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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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  • What Does Friday's Action In The Emini Dow Futures Foretell For The Coming Week?

    On Friday, April 17, 2015, the Dow Jones fell 374 points before bouncing over 100 points off the low to close down 271 points (see the above daily chart of the June Emini Dow Jones Futures). I am a technician who likes looking for similar price action and patterns in the recent past. I call them "doppelgangers" as it is like finding your twin. What happened the last time such a pattern was struck, could give a hint for the future. More on that in a minute.

    For over 2 weeks, the stock market and thus the June Emini Dow Jones futures, had been in a nice uptrend. But then came Friday when in a single day, we fell to price levels not seen in 2 weeks. This action formed a triple top. The first top was at 18188 on March 2nd. The next top was at 18126 on March 23rd. On Thursday we made the third top at 18093. The last couple times we failed to make a new high. In March we dipped to a low of around 17550, but then in early April dipped to just under 17500. I expect to see a marginal new low soon a bit further below 17500 as a downward channel is being formed.

    Now, the last time we topped out (just 3 1/2 weeks ago), it was followed by a hard smackdown day, (March 25th). That is the doppelganger to the candlestick formed on Friday, April 17th. The next trading day the Dow made the low below 17500. I expect that Monday of this coming week, we could see a similar carry through to the downside. However, if we should fall closer to the 17500 area, it should find some temporary support and should bounce.

    There is an alternate scenario, a Monday rally. Back on March 6th, a few days after the first top was formed, we got a hard smackdown day making a new low going back a couple weeks again. However, that time there was a rally of over 50% off the lows the following day. But then the next day we saw another hard smackdown day.

    Thus, if Monday should be a nice snapback rally day, don't be surprised if Tuesday, April 21st we see another hard selloff with a bottom coming on Wednesday. The fact that we ended up closing over 100 points off the low on Friday, increases the chances that Monday is an up day. But even if Monday is higher, we should continue lower for Tuesday and into Wednesday where a short-term low can be expected.

    In Summary, I am recommending selling into any strength seen early in the week, as we should either go lower by the end of trading on Monday, or go lower on Tuesday and Wednesday if Monday is an up day. Will be fun to see if I am right in my price action guess.

    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.

    Apr 20 12:07 AM | Link | 2 Comments
  • Crude Oil Is On Fire; Natural Gas Bounced Off Its Lows; Gold Is Going Nowhere

    June Gold Futures

    Michael Noonan wrote an article Friday, describing how gold is just going nowhere fast, click here. When he talks of TR it is an abbreviation for "trading range". June Gold can't get below $1180 to the downside, nor above the $1220 to $1225 resistance level to the upside. Until things change, one can only play the ranges, going long gold and gold mining stocks when gold is trading below $1200, while shorting gold and gold mining stocks against resistance in the $1210 to $1225 area, and again at $1240 to $1250 if we ever get up there.

    Although I was recently able to buy some Iamgold (NYSE:IAG) stock below $2.00, and still like buying all dips below $2.00, IAG has struggled to move above $2.20 and also remains in a tight trading range. One might be best served to look elsewhere for trades until gold and the miners catch some fire.

    June Natural Gas

    June Natural Gas futures bottomed on Monday, at a new yearly low of $2.521 and then bounced just as expected. If you have read my recent articles, you will know that I had been calling for a bottom in May Natural Gas futures at $2.50. Although the May contract ran stops under $2.50, hitting a low of $2.475 last Monday, that same day it closed at $2.511. It spent the rest of the week rallying, climbing over 20 cents off the low. Rallying 8% off the bottom, it translates to about a 25% gain in the triple leveraged ETN (NYSEARCA:UGAZ). I recommended buying in the mid $1.90s, $1.80s, $1.70s etc. The low in UGAZ on Monday was $1.85 while Thursday's high was $2.32.

    June Nat Gas dropped initially after the bearish inventory report was announced on Thursday this week, but traders bought that dip and natural gas closed strongly higher. When June Natural Gas got back to unchanged, I got in and caught a 7 cent pop. I got out as I expected some retracement on Friday and that is what we got. When a market initially sells off on bad news but then reverses strongly higher, that is telling you that most of the bad news is already priced in. The March cold weather season has passed and it is awhile before we get the July air conditioning upsurge usage of natural gas by utilities. One would expect for April and May to be a time where natural gas prices fall. However, seasonally, natural gas prices like to bottom in April and we are probably very close to a major bottom in natural gas. I don't like playing the short side when we have already fallen to such historical low prices.

    I still like buying UGAZ on small dips, as a scale in buyer, especially should it fall this week back to $2.00 or lower. I have been recommending the First Trust ISE Revere Natural Gas ETF (NYSEARCA:FCG) for some time. I liked it at $11.00 and even better when it traded down to $10 and a bit lower. Here is a daily chart of FCG:

    (click to enlarge)

    On a very short-term basis, FCG is getting overbought and could correct back closer to $11. However, it is showing signs that is has bottomed. In late December 2014 and later in mid February 2015, FCG could not overcome resistance at $12. The last three days FCG has had a close above $12, which I find quite significant. I expect to see prices eventually move to $15 and higher over the next few months.

    June Crude Oil

    June Crude Oil bounced off its lows in early February, but was turned back when it hit the $57.11 to $57.18 resistance area. Three times in February, June Crude Oil tried, but failed to move to higher levels. Then in the middle of March, after making a marginal new low (just to run stops), June Crude Oil rallied first to the $54 area, then to $55.50, before finally stopping at $58.82 on Thursday this week. Since the beginning of this year, the only way to play the crude oil market is from the long side. In my articles I have been steadfastly bullish crude oil and recommended buying all dips. That has worked out quite well and I see no reason for things to change. Above $60, Crude Oil will begin hitting some significant resistance levels and it is doubtful we can sustain a move higher than $65 in the short term. Above $60 could bring some production back online that has been taken off line and could act to throttle back further gains. Still, all dips should remain a buy, especially if June Crude Oil should fall back to the $50 to $52.50 level. Don't believe all the hype about crude oil falling into the $20s or teens. No move below $40 is justified longer term or even short term, so all dips below $50 should remain a screaming buy! 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.

