Speculative Measures

2011-05-11T10:43:00.001-07:00

We Moved! Come see us at:

http://speculativemeasures.wordpress.com/

A new trend in Gold

2010-05-07T09:41:00.001-07:00

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The chart above compares the price action in the US dollar Index with the price action of Gold. The relationship of the two has until now been predictably inverse. A fall in the dollar corresponded to an incease in the price of Gold, and a stronger dollar surpessed the price . The basis for this relationship is well understood. Jewelry is responsible for 60% of the Gold market. A weaker dollar buys less Gold, Oil, Cotton or Corn. In this respect Gold acted as a commodity responding to changes in the purchasing power of the US Dollar.

A new relationship appears to be emerging as seen above. Gold has recently appreciated in concert with a strengthening Dollar. While the trend is still very new it implies a shift in the collective mindset of Gold investors. Gold is beginning to behave more like money and less like a commodity. Gold as money behaves differently than Gold as a commodity. If you held your savings in Icelandic Krones you would have experienced an 80% loss in the 2008-2009 economic meltdown. If instead you had the same savings vested in Gold you would not have suffered any loss, instead experiencing appreciation.

Gold has interenational value irrespective of any one currency. In retrospect the structural imbalances inherent in the Icelandic Banking system make their money depreciation now seem all but obvious. Fast forward to the current crisis unfolding in Greece, Portugal, Spain, Ireland and Italy and you see why the metal has become popular again. These countries carry unsustainable debt burdens that are manifesting themselves in the Bond and Currency markets. Fearing another Iceland, savers are turning increasingly to Gold for safety. The party in Europe is just getting started. Japan and the US are in equally bad shape. Investors are beginning to view Gold as a savings of last resort.

Back down the pipe

2010-04-07T13:07:00.000-07:00

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It appears our historic Dead Cat Bounce is over, or at least needing a break.

Gold Fever

2009-10-06T16:03:00.000-07:00

Today we saw Gold reach a new high largely on rumors of Gulf States entering into non dollar price agreements with BRIC countries. While the validity of that story remains in question, there is no doubt that the Dollar's reserve status is being called into question. Calls for an international reserve currency comprising a basket of currencies and, provocatively, a Gold component have Gold bugs salivating.

Gold

The chart everyone is humming about is Gold. As seens on its weekly chart below Gold has emerged from over a years of consolidation below the important $1000 mark. As a rule of thumb, the longer the consolidation the larger the pivotal move.

A cautionary note on Gold. First and foremost is it's behavior relative to the Stock Market. We expect Gold will trend with the general market. Specifically, a sell-off in the market is likely to coorespond with a sell-off in Gold as we saw in 2008. Considering the S&P 500 is over 55% off it's March low calls for a correction and even a crash should not be completely ignored. That said, the trend is our friend and we see clear evidence of a fresh uptrend in the making.

Today we spotlight two stocks poised to benefit from a runnup in Gold and Silver.

IAG

HL - Helca Mining

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What future for Crude?

2009-06-21T11:33:00.001-07:00

Update: I am goood. Chart

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After a near 50% run-up in crude it appears a pullback in in the offing. We're tipped off by the break of a triangle on the daily chart providing us a nice early short entry with relatively tight stops.

First off, the Stop Loss value for a short entry would be the forging of a new high at $74. If Crude can push above that the breakdown has failed.

Providing further weakness continues, we can estimate where Crude may find support using the above two charts. The most likely and obvious level come in around $62-63. There we find a convergence of technical support in the channel line, the 50 DMA and former resistance. Further evidence comes in the form of Fibonacci confluenceat $60.5 . The $55 level has more significant support but requires a hard departure from the channel and a break of important DMA's. Possible but not likely, at least not all at once.

Platinum reborn?

