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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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  • Gold Remains In No Man's Land, Struggling To Build A Base

    Peter Hug of Kitco.com, just released a quick note, click here. He succinctly explains how gold could not move above $1222 resistance on Monday, March 2, 2015, and then spent the remainder of the day falling back down. The low came in around $1204, a minor support area. However, overnight, with dollar strength, April gold broke down, hitting stops below $1204 and $1200, and bottoming at $1194.60. Note: The way I see it, someone used the dollar strength as an excuse to place sell programs in the market, selling thousands of contracts in the thin Globex session, to try and do technical damage. Peter Hug rightly points out that strong buying came in to spring April Gold futures back to a high of $1210.50. Note: The reason there was strong buying was likely due to the fact the weakness was manufactured. It was not real. It was short term (legal) market manipulation, that occurs frequently in gold and other futures contracts, where bears and bulls try to wrestle control of the price action. In the long term, the volatility that is created is merely noise. Peter Hug remarks that the resilience of the gold price remains impressive. That is where we differ. I do not see anything impressive about recent gold action, including the spring back from lows hit overnight.

    To recap recent price action, on Monday, gold had overnight strength, but stopped at the $1223 area and then slipped during the entire day with rebounds of no more than a couple dollars. Depressing indeed. That $1222 to $1223 resistance area is the minimum price area gold should have rebounded to, with the MACD buy signal coming in on the daily and weekly charts. I would have expected a move to at least $1236 to $1250. Then there was the running of stops below $1204, another disconcerting development. I told my wife yesterday when she was surprised I was buying into the weakness, that no matter how low April gold falls to, I had calculated a rebound to at least $1210.50 and possibly $1212. Well, it turns out we came back to $1210.50. Having loaded up below $1200, I ended up making a nice profit on the rebound, selling out towards the highs. I am now flat and very cautious towards gold.

    In my research, I found an article written by Mark Mead Baillie, click here, that sums up the action in gold and silver after two months of trading in 2015. The author points out how it is mandatory for gold to start moving back up almost immediately to rescue the bullish case. Will gold act like a chamelean and change its color? I am not very hopeful based on recent action! In fact, I have to agree with Bernard Stegmueller Jr. click here, that gold is looking more and more like a sell! This trading pro from the pits of Chicago, wants to be long on a close above $1235 in April Gold, but wants to be short below $1220. His indicators are quickly turning from green to red. So are mine. They could quickly be reversed, but so far, it is looking more and more likely that we may need to retest the lows of $1140.

    My nature is to be an eternal optimist. However, gold has fallen much harder than it should have fallen during the recent correction from just above $1300. It should have seen an oversold bounce, much greater than we have seen so far. Gold needs to start taking out some resistance levels instead of stopping at them and falling back down. I am writing a warning for bulls to be cautious in here and wait for a better spot to get involved.

    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.

    Mar 03 8:51 AM | Link | 1 Comment
  • Crude Oil And Natural Gas Could Bottom By The First Week Of April 2015

    I ran across an article written by James Cordier, that is bullish natural gas, and has a seasonal chart showing great strength in May Natural Gas Futures beginning in March and extending through April, going back 24 years, click here. I pointed the chart out to my son, who immediately remarked that it may be true for the past 24 years, but the last 5 to 7 years, it has not worked out very well. My son reminded me that it was in April in 2012, when natural gas hit that multiyear low of $1.902. I then remarked that maybe the seasonal strength of the March/April time frame is what finally bottomed natural gas back then. We just completed the February bar on the monthly chart for 2015, and here is what the chart looks like now.

    The last time we were this weak (2012), natural gas hit a low in January 2012 at $2.231 and then closed at $2.503 by the end of the month. For February 2012, natural gas closed up 11.3 cents to $2.606. Then in March 2012, natural gas sold off to a low of $2.101 and in early April it bottomed at $1.902 and then began the nearly 2 year rally to February 2014.

    Looking back further, one will notice that in 2011, natural gas hit a high in January 2011, near $5, and in June 2011, just over $5. This compares favorably to a top of $6.493 in February 2014 and a top of $4.886 in June 2014. The late 2014 swoon in natural gas prices was quite similar to the 2011 selloff, that preceded the major low in April 2012. It is looking like in 2015 we are set up for a similar low in natural gas to hit in early April 2015. Because the January 2015 low came in at a higher price than in January 2012, we will likely not fall as low this year. In 2012, natural gas would fall another 33 cents below the January low. If we follow a similar pattern in 2015, taking 33 cents off the January 2015 low of $2.637, you get $2.307. Thus, the worst we should see in natural gas this year is a drop to about $2.30, and hopefully we stay above the $2.45 to $2.50 area.

    After getting out of my long position in late November 2014, I have not yet pulled the trigger to go long natural gas again, but anticipate getting long sometime between now and early April 2015. The bulls caught in the triple leveraged UGAZ ETN should take heart if we are within 5 weeks of a major low.

