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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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  • Cheaper Energy, Gold Price Stable, Possible QE4...Should Make One Bullish Gold/Miners

    Cheaper Energy Should Reduce Mining Costs Of Production

    Crude Oil is indeed crashing in here. Today Crude Oil plunged 5%, click here. OPEC is worried about giving up market share, and Saudi Arabia as swing producer does not mind oil prices falling to the high $70s or lower. In my last article, I was looking for a bounce in Crude Oil as it was oversold. However, I was wrong, like some other traders, click here. I thought $70 would hold as support in the triple leveraged energy stock ETF (NYSEARCA:ERX) but today that support gave way. At this point there is no bottom in sight.

    With crude oil prices dropping, this is very bullish for gold mining companies as it will help reduce mining costs and contribute directly to the bottom line. I do not believe that the gold mining stocks have yet factored in the windfall of lower energy prices.

    Gold Prices Are Stable

    (click to enlarge)

    Thanks to Jim Wyckoff for the above chart, located at kitco.com. December Gold needs to trade above the $1242 resistance level and then shoot for the 50 day moving average sitting around $1255. That would establish a bottom. However, gold might then retest the lows but should find support at $1217, $1200, $1181 and if that fails, an ultimate bottom in the $1135 to $1150 area looks as the worst case scenario.

    For downtrodden gold bulls who need some encouragement, here is a video by Peter Hug and Jim Wyckoff of kitco.com, click here.

    Fed Governors Are Debating Possible QE4

    I heard on CNBC that a couple Fed Governors the last couple days have come out to say they are open to possible QE4 if necessary. This would be extremely bullish for gold and it is amazing that the gold market has not rallied on this news.

    I will finish with a daily chart of the Major Gold Miner ETF (NYSEARCA:GDX):

    (click to enlarge)

    The daily chart of GDX shows that we have been going sideways after making a 6 year new low on October 8th, taking out the old support level of $20.18 by 7 cents. Lower prices were soundly rejected on that day and the market has since been consolidating. The path of least resistance is higher. Although the gold metal could retest the $1200 or $1180 level, there is no reason for the miners to retest their lows. The gold miners have factored in all the bearishness they need to, and it is time for the miners to begin rallying and to outperform the metal. The outperformance of the miners over the metal is the confirmation the bulls need to know we have bottomed.

    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.

    Oct 14 6:41 PM | Link | 2 Comments
  • Crude Oil Should Find Short Term Support At $86, For Bounce Towards $89 To $92

    The above daily chart of November Crude Oil futures, is complete through the close of trading on Wednesday, October 8, 2014. Now today, we are already trading lower again, taking out yesterday's low and hitting $86.08 so far. There are lots of calls in the media for lower oil prices, with no real support till $80. Many are now predicting Saudi Arabia will continue to pump oil until the price falls below $80, to hurt the shale oil drillers and help regain OPEC market share. They could choose that route but the most likely scenario is that Saudi Arabia cuts back on production and the price returns back in their target range of $94 to $110.

    Should Find Support Around $86 in November Crude Oil

    Even if crude oil is heading lower, it should find temporary support around $86, from which a $3 to $6 pop could be scalped from the long side. In researching crude oil, I found the following article by Kathy Garber, click here. In the article she mentions a final low support level of $85.95 which we are fast approaching. Like Ms. Garber, I am also looking for a rally in Crude Oil from the $86 level.

    If you take a look at the above chart, you will notice how November Crude Oil topped out recently at around $104. It then fell down $6 to $98, before rallying $3 back up to $101. The next support would be at $96, just $2 lower than the $98 support. After going sideways the market next found support at $92, a drop of $4. This time crude oil was able to pop $3 before resuming the downtrend. Then came support at $90, a drop of $2 from the previous support level of $92. Well, since we have now broken support at $90, one would expect to see support form again either $2 or $4 lower. It turns out that both $88 and $86 are showing support. The first time we approached $88, Nov Crude Oil stopped falling at $88.18 and reversed strongly back to $91.79 the following day (last Friday). I am expecting a similar pop and reversal from the $86 support level being tested now, and am buying today on the weakness in the low $86s. Even if I am wrong and we do fall to $85 or $84 before turning around, we are greatly oversold and the $3 to $6 pop we get off the bottom, should easily allow long traders to get out with a nice profit, on the next rally.

    ERX Should Find A Buy Soon

    (click to enlarge)

    The above weekly chart of the triple leveraged Bullish Energy ETF (NYSEARCA:ERX) is quite interesting. From the June 2012 low of $31.24, it would rally to a June 2014 high of $135.98. Well, finally we are getting a decent sized correction that would allow for one to begin getting in, to ride the bull trend up again. We have broken below the 50 week moving average and are headed to the 200 week moving average just above $69. By $69 or sooner, I would expect for ERX to bottom and then work higher. If one does not want to trade crude oil futures, one can trade this leveraged ETF to take advantage of the anticipated pop in crude oil from $86, back up to $89 to $92.

