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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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  • Natural Gas & UGAZ Should Be Near A Bottom

    The above chart is a continuation weekly chart of Natural Gas Futures using the nearby contract. One will notice that we have been down for the last 4 straight weeks from a high of about $4.90 ($4.886) and a low of about $4.10. If you look at the chart you should notice that when we topped at nearly $6.50 the last week of February, Natural Gas futures fell for 4 straight weeks before starting a rebound. There are numerous other times on the chart where Natural Gas rallied after dropping for 3 or 4 weeks, and I believe we are very near a short-term bottom right now.

    We are also near a nice big round number of $4.00 which should hold some significant support. The 2nd week of this year, we fell to $3.95 and then started the big march up to the multiyear highs above $6.00. If $4.00 does not hold support right now, $3.90 to $3.95 should hold support, at least long enough to get a 40 to 50 cent bounce likely.

    We can also look to see what Natural Gas did in July 2012 and July 2013, to get a clue about the seasonal tendencies. We are starting the 3rd week of July in 2014 as I type. But looking at the 3rd week of July 2012 (7th bar on the chart counting from the left), one can see that Natural Gas rallied strongly and continued higher for another couple weeks. However, the month of August 2012 saw a retest of the recent lows and the real bottom did not occur until the first week of September 2012.

    Looking at the 3rd week of July in 2013, that also was an up week, continuing the rally of the previous two weeks. However, a year ago the rally quickly faltered and Natural Gas futures then fell about 50 cents over the following 3 weeks, where it made a bottom in early August.

    What these two prior years of data show is that we could and should now rally a bit in Natural Gas, over the next 1-3 weeks, but that we are likely going to get one more final selloff from early to late August. By September 2014, one definitely should be long Natural Gas futures or invested in the triple leveraged Natural Gas Commodity ETN (NYSEARCA:UGAZ). We can now take a look at the UGAZ daily chart:

    (click to enlarge)

    We are still trading today so UGAZ may or may not close below $18 today. However, I feel that buying UGAZ under $18 is an excellent buy in the short-term and long-term. If Natural Gas rallies 40 cents from current prices just above $4.10, that would be about a 10% gain in the futures and a 30% gain in UGAZ from just below $18 to maybe $23.30. During the month of August, I will be watching the price of Natural Gas futures closely and will look to buy UGAZ on dips. If one wants to follow the price of Natural Gas Futures, one can find the price at Barchart.com here or at the CME exchange website 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.

    Tags: UGAZ
    Jul 14 11:26 AM | Link | 1 Comment
  • Where Might DUST & JDST Trade Over The Next Few Weeks

    GLD Looks To Top Out Within The Next Two Weeks

    (click to enlarge)

    The above weekly chart of the Gold Trust ETF (NYSEARCA:GLD), shows how it has closed higher for 6 straight weeks. This ETF is unleveraged and tracks the price moves of gold and allows traders to trade gold without having to trade leveraged futures contracts. To try to predict when this rally could end, we can look at past trading action of GLD.

    At the far left of the chart, beginning October 2011, GLD rallied for 6 weeks and then rolled over to make a minor new low. Then beginning January 2012, GLD rallied for 8 weeks before topping out around $174. Then again beginning the week of August 20, 2012, GLD rallied for 7 weeks to double top at $174. From there GLD was in a death spiral and did not bottom again until the first week of July 2013, at a low of just under $115. Then GLD rallied for 8 weeks to a high of $137.55 before rolling again to the downside. Finally in mid December 2013, GLD bottomed at $114.50 and began a strong rally for 8 weeks to $127.38, but then got a 4 week extension on the rally to $133.69. From there it feel to a low of just under $120 just 7 weeks ago.

    From this study it is apparent that GLD continues in a long-term downtrend, but is currently in a counter-trend rally that has progressed for the past 6 weeks. Most such rallies exhaust themselves by the 8th week in most cases, so it is likely GLD will top out within the next couple weeks and then roll over, pulling the gold miners down with it. Another prognosticator also looking for a near-term top in GLD is Avi Gilburt in his latest article found here. I strongly urge readers to read his latest article.

