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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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  • NUGT/DUST & JNUG/JDST: Teeter-Totter Approach Still Advised But Seasonality Should Support Gold During August 2014

    The Big Picture

    As gold remains caught in a trading range and has not been strongly trending, it has been advisable for some time to not be partial to either the bullish triple leveraged gold mining stock ETFs (NUGT & JNUG) or the bearish triple leveraged gold mining stock ETFs (DUST & JDST). Gold continues to swing back and forth and not make a lot of headway. I see that pattern now continuing for maybe the next two weeks, but as we approach the end of August we could get a lift in prices that could carry into September. I have come to this conclusion based on my interpretation of the following monthly chart of gold as follows:

    During the last candlestick on the above chart, that represents the price action of gold during the month of July 2014, one can see how we broke the June high of $1338.70 and rallied to $1343.70, only to fail at higher prices and close by the end of July at $1281.30, a monthly drop of $40.50. The action reminds me of a similar negative reversal that occurred in March 2014, at a very similar monthly closing price of $1283.40. What happened then in April? Gold scored a minor new low of $1272.40 and a high of $1330, but by the end of the month the close was $1295.60. As we start the month of August, I see gold trading in a very similar range this month, that it traded back in April. I see support in December 2014 gold at $1273, initial significant resistance at $1330, and if gold fails to launch, by the end of August, a close around the same $1295 area, or possibly $1300. If gold ever does launch, all bets are off. No threat of that yet of course.

    A bullish seasonal does kick in beginning in August and can extend into September. Looking backwards on the chart, in 2013, June 2013 ended very weak, just above $1200, having fallen for 9 months from a high of $1800. During the month of July and August, a countertrend rally to $1428 was achieved before gold rolled over and closed back towards $1200 by the end of the year. With the end of the year weakness predicted by Goldman Sachs and some other banks, they must be thinking that 2014 will play out like a repeat of 2013.

    I can see where GS came up with a weak 4th quarter 2014 scenario because the same thing happened in 2011 and 2012. We all remember how in July and August 2011, gold rallied from about $1500 to all time highs over $1900. In September 2011, gold began falling and the December 2011 low was $1525 and the ending price for 2011 was $1565.80. But by February 2012, gold rallied to $1790.40, to watch it slip back towards the $1600 area by July 2012. Again we got a strong August and September in 2012, with gold rallying from $1600 to just a tad under $1800. Gold then fell into the end of the year and beyond.

    Since topping out in early September 2011, gold has dropped going into December for the past three years. It is too early to calculate the odds of a similar pattern for 2014 and I am not going to venture a guess. Right now I am concentrating on August 2014, which has seasonally been a very good month to be long gold. The only exception was during the heart of the financial crisis in 2008, when gold fell from a July high of $986.20, to an October 2008 low of $681.00. Compare that with January 2007, when gold hit a low of $607.50 and then by March 2008 rallying to just over $1000. The financial crisis caused gold to correct and give back most of the recent gains. In 2014 we have not had recent strong gains to give back. Instead of rallying like 2007, in 2013 gold crashed from $1800 to $1200. And in 2008 we were in a severe financial crisis, weak auto sales and employment losses, whereas in 2014 we are in a recovery mode, with strong car sales and the economy bringing back jobs.

    Seasonally there is a tendency for gold to rally somewhere between January to March and somewhere from July to September. If one is bearish, one needs to be careful to balance out DUST and JDST positions with purchases of NUGT and JNUG to take advantage of any rallies we happen to get during August 2014. Also, one needs to be more selective about the price one accepts in buying DUST and JDST and be quick to take profits when they become available.