2009-05-06T19:55:00.000-07:00

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Platinum appears to have reached the bottom of it's price channel and is embarking on a fresh new upswing. Today's action (not shown in the chart) has platinum breaching the 20 DMA cleanly. It needed to break through this level lest it become resistance. The timing is in tune with secondary indicators showing upward momentum is afoot.

The chart is not without trouble. Cautionary levels exist between $1190 and $1200. Recall that Platinum recently fell out of a well defined channel that began in November. This doesn't spell automatic doom, but it bears noting. This new upswing could be a simple retracement only to commence with more downward action. The space between $1190 and $1200 will tell that story.

It will need to work well past these level in order to go onto new highs. This might be an opportune level to more up stops if a trade has been entered at current levels ($1140).

Platinum

2009-04-19T11:49:00.000-07:00

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Weekend Update

2009-04-12T06:22:00.000-07:00

We can see that the trend channel is still very much in tact. Last weeks surprise earnings report by Wells Fargo led the market to the upper extreme of the band it's been following religiously since November 08.

It's important to remind ourselves the difference between Bull and Bear market rallies. Bull market rallies are slow plodding affairs that last months. Bear Market rallies are strong, violent and relatively short. Which profile does this rally fit?

S&P Analysis
The picture is a bit mixed, but from a risk/reward perspective this marks an opportunity to take risk off the table. Trend lines and channels are not some mysterious force controlling the market. They do however show a predictable rate of economic advance or decline while the mood of the market swings from optimistic to pessimistic. Reducing long exposure to the stock market here is prudent for a number of reasons as shown by the chart.

Indicators are leaning mostly bearish but not decidedly so...yet. On the Bull side (green arrows), RSI is still rising and not yet in overbought territory. We are also 1 week into a 20/50 EMA cross. On the Bear side (red arrows) the MACD histogram is showing a slowing of momentum though. And the Stochastics have past the overbought level and deteriorating. Most importantly, we notice the upper trend, where the market currently sits, is meeting significant overhead supply. While the trend line might be pierced it is highly doubtful the market will advance cleanly through this area. More likely it will begin to break down and continue to obey the channel.

Four Bad Bears

(reproduced with permission, courtesy of dshort.com)

When comparing past Mega Bears a couple of things become clear. First these markets all obey a well defined channel. Second, if our current market were turning around it would make it the shortest of the four - highly unlikely considering the economic fundamentals going forward. So while we may indeed poke our head above our heretofore reliable channel it is highly unlikely we will sustain at this level. Balancing risks to rewards it appears we have realized 80-100% of our current move. Don't let cacophony of optimism loosen you appreciate of risks.

2009-04-08T10:25:00.000-07:00

S&P
Implications for the S&P..... sub 700 by May-June:

2009-04-06T05:13:00.000-07:00

No charts today, but our bounce is tiring. The market appears rready for a short term retracement. With earnings season upon us this may be an opportune time to reduce risk.

No bottom yet

2009-03-06T10:29:00.001-08:00

The market continues its quest for price discovery. The Dow theory is alive providing a clear confirming signal that the bottom is nowhere in sight. Though still far from it's ultimate bottom, an interim bottom appears imminent. Patience will be a rewarding virtue for all would be knife catchers. Enough with the cliches and a look at some charts.

As predicted last week the market sell off has accelerated. These waterfall sell offs culminate in a capitulative spike that flushes all optimism. This purge of sellers will result in a new round of buying lifting the markets from their lows. Counter-trend rallies can be a fools game even when you know what to look for. The purpose of this weeks update is to remind readers we are not there yet.

DOW

Note from the chart that interim plunges are accentuated by a volume spike. These go hand and hand with higher than normal volume, first down then back up, That's the flush we await with AIG and GM fighting over who mans the handle.

GOLD

Gold has been acting predictably within it's trading band. While it hasn't completely tagged its trend line it did bounce nicely off the 50 DMA. Secondary indicators are mixed and I remain skeptical we won't test 900 again. Regardless risks for longs have diminished somewhat.

Where will it end?

