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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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  • 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!
  • Where Are Copper And Gold Likely Going Next?

    September Copper Should Bottom About 3 Cents Lower At $3.15

    (click to enlarge)

    The above daily chart of September Copper futures shows a major low struck in the middle of March 2014, at about $2.88. From that low copper rallied about 20 cents and then fell back 10 cents (a 50% correction). Eventually September Copper continued higher and would rally about 30 cents off the $2.88 low, to just under $3.18. I marked that high day with a black triangle on the chart. From this high, again we got about a 50% correction of the entire move, when September Copper bottomed at a shade under $3.02.

    Looking closer to that correction from the $3.17s to about $3.02, you will notice that the 4th day following the top was a secondary peak, and this bar is marked with a "4" on the chart. I then circled on the chart, days 6, 7, & 8. I circled these days as they appear quite similar to the last 3 days we just experienced, which I also circled on the chart. From the $3.02 low, September Copper recently rallied about 28 cents to just under $3.30. I now expect to see another 50% correction back to the $3.15 or $3.16 level where I want to go long. In this recent rally, I again marked the top with a black triangle on the chart. And again we got a secondary high on the 4th day following the initial top, but this time we traded to a marginal new high. The secondary top is again marked with a "4" on the chart. Days 6, 7, and 8, are circled and look almost exactly like the previous circled pattern of days 6, 7 and 8.

    If we continue the previous bottoming pattern, I would expect for September Copper to bottom within the next 2-3 cents from Friday's close in the $3.18s. Like before when we bottomed around $3.02, I would expect 3-4 days of sideways action where copper fails to make progress to the downside.

    Gold Remains Stuck In A Tight Range!

    (click to enlarge)

    Please excuse my crooked chart. Despite the gyrations of this past week, August Gold continues moving in a large sideways range. For many reasons I feel that pattern will continue going forward. There are few if any fundamental reasons for gold to move higher. However, political tensions abound in the world and should keep a bid under gold, preventing gold from going much lower for now.

    On the above daily chart of August Gold, I have marked four bottom spikes in the $1280 range as "A1", "A2", "A3" and "A4". After going sideways for several weeks, the wedge pattern in August Gold was ultimately resolved by moving to the downside, where it bottomed at $1240. After a recent rally lasting 6 weeks, August Gold now bottomed this last week at $1292, marked as "B1". If this is the first spike low, I would now look for 2 or 3 more spike lows in August Gold in the $1280 to $1290 range, which I will mark later as "B2", "B3" etc.

    I like buying gold futures or going long the mining ETFs of GDX & GDXJ, or leveraged bullish ETFs of NUGT & JNUG when August Gold trades below $1295. I also like selling gold futures to go short, or buying the bearish leveraged mining ETFs of DUST or JDST, when August Gold trades above $1320. I see August Gold trading back and forth in the $1280 to $1330 range for the foreseeable future. Thus the Lefty teeter/totter approach balancing purchases of NUGT against DUST and JNUG against JDST are advised. The way it is looking now, if there is range expansion outside of the range I just mentioned, it would probably be to the downside.

    Charts Of The Four Triple Leveraged Gold Mining ETFs

    (click to enlarge)

    Late Friday, a week ago, I suggested one not own the triple leveraged gold mining ETF (NYSEARCA:NUGT) above $50, but instead buy it on a dip between $42 to $47. With a low of last week of $42.16 and closing above $47 on Friday, I would say my advice was right on! For the next few weeks, I would look to buy NUGT on dips, especially down to $40 and a bit below, into the gap area created on June 19th. If August Gold futures get bought up on a dip to $1280, NUGT should not trade below $39.50 in the foreseeable future. On the topside, if August Gold rallied to $1330 to $1340, then NUGT should have difficulty moving higher than $53 to $55.

    (click to enlarge)

    The triple leveraged bearish gold miner ETF (NYSEARCA:DUST) should have a lot of support in the $13.50 to $14 area, but resistance at $18 to $19. When gold dips to support towards $1280 to $1290 and starts to rally, that is a good time to sell out of your DUST and JDST. I like to sell out of up to 100% of all DUST that I have a profit in, and 25% to 50% of the shares I am losing on, in order to reposition by buying back cheaper on the next rally. Likewise, when August gold rallies towards $1330 and higher, I would be taking advantage of the cheap prices to buy more DUST and JDST. (click to enlarge)

    Although I prefer the Large Miner bullish leveraged ETF (NUGT) over the Junior Miner bullish leveraged ETF (NYSEARCA:JNUG), I see JNUG having value especially if purchased at $25 and lower.

    (click to enlarge)

    JDST is my least favorite of the four ETFs and is slowly going from toxic to radioactive. It is the one leveraged ETF that I see underperforming over the next year, especially if gold ever gets its act together and moves soundly above $1400. At that point many traders would lose most if not nearly all of their money invested in JDST. The slippage in JDST is much, much worse than what one would experience in DUST, and I favor selling 100% of one's position on a JDST rally if and when August Gold falls to the $1280 to $1290 support area, and to only buy DUST back in the future when gold rallies.