    October Platinum Is Starting To Lose Ground To August Gold

    I have recently determined that the primary catalyst of the current rally in gold, is not news events in Ukraine or in Iraq. Ukraine is old news. Regarding the sectarian violence in Iraq, they worried about oil supplies being disrupted but no such thing occurred. Crude Oil has been in a downtrend for the past 14 trading days. Gold has been going the other direction. If things get worse in Iraq or elsewhere and it starts to negatively impact the stock markets of the world, it would depress the economic outlook of the world and depress Platinum and Palladium used in automobile catalytic converters and it would thereby also depress industrial metal Silver as well as Gold. Severe unrest is bearish and not bullish for gold, IMHO.

    What is confirming a short-term top can be seen from the October Platinum and August Gold charts. August Gold made a short-term high of $1334.90 on July 1st, closing at $1326.60. Over the next 7 trading days, August Gold has rallied another $10.80 to close Friday, July 11th at $1337.40 as shown in the following daily chart:

    The gold chart contrasts with October Platinum that closed at $1515 on July 1st. On Friday, July 11th, October Platinum closed at $1513.80 so it has actually fallen $1.20 while August Gold has rallied $10.80. Take a look at the daily chart of October Platinum:

    Traders are starting to take profits in October Platinum and in September Palladium.

    September Palladium has come back the last couple days to close up for 14 straight days, but only after dipping down $15 on Thursday and $10 on Friday, before staging a rally to marginal new highs. Here is a daily chart of September Palladium:

    How Bad Could It Get?

    In my personal trading, I declared victory on going long gold when August Gold first hit my $1325 initial target on June 24th, when it topped out at $1326.60. However, over the next few days, August Gold stopped falling when it hit $1305.40 and $1306.80, and kept closing far off the lows, making long bullish tails on the daily Japanese candles. When August Gold topped at $1334.90 on July 1st, it would fall two days later to $1310 on Fed taper day, but again bounce and close above $1320. It was apparent August Gold would need to challenge higher prices before rolling over. On July 10th, August Gold topped at $1346.80 and fell back just a bit on Friday.

    August Gold now has resistance at $1350, again at $1370 to $1375, and finally at $1388 to $1400. I would expect to see August Gold end the current up move at one of these points. The current rally in Gold has been so labored, I suspect it will stop the up move between $1350 and $1370. If it should rally all the way to $1400, August Gold should soon see a Fibonacci retracement of 38.2%, 50% or 61.80% from the recent low of $1240, to the high of $1400. The retracement should occur even if August Gold has bottomed and has begun a new bull market. The retracement would be down to $1339, $1320 or $1301. This would offer little relief for those already short the miners by being long DUST and JDST.

    A Lesson From The Copper Market

    This is a good lesson to show why it is not ever good to hold too strongly to an opinion. One wants to remove all bias from their trading and not be bullish or bearish, but rather, let the markets and the charts decide which way they are going and then get in for the ride. A good example is how I recently was long July Copper when it bottomed just below $3.01. I was correct to be bullish, believing it would bottom between $3.02 and $2.98. It did. The sentiment was extremely bearish at the time and it looked like I was catching a falling knife. But I bought and July Copper up towards resistance at $3.15. At that point, I was sure July Copper should roll over and retest the $3.00 support level, and went short September Copper when the July Copper was trading at $3.14 and again at $3.175. However, it surged on up and I had to then buy December Copper against my short September position. When Copper rallied above $3.20, it was apparent we were now going to test $3.25 to $3.30 and I switched back to the long side and have been scalping from the long side ever since. September Copper is now trading around $3.27. I will soon short it again against the $3.30 resistance, but if it should break on up, I will reverse to the bullish side again above $1330. I can and must do something similar to this when playing commodities or the triple ETFs. To be successful, one must employ a similar strategy.