    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: ERX
    Oct 09 12:04 PM | Link | 3 Comments
  • Despite Black Friday (Oct 3, 2014) The Long-Term Trend In Gold Remains Up!

    In times like these, it is good to take a step back and look at the big picture, the really big picture. The above London gold fix, going back to the year 2000, shows how from the 2000 low, to the September 2011 high, gold was in a major uptrend. Then we topped and started the bear correction phase that we have now been in for the past 3 years. However, even with the current correction down that could get a bit worse before it gets better, if I was to draw a linear regression line that describes the above chart, the line would run from the bottom left hand corner and reach upward towards the right hand top corner, cutting through about the $1350 level in the Spring of 2013, and would continue rising out to infinity. Just as we were trading above the linear regression line beginning in the summer of 2009 through the peak and down to the Spring of 2013, we have since been trading below the linear regression line, and could continue to trade below the line for some time to come. However, eventually gold will at least hit and more likely exceed this line sometime in the future. At some future time, gold will surely again trade above this line. That tells me that eventually buying gold will pay off, and pay off in a very big way. I am very confident that $1900 should again be tested and we have likely not seen the ultimate high in gold. In fact, the most likely scenario is that we hit $2,500 within the next 5 years. Now, should we get a parabolic blowoff, the rally could extend for as long as 10 years, and the gold price could easily move up in multiples of $2,500 at a time, to $5,000, $10,000, $20,000 or even $40,000. The sky is the limit for gold bugs.

    By the same token, even the gold bears must be aware that even if the $1920s hit in 2011 is the ultimate high we will ever see in gold in our lifetime (something approaching zero probability thanks to inflation), we should at some point bottom and then rally back up in a Fibonacci retracement of 38%, 50% or 62% off the bottom. This means that should we bottom at $1100, then we should rally back to either the $1412, $1510, or $1608 level. All three price levels are far above the current price just below $1200. Now, suppose the bottom is $1000, then we rally back to $1350, $1460, or $1570. But even if we drop all the way down to $700 like Yoni Jacobs is predicting, click here, then we still will see $1164, $1310 or $1456 after that.

    What this all tells me is that despite the weakness we have seen recently, culminating in Friday's bloodletting, gold and the gold miners will recover at some point, and odds favor buying rather than selling going forward. The lower gold drops, one should be getting more bullish, rather than getting more bearish, as the bottom is ever closer and better times are closer to being realized.

    Black Friday, October 3, 2014, Was Very Devastating For Gold Bulls, Causing Heavy Capitulation Selling

    Thanks to the plunge under $1200 in gold on Friday, gold has now turned negative for the year. Not to be outdone, January Platinum closed at $1226.90, a 5 year low on Friday. (Note: Platinum is trading only about $30 above the price of gold and rarely trades below the price of gold, so the bottom could be near). Palladium is just above good support of $750, having dropped nearly $160 in just 5 weeks when Palladium was the metals darling and was sitting at multiyear highs! Silver on Friday hit a 4 1/2 year low, now trading below $17 a troy ounce.

    Doing research Friday night, I read one bearish article after another. Several articles were explaining how there was not a single factor now working in gold's favor. One article in particular, covering about 20 factors in a 6 or 7 article series, explained all the reasons to shun gold. What I found to be laughable, if it was not so sad, was when the author tried to explain away the U.S. trade deficits and the ever increasing debt. The author felt that because we are producing more of our own oil thanks to the oil sands and fracking, resulting in the import of less crude oil, the trade deficit was improving and that was just fine. The fact that our trade deficits are still quite negative was ignored. And then came the debt argument. The author explained how we are increasing our debt load at a slower pace more recently, and that it was quite manageable and of no concern. Well, wake up! Our debt load is not manageable and not sustainable long-term and will ultimately lead to a devaluation of the dollar. When you take someone's most positive arguments and make them into negatives to prove your point, it is a sign of desperation. I feel that now the bears are speaking from desperation, not the bulls. When everyone is convinced in future dollar strength and gold weakness, that is the very time the tide is about to turn. It always looks the worse at the bottom.