    Apr 19 11:32 PM | Link | Comment!
  • How I Plan To Trade Natural Gas (Or UGAZ) As It Tries To Bottom

    At firstenercastfinancial.com, the following article was posted that explains where we are now on natural gas, click here. The last time that I blogged about natural gas, was here. At that time I was looking for May Natural Gas to hold support at $2.50. It has. With the large drop experienced this week, May Natural Gas is within a penny of the $2.50 support level and could stop falling as early as Monday, April 13, 2015. We can take a look at the chart of June Natural Gas to get some idea of where we might trade in the short-term:

    I switched to June Natural Gas since the May contract will be expiring shortly. Looking at the above chart you might notice that when June Natural Gas topped out above $3.20 in the middle of January 2015, it fell for about 15 trading days (3 weeks) before bottoming. Looking further back, in the middle of December 2014, you will also see a spike high above $3.60 and then another 15 trading day selloff before bottoming. More recently, in the middle of March 2015, June Natural Gas topped just under $3.00 and then counting forward, the Thursday, April 9, 2015 smackdown came on the 15th trading day. This makes me more friendly toward natural gas right now because we are due for a cycle low to hit. Also, we are so close on price to the support level of $2.50, mentioned in my last article.

    What makes me like the $2.50 support in May Natural Gas (translating to a $2.54 level in June Natural Gas), is again looking at the recent daily chart of June Natural Gas. Back in January, at the beginning of the year, the $2,85 area was showing good support. Anyone buying in the high $2.80s could have made money taking profits first above $3.20 and later around $3.00. When the $2.85 support level gave way, $2.70 became excellent support, just 15 cents lower. From the $2.70 level, we saw one rally to $3.10 and 3 additional rallies into the mid $2.90s. This past week the $2.70 support finally gave way and so far, we have fallen about 15 cents by Friday, April 10, 2015 to the $2.55 level, with the May contract testing the $2.50 level. I am seeing many traders recommending going short natural gas into new lows, expecting a hard selloff. To check them out, go to barchart.com and click commodities and then commentary. However if I was going to short natural gas, I would have done so from the $3.00 resistance level, not at historical low levels in the $2.50s. Although we could always work lower, even to $2.00 or a bit lower as we did a few years back, the upside potential far exceeds the downside potential going forward and I want to only play from the long side from now on. Well, back to the present.

    If June Natural Gas was able to bounce off the $2.85 support and $2.70 support levels hit previously, it is likely we again bounce from the $2.50 to $2.55 level in June Natural Gas. The bear market in natural gas is so advanced and has gone on for so long, it is unlikely traders will make much headway to the downside. Bulls who bought at previous support levels were rewarded. At lower prices, it should be even easier to see short covering rallies for bulls to profit from.

    I am a master at catching falling knives. Recently when the bearish sentiment in crude was so extreme, I was sure it would bottom shortly and it did. The same should be true in natural gas. On Friday, April 10th, I bought a couple June Natural Gas contracts at 2.585 and 2.555 and may continue to buy every 3 cents lower. If we continue to drop after 4 contracts I will spread the contracts out further, requiring 5 cent drops to add. On any rallies, I will sell out of half my position. I want to own a couple contracts in June Natural Gas in the $2.50s, $2.40s, and again in the $2.30s. If we should fall into the mid $2.30s, I expect to see a 20 cent short-covering rally back to the mid to upper $2.50s, to allow even my top contracts to be sold at a profit. My strategy is to deploy scale trading techniques, buying small here and buying more as we fall, and also swing trade, taking half my position off when my overall position is profitable. I use this strategy quite successfully trading gold and will now use it to trade natural gas.

    Natural gas has full contracts, symbol NG, where every penny change up or down involves a move of $100s as well as 1/4 size mini contracts, symbol QG where a 1 cent change up or down translates to a move of $25. Right now I am playing the mini contracts so buying 4 contracts will just make a full contract. Then if natural gas continues to fall more, I will average down with full contracts. In scale trading you want to buy very small at first and then trade larger when you are at lower prices. That way it requires less than a 50% retracement to get back to breakeven.

    For those unable to trade natural gas futures contracts, there is the triple leveraged ETN UGAZ. Here is a daily chart of UGAZ:

    (click to enlarge)

    Again, one should not be using triple leveraged ETFs (stocks) and ETNs (commodities) for long-term trading. But for short-term scalps they are quite ideal. Below $2, one should be able to experience enough short-covering rallies in UGAZ to at least break even. However, one can greatly enhance their profits and reduce risk, by scale trading. Suppose I had $30,000 to invest in UGAZ. I could buy 15,000 shares at $2 per share. If I bought in the current $1.90s, I would spend $2,000 to buy a bit more than 1000 shares in the $1.90s. In the $1.80s, I would spend $4,000. In the $1.70s, spend $6000. In the $1.60s, spend $8,000 and in the $1.50s spend $10,000. This would use up the entire $30,000 but it would be greatly weighted towards the bottom end, lowest prices. Instead of having an average price near $1.75, one would have an average price closer to $1.65 so it would take only a bounce of 30% of the down move to break even instead of 50%. Also taking partial profits on short-covering rallies as they occur will also lower your average price.

    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.

    Apr 11 2:22 PM | Link | 6 Comments
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