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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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  • 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
  • Gold Is Down But Not Out!

    After rallying from the $1170s to just above $1300 recently, April Gold futures has now corrected down, now falling to prices just above $1200. However, for any kind of bullish scenario to remain, it is critical that support holds at $1197.70, as indicated by Kira Brecht, click here. She also mentions a 61.8% Fibonacci retracement support level at $1199.60 that is key. In the very short-term, I am saddened to see that the 100 day moving average support level of $1218 has been broken. However, even if we should briefly fall below the $1197 level, there is extremely strong support in the $1185 to $1192 area that should hold and provide support for a bounce of as much as $50 to $80 back to the upside, even in the most bearish of scenarios, IMHO.

    The April Gold Chart

    (click to enlarge)

    So far today, April gold has held support above $1200, with the low at $1203.30. This area has been a value area for over a year, and I assume that it will continue to be so, into the future. Although gold has not shown much resilience with very minor bounces to the upside, so far in this protracted retracement, we should be very close to a bottom where gold finally bounces more than than $15 to $30 off a low, as has been true recently. I am looking for April Gold to bounce either off the $1197 to $1200 support area, or off the $1185 to $1192 support area, and finally rally at least $50, and hopefully $75 to $90 or more.

    For a more fundamental perspective, you might check out the following Kitco article, written by Neils Christensen, click here. There are recent increases in purchases of the GLD ETF but now the purchases are just barely staying ahead of the withdrawals. He also mentions how the number of speculative gold futures contracts going long has dropped precipitously. That fact has to be sobering for the bulls.

    But if things were not already bearish enough, check out this article from technician extraordinaire, Michael Noonan, where he tells us that there is no real rally in the metals in sight, click here.

    Conclusion

    Having bounced a bit from $1203, I will play for a rally of $15 to $25 off any low, until the markets change. The current bear market is quite old, lasting well over 3 1/2 years, one of the longest bear markets in gold on record. I do not believe the US Dollar will rally for ever, and crude oil will continue falling forever. In fact, I am looking for a major change in trend to begin around the first week in April. I have been saying this for awhile, but am feeling more and more confident in this prediction. We may have to bounce around going mostly sideways for another 6 to 7 weeks, but I don't believe the high has been seen in the price of gold or crude oil in the year 2015. It may be too soon to become a bull and wildly buy gold or the miners, but it surely is too late to be a bear! I will continue to profitably scalp from the long side in April Gold futures, IAG, GDX, etc.

    Feb 17 2:01 PM | Link | 2 Comments
  • Too Soon To Call A Bottom In Crude Oil

    I had posted this article on 2/3/15 and then accidently deleted it. I am reposting it now so it does not get lost.

    Today on Stocktalk, I was asked about my opinion about the current rally in crude oil. I stated that I felt there was significant resistance at $55 and if that price is reached, it could easily roll over. Looks like I have some company in regards to my prognosis. Bernard Stegmueller Jr of Fusion Trading Zone just published a short article, click here, where he is calling for a short in Crude Oil at $55 or higher. Instead of outright shorting the crude oil futures market, he is suggesting selling an out of the money $60 strike call, or putting on a bear put spread.

    The reasons that crude oil is not likely to have bottomed, are many. First of all, you have the bullish momentum in the US Dollar that is not likely to top and roll over without a fight. Also the fundamentals remain quite bearish with a 3.7 million barrel increase in inventories expected when oil inventories are announced at 10:30 a.m. EST on Wednesday, February 4, 2015, click here.

    The real reason for the current rally is due to the fact that funds got extremely short the market during January and we were overdue to see a quick and sharp short-covering rally, click here.

    If we just bottomed in Crude Oil, then we will have seen a very sharp "V" bottom. That is not how markets typically bottom. To see what usually happens, take a look at the following monthly chart of crude oil going back several years to 2008:

    Back in December 2008, when crude oil bottomed at $32.40, it rebounced to $50.47 in January 2009, only to retest the low at $32.70, but closing out the month at $41.68. In early February 2009, crude oil again retested the bottom, hitting a low of $33.55 before reversing and trading above $45 and finally bottoming for good. The bottoming process took at least a couple months, and I expect that in 2015 crude oil will again take at least two months to bottom out as well, based on the fact we have had a very long and protracted selloff. Thus, the first rally off the bottom should be played from the short side, if at all. No one should get bullish on crude oil unless we retest the bottom and the support holds. If we hold on the retest then maybe then a small long position is justified. However, if the support gives way, which it is apt to do, the short side is still the way to play crude oil.

    When gold or gold mining stocks bottom, they tend to have similar short-covering rallies lasting a few days, and then tend to make minor new lows. It usually takes 3, 4 or 5 attempts to bottom before the turn is successfully made. We can now take a look at the daily chart of March crude oil:

    In three days, crude oil has rallied 20% off the bottom, from a low of $43.58 last Thursday, to today's high of $54.24. Pretty impressive move indeed! What it tells me is that crude oil wants to bottom, and should put in a meaningful bottom between now and early April 2015. Crude oil rallied today to a price level not seen in a month. However, if $55 does not stop the rally, there is significant resistance at $59. In the 3rd week of December 2014, after bouncing off support at $54.33, crude oil tried for several days to get back over $60 and failed. I expect to see a similar failure now if crude oil does get back in the $58s or $59s. More likely it stops somewhere between $55 & $57.50 and then quickly falls back towards $50 or below. If on Wednesday the announced inventory increase of crude oil stocks is greater than expected, this rally could be stopped dead in its tracks. As impressive as crude oil has bounced in the last 3 days, it will be much harder to move above $55 and especially $60, in the immediate future.

    This time could be different. We could of course get a very rare "V" bottom and the bottom could already be in for the year. But even if true (which I don't believe), odds favor at least one retest of the lows if not 2 or 3, before one can really call for a bottom!

    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 12 5:03 PM | Link | Comment!
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