    True day traders and short-term swing traders who do not hold JDST more than a couple days, should be fine, but long-term holders of a few weeks or more could be extremely disappointed in their purchase of JDST. Caveat Emptor!

    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: NUGT, DUST, JNUG, JDST, GDX, GDXJ
    Jul 19 4:28 PM | Link | 5 Comments
  • UGAZ/DGAZ: Natural Gas Is Now Below $4.00 For The First Time Since January So Now What?

    (click to enlarge)

    Looking at the above weekly chart of the August 2014 Natural Gas Futures price going back a year, I would like to bring your attention to look at the white candle that was made at the beginning of November 2013. That candle has a low of about $3.60. From that low, natural gas rallied for 9 straight weeks, to top out at $4.29, a gain of 69 cents. With every cent representing $100, it totals $6,900 per contract, profit potential. But in the 10th week, August Natural Gas was clobbered back down to $3.921 the second week of January 2014. August Natural Gas then rallied for 6 straight weeks, but topped out in the 7th week at $4.891, a gain of 97 cents. Then after trading in a sideways pattern from $4.30 to $4.90 for 16 weeks, five weeks ago August Natural Gas topped out at $4.893 and then has fallen to today's low of $3.936 as shown in the chart. In the past 5 weeks, we have fallen back to within 1.5 cents from the January low of $3.9210. As we approach $3.90, there is significant support near the January low. Also, looking back previously, in 2013 one can see from the chart that $3.80 is support, $3.70, as well as $3.60. With the drawdown in inventories experienced over this recent winter, it would be absurd to think that August Natural Gas or any other contract month, would return to as low as $3.60, the lowest price hit in the last 12 months in August Natural Gas, even though the nearby trading month scored a low of $3.379 at that time.

    Also, it is apparent we are going to close down for 5 straight weeks and that is an extreme amount of time for Natural Gas to move straight down. Markets take the escalator on the way up, but the elevator on the way down. We have fallen slightly over 95 cents off the recent high. The greatest selloff in 2013, was $1.31 in Natural gas, from $4.44 to $3.13 in May to August, and it took 16 weeks and was not straight down. The 95 cent selloff in the past 5 weeks is extreme! Natural gas has lost over 20% of its value in only 5 weeks!

    UGAZ Hit A Low Of $15.77 Today!

    (click to enlarge)

    UGAZ was forming a shelf of support around $18, but today's nearly 4% drop in natural gas, caused a low to be struck of $15.77 in the triple leveraged bullish natural gas ETN (NYSEARCA:UGAZ). If natural gas falls another 10%, from the $3.90s to the $3.50s, UGAZ could suffer another 30% drop from today's close, down to $13.33. Space your buys accordingly and be happy when UGAZ bottoms at $14 or $15.

    If one is accumulating UGAZ, one way to keep from getting too many shares at too high of a price, is to use the $4.00 price of Natural Gas as a pivot. Instead of adding on more weakness, just sit aside and wait for natural gas to bottom. Then when the price moves back above $4, UGAZ will move above $17. Using a stop limit buy order to initiate a position, buy when UGAZ hits $17 and leave the cheap prices alone. However, if UGAZ moves into the low $14s or into the $13s, then one will have cash available to buy in cheap. Nothing wrong with waiting though for UGAZ to begin a rebound off of the bottom, and complete your buy with a buy stop limit order placed at $17. In this way, instead of catching a falling knife, one can wait until natural gas has bottomed and is trending back up.

    Long-term, one wants natural gas to trade above $4 as UGAZ will then be the play. If natural gas makes its home below $4 then DGAZ will be the play.

    A Caveat

    At the First Entercast Financial website I saw an article, click here, by Breanne Dougherty, who is calling for no relief to cheap natural gas prices for over two years. Since producers can make a profit on natural gas at $3.00/mmBtu, he sees no reason for natural gas prices to trade any higher than $3 for the foreseeable future, as producers will produce as much as they can possibly produce with no restraint on supply. Natural gas is a byproduct of oil production, along with production of methane, butane, propane, etc. So if producers can make money off of the oil or other hydrocarbon they are going after, anything they get for the natural gas is just a bonus. Well, I don't agree with this scenario because if natural gas prices stay around $3 for over 2 years, truck fleets, taxis, and many a new car purchased by misers, would start running on natural gas instead of crude oil. The cure for cheap prices is cheap prices. Natural gas prices in the world is priced at $8, $10, or higher! We have been spoiled since the U.S. is the Saudi Arabia of Natural Gas. We are not there yet of course, but eventually the only play will be in UGAZ as the price of natural gas will work higher and higher. My father was an oil producer, and growing up, I can remember $3 for a barrel of crude, as a high price. Then came the 1970s oil embargo and crude jumped to $30. Today it is $100 or higher. In my lifetime, I foresee a similar increase in natural gas prices at some point, to $25/mmBtu or higher. Industries in the U.S. are aware that natural gas is a cheap energy source and they will capitalize and use up the excess supplies sooner than many think, IMHO.

    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, but may initiate a long position in UGAZ over the next 72 hours.

    Tags: UGAZ, DGAZ
    Jul 17 6:30 PM | Link | 10 Comments
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