2009-02-27T19:46:00.000-08:00

We could see the selling intensify in the next few weeks. Sure the market has been selling off for awhile, but we still lack that capitulation spike that signals a temporary end to the pain. Here is one indication from the DOW chart:

This is no final bottom though. Sure "The news is always the worst at the bottom". However, I think the worst is yet to come. The credit market, which is 10x as large as the stock market, has only just started contracting.

We have yet to clear the world's debt off the table. Just in the U.S. the aggregate of national, corporate and consumer debt is near 400% of GDP. Prior to 1929 it got as high as 270%. Western European countries are likewise awash in debt. Britain, Ireland, Spain, Greece, Italy are all seeing leveraged bets into emerging markets unwind. Austria alone lent 70% of it's GDP to the Eastern European real estate bubble. This is no mere recession. The post-1929 chart shows the tenacity and ferocity of a full blown credit contraction. In that period the stock market corrected a full 89% of it's former high. The only difference between now and then is the causative measures this time are much worse.

Rolling on the floor.

2009-02-06T06:08:00.000-08:00

A couple of charts this morning to show what may be a new leg down.

S&P 500
DOW
In the case of both the DOW and the S&P we see the market is more and more comfortable at their former floor levels. For the DOW, 8000 is violated with regularity and ventures above the 50DMA are quickly squashed. The S&P 500 is a bit more resilient but still digging away at its floor.

Indications are we will test the November lows before long. If history is any guide this next leg will be less a violent plunge and more of a slow bleed. The Fibonacci Fan illuminates some possibilities should a new leg commence. A touch of 560 seems plausible, however I suspect this is too much too soon. 765 looks more reasonable.

Key to this theory is the 50DMA for the big three. The Dow and the S&P haven't sustained more than a quick peek above their 50 DMA . The Nasdaq (not shown), while stronger, looks tenuous and lends little credence to a sustainable rally. More bleeding seems inevitable.

Gold update - significant development

2009-01-23T06:05:00.000-08:00

It's time for a little self promotion here. At the end of 2008 we told readers to wait for a pullback in Gold before entering - Link . In the post "Gold, here" just a few days ago this blog then alerted our readers to a favorable entry in Gold when it was then trading at $807. Gold has since moved up to over $880, a nice gain in a commodity market. By doing so an old trend is threatening to end and a new one emerging. This is significant folks.

TRADE UPDATE 2/17: Gold break out above $950 - bullish sign
TRADE UPDATE 2/3: Gold needs a rest. Look for a retracement to $860
TRADE UPDATE 1/30: $925 reached overnight, avoiding new buys. Chart

For those not familiar, deflation is the contraction of both money supply and credit. I invite you to view the video: Fractional Reserve Lending - The mother of all Ponzi schemes to better understand how money supply and credit are linked. Popular media refers to our financial crisis as a "credit crunch" as if it were a mere inconvenience. This "credit crunch" is actually an outright destruction of money supply caused primarily by credit defaults, deleveraging and a refusal to lend and due to rapid asset depreciation. The purchasing power of remaining money becomes more valuable. Witness the sharp rise in the US Dollar since July 2008. If the US Dollar has more purchasing power, then by definition the assets it can buy become cheaper. Witness the plunge in all commodity classes in the past 6 months.

Deflation caused the Great Depression. Governments fear deflation and are doing all they can to prevent it. They are buying bad assets, providing stimulus and reducing interest rates - all in a vain attempt to prevent the awesome power of deflation. They will ultimately win this battle. Fiat money can (and is) be created out of thin air. Right now that money is staying within banks who are merely trying to stay afloat. The Trillions (yes Trillions) of Dollars being extended to banks in various forms now are being used to preserve their leveraged balance sheets. Here's the catch....it's still not working. So how can governments, and particularly the US Federal Reserve ultimately win the battle against Deflation? If all else fails they can use the "nuclear option".

