG) that the selling has been absolutely devastating. However, in the middle of December, RIG found support at the $16 level and then rallied back towards $20 in a week. It has taken 3 weeks to then fall back towards support at $16. Despite lower oil prices week after week, RIG has held support at $16 for 4 weeks. It tells me that most if not nearly all of the bad news has already been factored in. Crude oil will likely continue lower and will probably not bottom for at least the next 3 to 6 months, so I have not yet picked up RIG in the $16s or Seadrill (NYSE:SDRL) which is now below $10! However, if crude oil can find some stability in the next couple weeks around $40, we could get another nice bounce in the deep water oil drillers and one may be able to start nibbling on these soon. Long-term, I am more constructive on the energy sector than about any other sector out there, and I definitely want to get involved when I see some signs we are bottoming.

    Cliffs Natural Resources Inc. (NYSE:CLF) Is Trying To Form A Base

    (click to enlarge)

    Back in October, CLF bottomed around $7 and then proceeded to rally back above $11. It has now fallen to a low of $5.63, with good support now at the $6 level. It would not be much of a stretch to see this stock back at $9 on a further short-covering bounce, even if it falls back again towards $6. Anyone buying CLF under $7 should be happy they did if they hold the stock for a nice sized bounce.

    Natural Gas Stock ETF (NYSEARCA:FCG) Is Trying To Bottom

    (click to enlarge)

    FCG is now showing good support around $10 and would appear to be a nice buy right in here. If natural gas prices should catch a rally thanks to colder than expected temperatures over the next few weeks, FCG should get a nice bounce. Looking long-term, it s hard to imagine this ETF dropping much under $10. It is much, much safer buying FCG than trying to time the elusive bottom in triple leveraged natural gas ETN (NYSEARCA:UGAZ).

    Iamgold (NYSE:IAG) Continues To Be My Favorite Gold Mining Stock

    (click to enlarge)

    IAG has hit my initial target of $3.25 to $3.40 and could pull back towards support in the $2.60 to $2.80 area. However, I continue to like the action in this stock over any other miner. My son tells me that IAG is the largest holding of the Junior Miner ETF (NYSEARCA:GDXJ). It is also a small member of the Major Gold Miner ETF (NYSEARCA:GDX). Seems that everyone wants a piece of this stock.

    Being a Canadian company, the price action is hurt when the Canadian Dollar loses ground to the US Dollar as has happened recently. However, the Canadian Dollar is approaching some major support and the US Dollar is facing some pretty stiff resistance ahead, so going forward, the Canadian Dollar could bounce back up, helping to support the price of IAG.

    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 11 8:05 PM | Link | Comment!
  • Where Do I See Trading Opportunities In Early 2015?

    I tend to like to trade commodities, miners, drillers, and other resource stocks, over technology, retail or financial stocks. I like to follow movements in commodities such as gold, oil, copper, etc. as well as currencies (think US Dollar) along with interest rates and stock indexes, to find exploitable short-term trading opportunities.

    In this short article, I will describe my thoughts as we begin a new chapter in this early January 2015.

    Crude Oil, Oil Drillers And The Energy Sector

    Gary Savage posted an article at Kitco that you might want to read, click here. He is looking for choppy sideways action in the stock market, with a decent sized correction coming in the mid March to mid April 2015 timeframe. I will be watching to see if he is right or not. Then he mentions how recently the CRB has been led lower by falling crude oil prices. Gary Savage is looking for a near-term tradable bottom, but as we make new lows in crude oil today below $50, no bottom is yet in sight. The next downside target is $40. There have been hints that moving below $40 would be extremely painful, even for the Saudis, so that would be a logical place to see a short-term bottom form. I feel it is too soon to get involved in crude oil as the down move is just too entrenched. It will take a bounce and a successful retest to form any kind of a bottom in crude oil, I feel. The first several retests of the low could likely fail. Although we may not be weak in crude for the entire year of 2015, I would not at all be surprised to see weakness lasting for at least till the summer. Picking a bottom in crude oil is still premature IMHO. The oil drillers are again testing their lows. Despite extreme oversold conditions, they will surely keep moving lower until crude oil bottoms. If crude oil falls to $40, $30 or lower, the drillers could lose another 15, 30 or even 50% or more of their current unreasonably priced giveaway value. Funds will continue to sell these stocks and sell them hard, till the bulls all capitulate. Open interest in energy stock ETFs have been rising for several months, as the energy sector has weakened. If we continue lower in crude oil, as expected, many of these bulls will capitulate and sell near the bottom. That is when you want to load up! Whenever crude oil stabilizes and trades sideways for a few days, the extremely oversold drillers can bounce back a few dollars off the bottom, but all small rallies will remain a sell until crude bottoms for good.

    Natural Gas

    I saw an article, click here, where the Hard Assets Investor is claiming that shorting natural gas is the best trade of 2015, especially for the first half of the year. Mr. Roy is looking for a repeat of 2012. To see what happened back then, we can take a peak at the following monthly chart of natural gas:

    The low of December 2011 was $2.957. December 2014 we slipped even lower, down to $2.882. Then in January 2012, the low for natural gas on the nearby contract was $2.231, followed by a 50 cent rally in February 2012 to $2.733. Regardless how low natural gas trades in January 2015, a rally by February 2015 of 50 cents would be reasonable to expect, to most likely be followed by an April 2015 low, similar to the April 2012 low of $1.902. However, back in 2012, after hitting that extreme low, natural gas rallied to a high of $3.277 in July 2012, and to $3.933 in November 2012, more than a double off the bottom. This is the bearish scenario.