    When August Gold did not break down below $1260 on the Fed tapering announcement in June, I declared that one must now be 60% bullish in NUGT/JNUG and 40% in DUST/JDST. I remained more bullish than bearish until the first time we hit $1325 in August gold. When it did not sell off much after that and continued higher, I have again been playing the long side over the short side. I did lightly go short the first time above $1330, and again above $1340, but when there was no follow-thru to the downside, I have liquidated the short positions and am now flat.

    Where Could DUST Trade In The Near Term?

    Hopefully August Gold will top out at $1350 and that is where I will calculate where DUST should trade over the next few weeks. Topping out at $1350 means August Gold rallied $110 from the $1240 low. The Fibonacci retracements of 38.2%, 50% and 61.8% would translate to correction back down to $1308, $1295 or $1282. On Friday, DUST closed at $14.85. Here is a look at the daily chart of the triple leveraged bearish gold mining ETF (NYSEARCA:DUST):

    (click to enlarge)

    If August Gold rallies another percent higher to $1350 area, then GDX should rally 2% and DUST should drop 6% to $13.96. If August Gold falls to $1282, that is a drop of 5% from $1350. That translates to a 10% drop in GDX, or a 30% pop in DUST ($4.19). Adding $4.19 to $13.96, one gets $18.15 in DUST, still under recent resistance of $18.85.

    If we look at the worst case scenario, August Gold could rally all the way to $1400, a pop of about 4.6%, GDX could rally about 9% and DUST could fall 27% from Friday's close, down to $10.85. If DUST would fall to $10.85, the gold metal should retrace about 7%, back to $1300 pretty quickly, causing GDX to retrace 14% and DUST to rally 42% to $15.40.

    Where Might JDST Trade In The Near-Term?

    (click to enlarge)

    With just a 1% rally in August Gold to $1350, GDXJ could rally 2 1/2% or a drop of 7 1/2% in JDST from $9.27 down to $8.57 which I will round down to $8.50. Now if August Gold should then fall 5%, GDXJ should fall 12.5% and JDST should rally 37.5% to $11.69. Now you can see why I prefer DUST or JDST. The moves in the Junior Miners are devastating if one is wrong in picking the direction.

    Just suppose August Gold rallies 4.6% to $1400, then JDST should rally 11.5% and JDST should drop 34.5% from Friday's $9.27 down to a low of $6.07 which I will round off to $6.00. From that low, if August Gold drops 7%, GDXJ should fall 17.5%, and JDST would rally 52.5% from $6.00 to $9.15. That is a tad lower than the $9.27 close we are seeing now. One definitely does not want to see $1400 in August Gold if heavily invested in JDST.

    Conclusion:

    If one is fully invested in DUST and/or JDST, the sooner one sells out 50%, the better. As long as one is marginally prudent and has only 25 to 50% of their account in DUST/JDST, if I was in that boat (thank goodness I am not) I would hold tight for now in hopes that $1350 in August Gold offers resistance and DUST/JDST rally to higher levels on a correction down towards $1300 or lower in August Gold. From the $1240 low to the $1346.60 recent high in August Gold, it has already rallied over $100 from the bottom and will likely top out without rallying more than $15, $35 or $60 more. Gold is in the top 1/3 of its trading range so one must be cautious to not get caught in NUGT and ride it back down. I am not bullish NUGT above $50 and would not want to play NUGT above $50 except for a quick scalp. If I wanted to add NUGT to balance out my DUST shares, I would prefer buying in the $47 to $42 area and not at these extreme highs. We are probably in the blow-off phase of the current rally and the next downturn in NUGT could be severe.

    For those who are not in DUST or NUGT, there are exciting trading possibilities ahead. To be properly capitalized to be able to take advantage of these great opportunities, you might want to read and try to implement a strategy similar to what I described in my last article, 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.

    Jul 13 5:51 PM | Link | 1 Comment
  • Where Are Prices Heading In Gold And How I Would Trade DUST/NUGT Using The Teeter/Totter Approach

    The Other Metals:

    I continue to watch the silver, platinum & palladium markets work higher. Gold is the weakest of the metals group but with the strength in the other markets, gold continues to be pulled higher. Briefly on Thursday, July 10, 2014, September Palladium sold off hard, from about $875 to $860, but by the end of end of the day, it had worked its way back to actually close up slightly. That makes 13 straight up days in September Palladium. Silver will encounter some stiff resistance towards $22.00 which is about 50 cents higher than where it is now. Platinum is also dealing with overhead resistance.