    The Little Picture

    Now I will cover what I see happening in gold and the miners over the next couple weeks, beginning Monday, August 4, 2014. One of the greatest depressants to the price of gold over the last few weeks, is the recent strength in the U.S. Dollar. Instead of fleeing to gold as a safe haven during times of turmoil in the world, the safe haven of choice has recently been the U.S. Dollar. The up move in the U.S. Dollar has been exaggerated by the recent weakness of the Euro. Sanctions against Russia, will hurt their European trading partners severely, and thus has depressed the Euro. Take a look of the daily chart of the September 2014 Euro contract:

    You will notice how for nearly 3 weeks, the Euro has traded under the 18 day moving average, shown as the red line on the chart. I believe this is what Ira Epstein (now with Lind-Waldock) would call an embedded stochastic. A market locks into an up or down move and just keeps going and going. Until the big white candle of Friday, the previous 13 candles were all black ones with a total inability of the Euro to close up. Now that we have an up day, is the bottom in? No, not at all. In fact, there is a very high probability that Monday is another down day in the Euro. However, Tuesday should be another up day in the Euro, and we should now move back and forth between up and down days next week. For next week, I am looking for some US Dollar strength on Monday and US Dollar weakness on Tuesday. So on Monday, gold could sell off a bit on the US Dollar strength, but recapture the losses and more come Tuesday. If gold is up on Monday, I see it still struggling to overcome $1301.50 to $1303 in December Gold futures, and will likely fall back and barely close up, maybe at $1297.

    How did I conclude the Euro should be down on Monday, by looking at what happens in past charts where there was a negative embedded stochastic. In fact, looking again at this same September Euro chart, you can see that on May 8th, the Euro popped strongly to 1.3986 and sold off hard. For about 15 trading days, you will see the Euro closing down or just barely up for those 3 weeks and unable to overcome the 18 day moving average (red line). Finally on May 30, 2014, the Euro got a large white candle and touched the red line, signaling an end to the negative embedded stochastic. Then you will see that for a few days the Euro flipped back and forth between up and down, and eventually fell some more a week later. I see a similar pattern beginning now in the Euro and expect to see stabilization and sideways movement with maybe a small dip the following week.

    Charts of Triple Leveraged Mining ETFs

    (click to enlarge)

    Looking at the triple leveraged bullish mining stock ETF (NYSEARCA:NUGT) one can see how that recently the blue 50 day moving average line has crossed over the red 200 day moving average line. This is called the golden cross and should be bullish for mining stocks long-term. However in the short-term it can mean the move is nearly exhausted to the upside and could have a short-term setback. When NUGT made its high recently, I recommended buying between $42 and $47. We have and continue to get support at the $42 area and I would continue recommending this as a buy area, along with averaging down if we should fall below $42.

    (click to enlarge)'

    I am showing JDST as this triple leverage bearish Junior Mining ETF appears to be more popular to trade than DUST. One will notice from this chart that in late June, JDST found support at $12 and rallied back to $14 for awhile. Then support gave way and reappeared at $9.50. For the past 3 weeks, it has been profitable buying dips below $10, with the expectation of selling on small rallies to $12, or at least towards $11. If we do not take out resistance in December Gold at $1330 and trade sideways to lower, buying JDST just below $10 and getting out at $10.50 to $11 or higher will continue to be a good trade. However, if and when gold starts rallying, be prepared for a further drop towards $8 in JDST with rallies struggling to overcome the $10 range. One can swing trade JDST but will have to be nimble if gold exhibits seasonal strength during August and September 2014.

    Conclusion:

    What are the implications for gold? With the Euro no longer falling precipitously, some pressure should get relieved on gold so that bullish seasonal influences can now begin to influence the price. For now, I am not looking for a large move to the upside, and in fact, with the expected drop in the Euro on Monday, I will be surprised if December Gold can rally more than $8.20 and overcome resistance at $1303 and may struggle to close up at all. If instead gold slips, I see the $1280 support holding in December 2014 gold on Monday. But on Tuesday, I am looking for more strength to show up in gold and am staying open for the possibility that we see a bit more strength. For the time being, I agree with Gary Wagner that $1280 remains a significant level, click here. Gary fudges a bit and does allow for a slight dip below $1280, but a hard drop below $1280 would not be a good thing. I am not as concerned as Gary about a breach of $1280, with a drop down in December Gold to $1273, as I am pretty confident that August 2014 should hold support at $1260. Above $1260 I favor scalping from the long side.

    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.

    Aug 03 12:42 AM | Link | 1 Comment
  • 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!
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