    As my son and I talked and reviewed the monthly charts of all the different markets, currencies, energy, grains and meats, etc., we noticed something quite remarkable concerning the crude oil monthly chart:

    What we noticed was that in July 2008, crude oil hit its all-time high of $147.27. That same month it reversed down very hard, and would close down for 7 straight months. Then in the 8th month, in February 2009, crude oil finally closed up slightly ($3.08). Crude oil would continue closing up for several months, with the bottom in. Notice then how in July 2014, crude oil began a similar 7 month selloff, and then in the 8th month (February 2015) we finally get an up closing bar ($1.52). Could we follow a similar pattern now, and continue to close up in crude oil for several months? Probably! Odds favor that most of the carnage has already been seen, and it is time to get long crude oil on dips. Energy related stocks appear to have already bottomed in January 2015 and have pretty well made their lows already. This is a great place for value traders and contrarians to focus their buying in the next few months.

    What is remarkable about the crude oil chart though, and something that I did not notice until now, is the correlation crude oil has to natural gas. Just like crude oil hit the big $147+ high in July 2008, natural gas was hitting a high of $13.694. Hard to imagine prices that high in natural gas, but it really did happen! But unlike crude oil that would bottom after 7 down months, natural gas fell for 10 months, and did not hit the ultimate major bottom until the 15th month, in September 2009 at $2.409. That is what also makes me think that if we stay above $2 in natural gas this time around, we should likely not trade much below $2.40. Crude oil bottomed much quicker in 2008 than natural gas did. The same will likely hold true in 2015. Crude oil will likely bottom in 2015 before natural gas does. And even though I am looking for a low in the natural gas in the first week of April 2015, we might not really take off again until we get past September 2015.

    If crude oil had not fallen so hard, it is likely that natural gas would have stayed above $3.50 recently. I calculate that as much as 70 to 90 cents of the current weakness in natural gas, may be attributed to the weakness seen in the price of a competitor, crude oil. If crude oil can get moving out of the hole, it can eliminate the drag it has placed on natural gas. Natural gas bulls need the help and support of higher crude oil prices to really turn things around.

    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.

    Feb 28 2:53 PM | Link | 5 Comments
  • Gold, Crude Oil And Other Commodities Are Stabilizing

    Gwen Preston of ResourceMaven.ca is saying that November 15, 2014 marked the bottom for gold and the miners, click here. I find the fundamental reasons she gives as compelling. Like Gwen, I see no reason for gold prices to make new lows, and find Goldman Sachs' predictions of gold falling to $1000 or lower as absurd.

    But it is not just gold that is starting to show signs of stabilizing, if not outright bottoming. Crude oil fell dramatically in the last half of 2014 but in early 2015 it has begun to stabilize between $45 and $55. Although crude oil could conceivably make a lower low, with every passing day that crude oil trades above $45, it is becoming less likely that we will see $30 or $20, and we might not even see $40. The fundamental picture is not improving much at all, yet technically, crude oil seems to be in the early stages of trying to form a bottom. It could take another month or two before we start moving up aggressively, but I am growing more confident that the worse has nearly all been priced in. Risk/reward odds now favor scalping from the long side in futures or energy ETFs vs. the short side.

    (click to enlarge)erx

    The triple leveraged energy ETF (NYSEARCA:ERX) appears to have bottomed already in the high $44s, and is now in the low $60s. Regardless of what crude oil does, I would buy all dips in ERX as it has probably already bottomed even if crude oil has not. If you look at the chart of the double leveraged ETF (NYSEARCA:UCO), the chart is not nearly as bullish looking. Here is the daily chart of UCO:

    (click to enlarge)

    If you take a look at the triple leveraged crude oil ETN (NYSEARCA:UWTI), the chart is even less impressive! Here is the chart of the triple leveraged UWTI:

    (click to enlarge)

    Again, if you don't want to trade ERX, one might consider the unleveraged United States Oil Fund (NYSEARCA:USO). Here is the chart of USO:

    (click to enlarge)

    For a good discussion of crude and energy ETFs & ETNs, check out this video from Eric Dutram, click here.

    Natural Gas has struggled to bottom, despite the fact we are getting very cold weather right now. The problem is that they are producing natural gas at an alarmingly high rate and there are not that many cold days left before winter ends. It is also too early to think about hot summer air conditioning demand. However, rather than play the triple leveraged UGAZ or DGAZ ETNs, I still like the natural gas ETF (NYSEARCA:FCG). Under $10 one could have gotten this ETF at a real steal, but under $12 it is still a great buy long-term. Here is a chart of FCG:

    (click to enlarge)fcg

    Summary:

    Don't be influenced by all the bearish commodity news you hear as the bearish sentiment is always the greatest at the bottom. We may not be at the exact bottom yet, but we are probably a lot closer than most believe. If I was going to buy an energy ETF, I like the ERX and USO in here. However, my favorite play is still the natural Gas ETF (FCG).

    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.

    Feb 26 7:18 AM | Link | 1 Comment
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