    Gold Should Top Out In About Another Week

    The metal we care most about is gold of course, as that is what the miners mine. Take a look at this daily chart of August Gold from Jim Wychoff at kitco.com:

    (click to enlarge)

    Gold has been consolidating from $1312 to about $1350 for three weeks. Back in the middle of February 2014 to early March 2014, gold started a similar consolidation that lasted for the same three weeks. However, in the fourth week, August Gold broke above $1350 and surged to $1390 where it topped out. I am now looking for a similar move as a strong possibility, with the surge occurring next week, thinking August Gold could have a similar blow-off top up towards $1388 possibly.

    The implications for those playing the triple leveraged ETFs, a further surge higher in gold would cause a further decline in DUST and JDST, to extremely attractive levels to those who are not yet invested on the short side (like myself). But these could be scary weak levels for those who are already heavily invested from higher prices. The teeter/totter approach is still advised! How does that work?

    Teeter/Totter Approach Explained:

    Suppose I had $60,000 and was bearish the gold miners, I would first divide my funds up in at least 2 traunches of $30,000 each if I was very agile and was able to watch the markets very closely. If not, then I would do 3 trauches of $20,000 each. One only trades one traunch at a time to avoid going bust on an extreme drawdown. Setting up traunches is not an elective, it is required!

    Using 2 traunches of $30,000 each, I would start with the first $30,000. Since I was bearish, I would buy $10,000 of DUST. At current prices in the $15s, I could get over 600 shares. I might buy 200 shares at a time, adding more on dips. However, once I had $10,000 invested, I would not add any more DUST.

    Then we start the teeter/totter. If the DUST price is moving up (miners getting weaker), that means I am happily making money on my DUST and watching NUGT move to cheaper prices. I will then look for opportunities to invest my next $10,000 in NUGT to lock in my DUST profits, when NUGT falls to support and gives a short-term buy signal. I then daytrade NUGT by taking profits when NUGT rallies. Once I get $10,000 added to NUGT, then I will take my remaining $10,000 and add it to the side that is making money.

    But suppose I bought DUST too soon and am losing money. Initially I bought 200 shares of DUST, and it fell so I added 200 more shares to average down. I then bought another 200 shares at even lower prices, but with 600 shares, my $10,000 is spent and DUST continues to fall. I may kick myself and say, why did I buy so close together and make a note to space it out a bit more next time?! The very second that I start losing on the last 200 shares I can buy in DUST, I immediately buy some NUGT. And I buy more on any further NUGT strength (DUST weakness). Soon I will have $10,000 going short in DUST, and $10,000 going long in NUGT. At that point, I use the remaining $10,000 to daytrade on the side of the trade that is winning for the day, and try to get back even and hopefully ahead. With this method, one is never more than $10,000 committed in one direction, using an account of $60,000. Being triple leveraged, 1/6th of the account ($10,000 net long or short) means no more than half of my account is picking a direction at any time, either up or down. I am trading leveraged ETFs but my overall account is never leveraged.

    If you buy DUST and it keeps falling and you end up equally invested in NUGT, you might think at that point, you are just spinning your wheels and wasting your time. Not true. One side will be making money and one side will be losing. Take profits on the winning side against resistance, and then buy back on support. The winning side profits will lower the price you will need to achieve to breakeven on the losing shares. If you are balanced $10,000 shares in DUST and $10,000 shares in NUGT, you can sometimes decide not to add to the winning side, but to the losing side, if you believe DUST shares are extremely cheap and offer the best risk/reward value. In those cases, one can add to the losing side and then take profits at breakeven. Suppose DUST is losing and once balanced with NUGT, you decide to add more DUST on extreme DUST weakness. That is fine since you are now only $10,000 net long DUST. Sometimes DUST will rally but not all the way back to breakeven. Just take the bottom profitable shares off and cash those in at a profit, putting you even again with $10,000 of high priced losing shares of DUST, and $10,000 in NUGT. You can add to DUST again using the $10,000 just freed up, or buy NUGT if the miners are showing strength. That extra $10,000 to assist can either be added to the winning side (side with the profits) or to the losing side if that is showing the most future profit potential.