    Iamgold (NYSE:IAG) Sold Non-Gold Assets for $530 Million But Instead of Rallying on Friday, The Stock Sold Off

    If you needed a good example of how ridiculously bearish traders and pundits have become on the gold market, look no further than IAG. Iamgold sold their rare earth metals mine for $530 million, which should have popped the stock up 10 to 20% on Friday. But instead, IAG closed down 4.4%. IAG sold out the part that was over 50% of their market cap but only produced 15% of their revenues. Normally this should make traders realize that the remaining gold assets are undervalued and raise the price level of the stock. With this cash infusion, the company can now endure any long protracted gold price slump. IAG also has a $750 credit line they are not using. With the sale, the stock looks cash and asset rich and should extremely attractive for a buyout. But the reason given for the selloff was that the S&P is threatening to downgrade their debt. With all this cash shouldn't the company be on stronger footing and instead of a downgrade, S&P should be improving their debt rating? Well the S&P debt raters have concluded that IAG will likely waste the money by purchasing more worthless overpriced gold assets and would have been better served by holding on to anything not tied to gold. This backward thinking is so absurd it is laughable! Who needs rating agencies anyway. They tend to be more wrong than right, based on recent history.

    The Contrarian In Me Is Turning Me More Bullish

    Not many pundits are now predicting gold will stop falling at the major double bottom just above the $1180 level in gold. With the $1200 level taken out Friday, they are convinced we will either fall to $1100 or $1000 in short order. Well, remember that just because the door is open to lower prices, that does not mean we are forced to go through that door, and if we do step into the room of lower prices, nothing is to stop us from quickly leaving. Gold may surprise everyone and refuse to walk through the door to these lower prices than the $1180 level. But being realistic, although I do not see gold falling all the way down to $1100 in the near future, I realize that now it is a very distinct possibility and probably most likely outcome, that December Gold futures trades down to the $1130 to $1150 level. A breach of $1180 would really get the bears' juices flowing, hyped by the media's call for the pending death of the gold market, forever. Even the most diehard bulls will give up at that point. And that should be the bottom.

    I am also reminded of Mark Hulbert's article, dated Sept 24, 2014, where he cites the extreme bearishness of the gold market, click here. After Friday, gold and the miners are even more oversold than back in late September when Mark Hulbert last reported them. When the gold market was this oversold in the past, gold did not turn around immediately, but 2-3 months later, prices were much, much higher. I expect the same thing to be true now.

    Another article I like is found here, written by Jordan Roy-Byrne. He shows the gold bear chart showing the current 3-year bear market in gold, being the second longest on record. There is only one bear market that lasted longer than 2 years, prior to this one. And that bear market lasted about 3 years and 5 months, from 1996 to 1999. The two bear markets that would project a fall in gold to either $1100 or $1000, ended in less than 2 years. Lasting this long, over 3 years, we should not fall a greater percentage than we did in the 1996 to 1999 bear market, which projects a low of around $1150.

    GDXJ Should Bottom Between $5.50 to $6.50, Worst Case Scenario

    I remember how GDX liked to bottom around $22, but ultimately dropped to $20.18 in December 2013, even though gold double bottomed. In December 2013, the gold miners were weaker than the metal. Well, now I feel that although GDX has not yet made a new low, it is vulnerable to a similar further drop of $1.82 below the $20.18 support, which projects a worst case possible bottom at $18.36. If that low would be seen in GDX, a drop of about 11% from Friday's $20.63 close, the Junior Miner ETF (NYSEARCA:GDXJ) could fall to just under $28. That would put the leveraged Junior Miner gold stock ETF (NYSEARCA:JNUG) over 30% lower from the Friday close of $9.40. Thus JNUG should bottom with a low between $5.50 to $6.50, in this worst case scenario.

    I Plan To Add To My JNUG Position If It Falls To $6.50

    My plans right now, are to wait until JNUG hits $6.50 and there add as much money as what I already have invested in JNUG with an average price of just over $13. I will get more than twice as many shares at $6.50 than I could at $13, which will greatly reduce my breakeven. A 150% rally off the bottom in JNUG based on a $6.50 low, projects a pop back to $16.25. If JNUG stops falling at $5.50, then JNUG should pop back towards $13.75. In either case, it would appear to be too late to sell under $10, unless one is sure to buy back lower. I plan on hold for now and just wait for $6.50 to add. If $6.50 is never hit, and we bottom at say $9.00, then JNUG should quickly return to $22.50 and I will be quite happy. If we fall to $7.50, I will just wait for the rally back to $18.75 to get out at a nice profit. I do not plan to buy more JNUG unless I can buy $6.50 or lower, and once I do, my average price will be lowered to the high $8 area. A very small bounce back of just 12% off the bottom in GDXJ, should get me a 36% pop in JNUG from $6.50 to over $8.75 and a chance to sell out at a profit.

    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.

    Disclosure: The author is long GDX, GDXJ, JNUG.

    Oct 05 1:09 PM | Link | 12 Comments
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