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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 Mining Stocks Struggle To Hold Onto Support

    Gold Needs To Hold Above $1200 & Hopefully $1220

    Where gold is heading right now, no one knows. If we cannot hold above $1220 in December Gold futures, we will need to retest $1200 and likely $1180. If those support levels fail, we could slip down to as low as $1050 if you believe Avi Gilbert, click here. Personally, I don't see gold falling below $1150 anytime soon.

    Recently, gold rebounded over $70 off the bottom, but it did little to help gold mining stocks. The miners are back to their lows. Thus, it is critical that December Gold holds $1220 support and then rebounds to take out resistance above $1255, $1275 and finally $1300. Otherwise things could get really ugly.

    Gold Miners Are Cheap & Getting Cheaper!

    I saw an article, click here, where it was stated that the gold mining stocks are the lowest prices they have been when compared to the price of the gold metal, than at anytime in the past 30 years, and maybe longer.

    I was trying to find an article that summed up what has happened recently in gold mining stocks. One article I ran across was written by Jordan Roy-Byrne at TheDailyGold, click here. In the article there is a warning that GDX could fall another 20% from current prices before bottoming. I concur with that assessment. I feel 10% further selloff in GDX is more likely if GDX breaks below $20, but one cannot rule out GDX falling to $16, vs. bottoming at $18 where I see the most likely lowest price.

    Gold Mining Charts Look Horrific

    Newmont Mining fell to a multiyear low of $20.61 in early February 2014. Today it hit a low of $21.49 so it has not yet made a new low. Barrick Gold Corp (NYSE:ABX) hit a multiyear low of $13.25 in July 2013. The December 2013 low was only $15.13, so ABX was outperforming other gold mining stocks and was building a nice premium. The late May 2014 low of $15.43 was still a bit higher, further building a base. However, last Thursday, Oct. 23, 2014, a low of $13.16 was hit, losing all the premium and taking out the June 2013 low of $13.25, by 9 cents. Today ABX closed at $13.30, a drop of $6 from the recent highs scored in August just 11 weeks ago.

    Just take a look at the weekly chart of Goldcorp, Inc. (NYSE:GG):

    (click to enlarge)

    Looking at the weekly chart of GG, the June 2013 low was $21.53, which was exceeded on the downside in December 2013, when $20.14 was reached. In June 2014, GG only fell to $22.46, and even now Goldcorp is trading just under $22, which is 9% above the $20.14 low of December 2013. I am hopeful GG bottoms shortly and does not give back the remaining 9% it gained off the low hit 10 months ago. GG is the largest position at 14% of the GDX, while ABX is second at 12.6%. Newmont Mining is 8.4%.

    Other miners are not faring as well. Look at the daily chart of another member of the GDX family, Kinross Gold Corp. (NYSE:KGC):

    (click to enlarge)

    Kinross Gold Corp. (KGC) has been totally obliterated. Recently it has been caught in a death spiral under $4, and now trades for only $2.69.

    However, some stocks do look like they are trying to bottom, like Yamana Gold Inc. (NYSE:AUY). Here is the weekly AUY chart:

    (click to enlarge)

    Yamana Gold (AUY) was holding above $8 during 2013, but slipped to just above $7 in the May/June 2014 timeframe. After hitting almost $9 ($8.99) in August, it has fallen in 10 weeks to the $5.50 area. Surely AUY will bottom between here and $5, as the downward momentum is waning. It should then rally back to the $7 to $7.50 area in the near future.

    I was going to finish this segment by looking at a 25 year chart of Iamgold Corp (NYSE:IAG), but I could not get the chart to load. I will just note that this stock hit a high of $11.83 in the 3rd quarter of 2006 and $10.43 in the 4th quarter of 2007. But in the 4th quarter of 2008, it fell to $2.22. However, just a year later, in the 4th quarter of 2009, IAG hit a high of $21.00. The all-time high during the 3rd quarter of 2011, was $23.88, which corresponds to the all-time high in gold. Well, a few days ago, IAG again hit a low of $2.22. This stock has lost over 90% of its value. But if gold would bottom, and begin rallying strongly, there is no reason why IAG could not again hit $21.00, just 4 quarters after bottoming. There will come a day when gold stocks are not hated and despised. They will again rise from the ashes. Gains in stocks like IAG could be ten-fold within as little as one year.

    Holding Leveraged Mining ETFs Like NUGT & JNUG Has Been Financial Suicide

    (click to enlarge)

    The recent action in the triple leveraged bullish Junior Mining ETF (NYSEARCA:JNUG) has convinced me that it is imprudent to every hold the leveraged mining ETFs longer than 2-3 days when one is carrying a loss. If carrying a gain, then one is going with the trend and should be fine, even with slippage. But if one is carrying a loss, those losses must be stopped before they get out of control. JNUG recently hit a high of $36 in July 2014. Today it closed at $7.68. That is a drop of 78.7% in 3 1/2 months. If GDXJ falls 10% further down, JNUG could hit 30% lower, or $5.37. A rebound of 40% in GDXJ should then bring JNUG back 120% off the lows, to $11.81. To break even if one was long from $15, one would need a rally in GDXJ of 60% off the lows, to cause JNUG to rally 180% to reach $15.03.

