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Aaron Basile
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Contrarian Investor, Commodities Speculator, Technical Trader.
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Aaron Basile
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  • Equities Pause On Merkel/Sarkozy Comments

    The market was weak after the comments from Merkel and Sarkozy that were less than accommodative though it seemed that many were expecting the two to not announce any type of new intervention. This may be why the selloff today was short lived and the market recovered for just a 11 point loss. The media may continue to hype the downside but keep in mind that this is an options expiration week and the market is currently showing some resilience after the late day rally so any pullback should be taken as bullish consolidation until 110 is lost on the SPY.

    The tail on today’s candle suggests that there are still plenty of buyers out there though I do expect a bit of a pullback this week and perhaps some increased volatility. If you look at the 10 minute chart of the SPY and all of the major sector ETF’s (XLE, XLF, XLU), you can see some major yo-yo action over the last two days that is second only to the 700 point reversal from Tuesday of last week that marked the bottom to date.

    If the right patterns presents itself, I’ll be looking for more long positions on a bullish pullback. The SPX should be headed in the range of 1240 to 1260 over the next week to two weeks. Utilities and financials are the sectors that I am watching for possible long swing trades since utilities are the strongest and may outperform based on strength, and financials are the most beaten up and may surge due to technical reasons.

    Gold has been one of the barometers for strength or weakness in the market over the last two weeks and though it did have a nice up day, it is still trading within the range of the pivot high of $1817 that was made last Thursday. To put it plainly, if gold does not make a new high, then the markets will get a lift and will convert into a more complacent mood at least in the short term. Also, it’s worth mentioning that short term calls on GLL are looking succulent.

    For those still wondering, TBT is still in play. Action over the last three days is nothing more than a bull flag which is something that I predicted would happen last week. The bottoming tail is still holding and any noise about treasuries surging after the Merkel/Sarkozy comments is nonsense. The chart clearly shows bullish consolidation after an oversold bottom and a sharp rally off of the lows. Targets for TBT are $28.50, $29, and $30.75 and stops should be advanced accordingly. Should the bull flag fail, TBT will become a stop-out and yields will fall further.

    Aug 17 12:56 AM | Link | Comment!
  • Gold And Silver Miners Look Weak In The Face Of Gold Making All Time Highs

    Despite gold making yet another all time high again today the gold mining stocks have looked weak and are lagging spot price by a wide margin. Part of this is to be explained by the current risk-off nature of the market since investing in a company that owns gold is riskier than just buying the metal. At this point traders aren’t looking for profits as much as they are looking for protection so the lag between the two makes sense. However in the past a sink in the GDX has led previous corrections in gold and given that gold seems to be making a new all time high every time I glance at the chart, it also makes sense to conclude that there has been a sizeable influx of longs in a short period of time which could tell us that gold is getting extended.

    I do see short setups in the sector but I won’t be taking any yet as we are a few hours away from the Fed minutes and a day away from a speech that will be made by the Fed chair. As such, shorting into the Fed announcement would be suicide since you can almost guarantee a rally in gold and silver regardless of what is said (lets face it, Bernanke is the ultimate stimulus for PM’s). However, gold is extended farther than it has ever been save the 1970′s going into the Fed announcement and given that everyone seems to be bullish on the metal, the FOMC may be the perfect contrarian indicator in this case.

    Gold is up 15% in the last month which tells us that it is extended but that alone is not enough to initiate a short.

    The weakness in the GDX tells us that traders are bullish only on the metal and despite all that has happened, they are not completely sold on gold in the long term and translate gold as an investment as a safe haven and not something that will garner profits. There is a bear flag on the daily chart of the GDX and its target is the pivot low of $53.37 that was set in May. Again, until the FOMC statement is made, I wouldn’t advise any type of trade given that the pattern can be easily negated during Bernanke’s speech, but what you need to know is that if it stays below the 200 MA on a closing basis, the pattern is intact.

    Some may remember by article on silver’s long term trends from a few weeks ago where I used the charts of several silver miners that were showing head and shoulders tops to bring to light the possibility of a large correction. The head and shoulders pattern is still intact on SIL and price activity is hovering right on the neckline. Confirmation above the 50 and 200 MA would likely negate the pattern but confirmation below the neckline would initiate a target of at least $16.

    Moving on to the weekly chart of SLV, the recent consolidation is still an inside bar bear flag. The lower trendline is where I expect silver to ultimately reach at some point in the future and I believe that a tag of that trendline could be the best buying opportunity we’ll have in silver since the 2010 Jackson Hole meeting. Just be sure to keep in mind that the circumstances in which the level is reached will play a huge factor as to whether or not it becomes the ultimate bottom.