    The bullish scenario could still take hold and rescue all the UGAZ holders in short order. But if 2015 does not turn extremely cold soon, we are subject to a similar January dip, about 70 cents lower than the December low. Then after a small corrective rally of about 50 cents, we could again slip below $2. After bottoming, natural gas could return back to $3.50, $4 or even $4.50 within 6 months, but that would be little consolation if one was heaviliy invested in the triple leveraged ETN UGAZ. If we do not hold present support and start rallying above $3.00 almost immediately, anyone long UGAZ would be well served to sell out, or at least buy lots of DGAZ to balance, and then wait for the bottom below $2 to again be long UGAZ. It is not too late to balance out using DGAZ, or to dump their UGAZ position to buy back at lower prices, especially if natural gas futures should break below $2.80. The next stop below $2.80 is the $1.90 to $2.00 area.

    Gold And The Miners

    If you look at the gold futures chart, you will see that recently we have gone sideways, stuck in a tight range between $1130 to $1150 on the downside, and $1215 to $1225 on the top side. We need to move above $1225 to try to break out to the upside, or at least extend the range upward out of the hole. Seasonally, it is a good time to get a gold rally, as we approach the Chinese New Year. Back in January 2014 and during the 1st quarter, gold rallied nicely but the gold miners rallied even more. We could easily get a repeat this year. Currently there is hardly any gold stock with a better looking chart than my favorite Iamgold (NYSE:IAG). Take a look at the following daily chart of IAG:

    (click to enlarge)

    After bottoming at $1.42, IAG rallied to $2.80. However, a few days ago, we broke the $2.80 resistance area and are now trading above $3.00, establishing a nice bottom. For several weeks, and especially back when IAG was trading below $2, I recommended buying this stock and mentioned how it was a better and safer investment than the triple leveraged Junior gold mining ETF JNUG. While JNUG has suffered a reverse split, and is a small fraction of its previous value, IAG has soared recently and is looking excellent. If gold stalls out and cannot take out $1225, then IAG will probably hit significant resistance in the $3.20 to $3.35 area. However, if IAG should dip back down to $2.80, $2.60, or $2.35, it should be a fantastic buy on any dips. Eventually, with gold moving back above $1300, IAG could rally back towards $5 or higher. My son has a very large position in IAG and he has escaped the recent carnage seen in the commodity and resource sector.

    Conclusion:

    While visiting family during the holidays, to keep myself busy I decided to visit several free poker sites where I practiced playing Texas Hold'em. The purpose for doing so was not just for the entertainment. Although I was not playing with real money of course, there is a lot to be gleaned from playing poker since the same attributes that make a good poker player, make a good day trader and scalper.

    Poker teaches me that to be successful, I have to fold whenever odds are not in my favor. In trading that is called cutting your losses and getting out quickly. Within a couple days when trading stocks, and within a couple hours (or sometimes minutes) when trading futures, one can see quickly if the position is in trouble. When support breaks or if the market does the opposite of what was expected, like natural gas recently, cutting your losses quickly is the best strategy.

    You either have to play very, very small, and average in, or you have to cut your losses quickly, to survive trading and/or poker. In poker, if one had a $10,000 bankroll, one would want to not play at a table with the large blinds greater than $10 or $20. One has to have staying power to get through the rough patches. In poker if you don't get help on the flop, you get out. However, if you get great hole cards, you can be quite aggressive by raising preflop and again on the flop. I am a much better poker player than a trader because in poker I know the mathematical odds of getting exactly what I need to make my hand. While trading there are too many factors weighing on prices and I have to guess. While playing poker I am rewarded for getting out quickly and punished immediately for making a wrong move. While trading, I can go a few days before I get into real trouble and can suffer death by a thousand cuts. I am a better poker player than trader, because in poker, I expect the guy across from me could be a pro and I have to be "on my game" at all times. While trading, I can too easily get overconfident, thinking I can work my way out of virtually any problem. Most of the time, I do work out of trouble. But when I do not, it can be devastating.

    My new year's resolution is to be much more disciplined, and to approach trading the same way I approach poker. I resolve myself in 2015 to start out very small, risking no more than 1 or 2% of my account on any one trade, and to let my winners run long, and my losers get cut short. A professional poker player plays very few hands. They wait and wait until the perfect moment when the odds stack up overwhelmingly in their favor. They only play the really good hands, and most of the time they still fail to "make their hand". Yet when they do, the winning pot is big enough to cover all the losses and turn a profit. So instead of trading 50 to 200 times in a 24 hour period, like I am apt to do, scalping for a few ticks over and over, I want to trade much more infrequently.

    So instead of buying natural gas or UGAZ right now and fighting the markets for a few ticks, scaling in lower and lower and trying to average out my price, I am better off to patiently wait until I see serious signs of a bottom. If natural gas gets to $2.50 and especially below $2, then I can very aggressively play the buy signals and do fantastic. For now, I am patiently waiting for that moment.

    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: UGAZ, DGAZ, IAG, JNUG
    Jan 06 12:35 PM | Link | 5 Comments
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.