    If we should fall another 20% lower in GDXJ, then JNUG would fall to $3.07. Then a rally of 40% or 60% in GDXJ, would cause JNUG to rally only back to $6.75 or $8.60. No one wants to see JNUG drop to the $3 area.

    When JNUG was trading in the $8s recently, I recommended to someone that they take off 20% of their position in the $9s, another 20% in the $10s, 20% in the $11s, 20% in the $12s and finally 20% in the $13s. However, JNUG has offered little opportunity the last few days to sell on strength. It would appear to be too late to panic and sell now, even in the $7s, as there is a good chance one can get a better price than this. Panic selling by diehard bulls has exacerbated the current selloff. However, one should lighten up on all rallies, especially when they only last a single day!

    For the past couple months, if one had sold out 50% of their JNUG position, every time JNUG had an up day, and bought back on weakness the following day, one would have done quite well at repositioning to a lower average price.

    Conclusion:

    JNUG can hardly get just 2 up days going in a row, over the past 8 weeks. Where would JNUG be in gold had not rallied $70 off the recent lows?! If gold does break down in the future, one can expect for the miners to break down further as well. When the miners are truly bottoming, they will outperform gold and start rallying even before gold does. Right now, the miners are telling us gold is likely heading down and not up. That has to change. When the miners start outperforming the gold metal, that is your first clue that we are about to bottom.

    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 has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 28 2:46 AM | Link | 3 Comments
  • Based On Seasonals, Now Is The Time To Get Long Natural Gas & UGAZ!

    (click to enlarge)

    The above seasonal chart of natural gas is courtesy of David Stendahl of Signal Trading Group, click here. The blue line shows the seasonal tendencies over the previous 5 years, the brown line is 10 years and the green line 15 years. What is apparent from the chart is that every year natural gas has a spring low in about April, as well as a lower low in the fall in September. From the September low, one can expect natural gas to begin rallying with a large spike hitting about the middle of October, as colder weather begins to appear on the radar screen.

    We can now look at the weekly chart going back a couple years as follows:

    At the left of the chart, the 4th week of October in 2012, was a down week. However, natural gas would rally over 50 cents higher in the next 4 weeks, to top just under $4.00. A year ago, in 2013, natural gas topped at $3.83 during the 3rd week of October, and then fell for 2 1/2 weeks, to strike a low 70 cents lower, at $3.13. From that low, natural gas would begin a rally that would take it to $6.493 by February 2014, thanks to an extremely cold winter.

    In 2014, the nearby natural gas futures contract topped at $4.184 the first week of October. Natural gas has now fallen back from that high. The current week is the 4th week of October, and one would anticipate a bottom in natural gas either this week, or during the next couple weeks. A similar drop of 70 cents from the recent high of $4.184 would project a bottom in natural gas around $3.484, which I have rounded off at $3.50. Today, October 21, 2014, the nearby November Natural Gas contract hit an 11th month low of $3.631, before rebounding to close up 4.1 cents at $3.711. The November Natural Gas Contract will stop trading in a few days. If natural gas bottoms with the November contract still trading, we will have fallen within 15 cents of our target low. If natural gas continues to fall for a couple more weeks and December Natural Gas is the nearby contract at the low, it closed today at $3.800 and is vulnerable to another 30 cent drop from here. On a full contract, every penny is $100 so a 30 cent drop if one bought December Natural Gas here, would involve holding a loss of $3,000.

    Although I successfully scalped Natural Gas from the long side today, the market has not yet shown a confirmation of a bottom. We can now look at a daily chart of December Natural Gas:

    The December Natural Gas contract held support at around $3.90 MMBtu for nearly 3 months, before giving way the last few days. Regardless of today's reversal, December Natural Gas may not bottom for good, without dropping a bit further down. My best guess is that $3.50 should be tremendous support based on previous trading action of previous years, but there is a very small outside chance that December Natural Gas falls to an extreme low of $3.12 to $3.35. To see what that translates to UGAZ, please consider the following daily chart:

    (click to enlarge)

    The triple leveraged Long Natural Gas ETN (NYSEARCA:UGAZ) closed today at $11.56. If December natural gas should fall another 30 cents (a drop of 7.9%), then UGAZ could fall 23.7% to $8.82. If December Natural Gas made an extreme bottom of $3.20, then UGAZ could fall to as low as $6.55.