    The sum up what I’m seeing on the charts above, SIL served as a leading indicator for the drop in silver as it came 7% off of the highs in the weeks leading up to silver’s apex. Currently we’re seeing similar action from the GDX in relation to gold as the GDX is 9% off of its own peak and gold is continuing to make all time highs as more bulls enter the market. Therefore I’m seeing a few red flags pop up and would advise remaining careful until equities find their footing and gold stablizes.

    Regarding the precious metals market as a whole, everything has played out as expected. Gold is making all time highs due to the fear of default and financial problems in Europe, poor economic data in the US, and the downgrade of our debt, which is exactly why we all have been bullish on the metals to begin with. The important thing to remember is that although things are playing out as expected and the fundamentals have never been better, the same thing could have been said for silver in April before the collapse, which if you had bought at the top, you would still be underwater and will still have to wait many months for those highs to be reclaimed.

    Caution is the best strategy here. The stock market is getting pummeled and there is no reason to be a gunslinger. A pullback or dip is not a 2% drop in gold in one day after a 15% rally. A pullback is a 5-8% correction over a period of time (I.E.) weeks or months. After silver collapsed some of you may remember me saying ‘I don’t care how far silver comes down, what I care about is how long it consolidates for’. What this means is that time plays much more of a role in a market correction than price does so do not feel pressured to buy more shares of your favorite gold stock in fear of being left behind. That kind of mentality is based off of emotional trading and leaves logic behind.

    Aug 09 12:01 PM | Link | Comment!
  • SPX Crushed Early, But Recovers For A Positive Gain

    The SPX finished 6 points higher though not before being down 20 points early in the session in another wild and volatile day of trading. The market snapped an eight day losing streak and in that time it had been down almost 10%. Despite the size of the drop, the VIX did not make a new high which was set earlier this year on March 16th even as the S&P had already traded through the low of that same day, which was also the YTD low for the S&P. Nonetheless, there are some key items that have come out of today’s activity.

    Firstly, the SPX made an unmistakable bottoming tail on the daily chart. Volume on this reversal is also extremely high and even eclipsed yesterday’s surge in volume. This will not be a long term bottom, but it means that a rally, if only a brief one, is in order. The reason why the bottoming tail is valid and has a high probability of playing out is because the market traded lower for eight consecutive days before making the tail and positive close today. Also, key levels were pierced while making the tail on the chart.

    Secondly, MAJOR levels were broken in the last two days, however NONE of them have confirmed – yet. The major levels are the neckline of the shoulder head shoulder top which is a pattern that stretches from the middle of February and was broken through yesterday. The second level is the pivot high from December 29th which was the last high of 2010. The third level is the pivot low of 1249 made on March 16th, and the fourth is the 200 MA. The last and most important level was the trendline going back to the lows of March 2009, which runs through August 2010 and coincides with the 200 MA. Those of you who watch my video analysis will remember the particular trendline I am referring to.

    To make myself clear, not ONE of these levels has been confirmed below despite what you may hear on major media outlets.

    Ultimately, I do believe we will see a small rally back to at least the 200 MA that should be induced by some short covering. The market has a solid chance of gapping higher tomorrow, perhaps to 1275. If it does so, I would expect it to reach the 200 MA before long but I cannot be certain if that will be strong resistance.

    Moving on to TLT, we can see that treasuries have made a topping tail which is inverse to what the equity markets have done. This makes perfect sense as treasuries do well in the risk-off environment and equities do poorly. However, given the overbought nature and the obvious topping tail, a short on TLT (or long TBT if you wish) is there for anyone who wants it. Downside target is $97, stop out is a close above today’s high.

    Gold slowed down today after the market reversed but there is still no topping pattern on this chart and despite how extended it is, I would not advise shorting. That said, there is a lot of noise making its way onto mainstream news about how gold is the only safe haven etc. – gold is the best safe haven, but always be a contrarian and follow your gut. When any asset is already up 10% in such a short period of time and it is continually making new all time highs while the mainstream media praises it, it is usually a good idea to start hedging or taking profits. Those of you who have been with me for a while know that I used the same methodology to get out of silver just days before the peak in April.

    In any case, this is not a time to be taking risky trades, this is a time to protect and try to make it through this volatile period until the dust settles.

    Aug 03 9:16 PM | Link | Comment!
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