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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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  • 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
  • The Gold Miners Have Probably Bottomed, Even If Gold Has Not!

    In my research this weekend, I located several articles that I felt were quite interesting and thought I would share a couple of them now with readers. The GoldMoney News Desk, posted an article on Friday, click here, where it is noted that the open interest in Silver has been climbing during the recent selloff, while the open interest in Gold futures has fallen along with the drop in Gold. In regards to gold, this is a healthy development. During the 2 1/2 week long January 2015 rally in gold futures, contract open interest rose as new longs entered the market and drove prices to above $1300. However, on the retreat back to $1200, open interest has fallen as the bulls took their profits and left the market. Had new short positions entered the market, then open interest would have risen during the decline. But that has not happened. Instead, the bulls started selling as gold corrected. In a healthy market, open interest increases as prices rise, and open interest decreases during times of falling prices.

    However, the last few days, open interest is looking like it is starting to rise a bit. That is probably because the bulls are again trying to pick a bottom around the $1200 level. Others may not agree, but I think this is a bullish development. Many are saying that the $1197 to $1200 area must hold, otherwise $1180 will be tested in April Gold futures. And if $1180 breaks support, then $1140 will be tested. However, I say that one should expect for stops to be run and we should fall to the $1185 to $1190 area early this coming week. However, we should find support and move back above $1200 in a day or two. But if $1185 does not hold, we could fall down to $1175 or even $1170. Should we get that low, I would expect to see a rebound in gold quickly back above $1200, to as high as $1240.

    The reasons for my optimism are many. At the beginning of the year, gold rallied strongly for 2 1/2 weeks, and has since retreated for 4 1/2 weeks. It is taking twice as long to fall as it took to rise, showing some reluctance to move lower. This is a bullish development. If gold was as bearish as most as saying, it should have taken 4 1/2 weeks to rise, and only 2 1/2 weeks to give it all back. Weak markets take the stairs when going up, but the elevator going down. Gold is bullish in my book, because it did the exact opposite, it took the elevator up to above $1300, and has taken the stairs back down to $1200. Somewhere between $1197 and $1177, I would expect to see gold bottom and again jump on the elevator and begin quickly moving higher. I am hopeful we won't have to trade lower than $1190 before starting the rally. However, taking out the $1180 support could cause heavy selling as stops are run, and new short positions are put on by the bears. However, a quick drop under $1180 should be a head fake and false breakout to the downside. If gold moves back above $1180 again, the bears will be force to buy to cover their losing short positions, and that could propel gold back above $1200 and possibly as high as $1240, before it thinks about consolidating.

    Another thing that makes me bullish, is the following article written by Jordan Roy-Byre, found here. He explains how gold is much stronger when viewed in currencies other than the dollar. Those in Europe who were worried about Euro weakness at the beginning of 2015, bought gold futures heavily as the Euro weakened and the US Dollar strengthened. By owning gold, traders in Europe could hedge against a weaker Euro. That hedging by buying gold, helped propel gold higher, as the US Dollar rose. Instead of going down on US Dollar strength, gold went up. During the past 4 weeks, the US Dollar has consolidated its gains and has gone sideways, while gold has dropped over $100 in value. But, I see the US Dollar again getting strong and breaking out to the upside in the near future, and pulling gold up with it. So if you are bullish on the US Dollar, you should also be bullish on gold. Like it did in early January, I see gold rallying strongly on further US Dollar strength. And then when the US Dollar consolidates and retraces lower the next time, I expect gold futures will continue moving up even more.

    Regarding gold stocks, TheDailyGold.com has a wonderful chart which I am going to repeat here:

    (click to enlarge)

    The current bear market in gold stocks (bright blue line) shows that during this long bear market since topping in April 2011, gold stocks have lost 65 to 70% of their value, dropping for just a couple months shy of 4 years. The only other bear market that lasted longer, happened in 1996 to 2000, and lasted a couple months shy of 5 years. However, from this point forward, even if it should take another 12 months to bottom, gold stocks don't have far to fall. Most, if not nearly all of the damage has already been done.

    In 2011, gold stocks topped out first, in the month of April. Gold stocks then rolled over, while the gold metal would not top out until September 2011, another 5 months later. Well, look for 2015 to have the gold stocks bottom and begin rising again, maybe 5 months before the metal does. The mining stocks led on the downside and should lead on the upside, once the bottom is in. The miners topped before the metal in 2011, and should bottom before the metal in 2015. Regardless of where you see the metal slip to, in the next several months, it is time to position yourself in the gold mining stocks as the miners will lead the metal out of the hole.

    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 22 3:57 AM | Link | 5 Comments
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