    I have determined that odds favor a most likely low of $3.60 in December Natural Gas. If correct, UGAZ should trade no lower than $9.75. From a low of $3.60, natural gas should rally 40% with a mild winter, and 100% with another cold winter similar to last year. If $9.75 is the low in UGAZ, one could expect a bounce of 120% to 300% depending on the severity of the winter, projecting a winter high of $21.45 to $39.00. If Natural Gas bottoms at $3.50, UGAZ should bottom around $8.82, and rally to $19.40 to $35.38. But if Natural Gas bottoms at $3.20 and UGAZ falls to $6.55, then UGAZ should recover to between $14.41 to $26.20.

    For those nimble enough to buy on dips and partially sell on rallies, one can scale in buy at present levels. For those who are cautious and do not want to risk a great deal of capital, they can hold off buying UGAZ until it hits bottom and starts moving out of the hole. One could maybe buy on a stop at $12 or $12.50 after it has bottomed and started moving higher. In any case, natural gas is expected seasonally to bottom between now and the first or second week of November 2014. We won't have to wait long to see what happens as we prepare for what should be a very cold winter, click here.

    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 21 11:55 PM | Link | 8 Comments
  • The Dow Has Fallen 6 Days In A Row -- Should I Be Bullish?

    Basic Probability Theory

    Each day there is a (coin flip heads or tails), 50% chance the Dow Jones Industrial Average will close up, and 50% chance it will close down. Well, today the Dow has closed down for 6 days in a row, a very rare occurrence. To calculate the odds of such an event, just take 1 divided by 2 raised to the 6th power (1 / 2X2X2X2X2X2 chance) which is 1 chance in 64. To get another down day tomorrow to make seven down days in a row, the odds are 1 / 2^7 or (1 chance out of 128).

    It would seem logical that if the Dow trades down early tomorrow, I should buy stocks with the anticipation we will get an up close. However, each coin flip is independent with no memory of the previous flips. It is just as likely we close down for a 7th day tomorrow, as break the string by closing up. I can only lament the fact the Dow has come up tails 6 times and the chance of heads (an up day) tomorrow is still just 1 out of 2 (50%). Probability theory would dictate that I cannot base my future buy and sell decisions on the immediate past. The story should end there, right? Wrong!

    Research Shows That You Want To Buy After 3 to 7 Consecutive Down Days

    Larry Connors back in January 2007, wrote a very interesting article that you can find on the internet here. According to research performed by TradingMarkets, if you see where a stock is trading a week following 3 to 7 consecutive up days, the stock is usually down. The more consecutive up days, the more negative the returns one week out. This reversion to the mean logic makes a lot of sense.

    However, when it comes to buying a stock that has fallen for 6 consecutive days (like the Dow just did), one can expect for the stock to be trading 0.82% higher a week from now. If Friday is also a down day, making 7 down days in a row, then the one-week expected gain is 1.06%.

    It will be fun to watch and see how the Dow performs tomorrow to see if we indeed get 7 down days in a row, or we finally get that up close. In any case, I will be long the December Dow Futures contract (YMZ4) to take advantage of a short-term relief rally that should occur next week.

    The Crude Conundrum

    One thing that did occur today was November Crude Oil (CLX4) finally traded below $80 early in the day, but reversed hard to the upside, hitting $85 before falling back to close in the mid $82s. If $80 was taken out, everyone was sure crude oil was doomed to drop to $75, $60, or $40. It was almost assured then that we would go the opposite way when the dreaded $80 support level was breached. Art Cashin on CNBC mentioned on Wednesday that weak crude prices were depressing stock traders, spelling weak demand, and economic doom around the world. Shale oil plays which is supporting our economic growth, needs crude oil to trade above $80 to remain economically viable.

    The last couple days, traders were getting very short November Crude Oil when it traded just above $82, and making lots of money as Crude Oil fell back towards $80. As it came out of the hole today, I said to myself, I should put a buy stop just above $82.50 because if we should pop on up, the shorts who shorted between $82 and $82.50, would have to cover. I didn't trade it, but as predicted, when crude oil hit $82.50, it almost immediately exploded another $2.50 to the $85 level, before falling back to the mid $82s. Now, there will be a lot of support in Crude Oil around $82 as the big boys don't want to let any bears out of their short contracts at a profit, by falling back under $82. From the $82 launching pad, it will be fun to see how far Crude Oil can rally, which could help support the stock market. Weak Crude Oil prices have been blamed for the weakness seen in stocks, looking at decreasing world demand. The demand is unchanged but in fact it is the supply that is burdensome and knocking down prices. But right now traders are looking at weak crude prices as bearish for stocks, when in fact weak crude prices is bullish for stocks. For now, since it is working, I will forget normal logic and look at higher Crude prices as bullish for stocks and lower prices as bearish.

    As long as Crude Oil stays above $82, then I will be bullish stocks. But as soon as Crude Oil again breaks under $82, then it will be time to go short crude oil with $80 likely being taken out soon thereafter. That would also be the signal to abandon any long Dow Jones futures position as the correction is over and both Crude Oil and stocks are probably again heading lower.

    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: DIA
    Oct 16 7:17 PM | Link | 2 Comments
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