    Advanced Strategies

    Using the teeter/totter method, I have developed many advanced trading strategies. One of my favorites is "The Reversal". In this strategy, I would buy DUST until $10,000 is invested. Then suppose the miners are showing strength today, and are breaking out, causing DUST to break down below support. The moment I see this happening, I would immediately put $20,000 in NUGT, which means I have now reversed from going short the miners to going long. As NUGT surges higher, I sell either $10,000 or the entire $20,000 NUGT position, cashing out when resistance is found. I then buy NUGT back on dips during the day. If DUST recovers some off the lows, I will sometimes not buy NUGT back and try to get DUST to rally and NUGT to fall. The moment that NUGT comes back to life and DUST starts to dive, I am back in with either $10,000 NUGT to even up the trade, or $20,000 in NUGT to be temporarily on the bull side. It is surprising how many times you can make money on NUGT and DUST on the very same day, buying each when they are weak, and selling out on strength.

    A variation of "The Reversal" is "The Reversal To Infinity". In this trade, if I started with $10,000 in DUST, I can then buy $20,000 of NUGT, switching me to long miners, then add $20,000 to DUST making me $10,000 net short. You can keep adding more shares until your entire $60,000 is used or add more funds if available. You can trade 100% of your account because you are never more than $10,000 balanced one way.

    Often for part or most of the day, a definable range can be identified where DUST and NUGT swing back and forth in a tight range. That is when I do "The Range" strategy. You can buy either DUST or NUGT at support, and as soon as NUGT or DUST moves up 2.5 to 5%, and/or the upward momentum wanes, you can buy the opposite side to lock in profits. Then you can take off each winning side on profits and switch back and forth being long one and then the other, and sometimes both at the same time.

    Buying the opposite side is also often advised when holding overnight. This way you do not suffer if the market gaps up or down overnight, against your position.

    I could go on and on, but I don't want to confuse you any more than I already have. The secret to a winning trading strategy is keeping the losses small and letting the winners run. It is tough to immediately take a loss on a position. But buying the opposite ETF side is just a "time-out". You keep it on when you don't know what is going on, or have no idea what to expect in the next hour or the next day.

    Conclusion:

    I will end with a final example. Suppose I was bullish the miners and long $10,000 in NUGT and NUGT rallies nicely. However, late in the day NUGT falls back till I am hardly making anything. I might put $10,000 in DUST overnight to protect my position. Then the next day miners are stronger and I am making on NUGT but now have a small loss on DUST. I try to never take off the losing side so instead of dumping DUST at a loss, I will just add more NUGT (adding to the winner) and ride it up. Then when NUGT stops rallying, I may take NUGT completely off, and then add to DUST to average down, and on a correction, I dump out of DUST at breakeven. This is one exception, where I might have $20,000 in DUST going one direction. I already took profits on $20,000 invested in NUGT, and that buys me the privilege to add to DUST at a cheap price. However, if the 2nd buy in DUST starts going bad, I will quickly dump it or add more NUGT to cancel out. I can risk part of the NUGT profits I just made but don't want to lose all the profits by adding extra DUST shares.

    I have shown that you have rules which you follow. However, you can be flexible and violate or change the rules in certain special circumstances. Every successful trader that I have known, followed preset rules, having a game plan. They also violated those rules to take advantage of special circumstances, if the results are profitable. When starting out, set up rules and follow them until you know them well. It is like driving. You have to know the rules of the road. However, with years of experience, you can learn lots of short-cuts, and can even get away with making illegal u-turns when it gets you heading the right direction the quickest and there are no hazards in the way. There are no trading police, insert smiley face.

    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: DUST, NUGT
    Jul 11 1:25 PM | Link | 2 Comments
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