In 2002 speech Ben Bernanke outlined clearly the options the Federal Reserve has at its disposal to fight deflation. The speech highlighted the challenges faced by the US in the 1930's as well as Japan in the 1990's. Ironically 6 years later Mr. Bernanke is having to implement almost all those deflation fighting measures. Just as he stated in 2002, the Fed is buying bad assets, buying Treasuries, reducing interest rates to zero. So what else can be done when these measures are not winning? Two excepts provide an answer:

"But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

"Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.¹⁷ The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation." - Ben Bernanke, 2002 Deflation: Making Sure "It" Doesn't Happen Here

"intervening to affect the exchange value" means purposeful devaluation of the currency in order to keep prices and wages from falling. If lowering interest rates, the overnight rate and buying Treasuries fail, a remaining option is to devalue the Dollar either through massive printing, a one time devaluation or a combination of these. In 1934 FDR devalued the Dollar against Gold by 41%. Notice how highly Bernanke speaks of this remedy.

The bottom line is Gold has been acting as a commodity. Gold retreated from it's $1000 high and succumbed (albeit mildly) to deleveraging and deflation along with the rest of commodities. However, now Gold is beginning to act like money. Financial Sense has also picked up on a recent divergence in Gold's behavior - Link. As currencies like the Icelandic Krone, the Russion Ruble, the British Pound and others fall under the force of deflation and deleveraging investors seek somewhere safe to put their money. So far that has been the worlds reserve currency - US Dollar. However, as the future of the Dollar and the fiat money system becomes questionable, more people are again looking to civilizations oldest and most reliable store of value - Gold. Savers in Iceland, Russia, Eastern Europe and now Great Britain who held their savings in Gold instead of the Krone's, Ruble's, or Pounds were/are unaffected by their currency plunge.

Is the Dollar the next shoe to drop? That is the question the world's wealthy are now asking, and you should too. For many it's not a question of if, but when. Thus the interest in Gold.

Weekend Update

2009-01-17T20:19:00.001-08:00

There are indications that the market is prepared to rally once again. We had yet another bounce off support in the DOW 8000 range along with two consecutive "positive reversals" last week. To help understand which stocks are likely to benefit the most from a rally it is helpful to see what is happening with the dollar. The dollar has been trading inversely with equities, particularly commodity related stocks. A weakening dollar will almost certainly benefit commodities. With that in mind I give you the dollar chart:

US Dollar

As you can see it's recent rally appears to be waning. Many important indicators point to a near term Dollar weakening. This of course makes perfect sense if the market is threatening a rally. So how should you take advantage of this? Ideally you want to identify stocks that are 1) not inflated, 2) near support, and 3) poised to make 100-200% gains in a weak dollar/strong market environment.

UPDATE 1/20: No love from the Dollar today, The Dollar index opened this morning at 85.5 which is a push above it's recent 85.3 high, thereby negating any entry attempts into commodity stocks.

Gold, here

2009-01-16T12:37:00.000-08:00

GOLD:

Readers recall we resisted buying Gold, predicting a retracement from the $890 high of a few weeks ago. Since then Gold has behaved exactly as expected and we have seen our retracement. It's a busy chart, but there are 4 key elements which make a Gold position favorable here. Gold now presents a favorable entry point for the patient trader.

The convergance of primary indicators in order of importance are:

#1 A bounce off the upward trending 50 DMA
#2 Trendline support
#3 Multiple Fibonacci support

Secondary indicators (#4) also point to a favorable risk entry.

GG

Following on the Gold theme, non commodity traders will appreciate the Goldcorp chart. Like the Gold chart above, it too is displaying multiple indications. A convergence of a trend line and Moving average privide primary clues with oscillators showing stong agreement. From these we can derive 2 targets and one stop.
TRADE UPDATE 1/24: GG trade up 18% with more room to grow.

Trade Notes 1/10/09

2009-01-10T06:46:00.000-08:00

Crude Oil - Watch for inverted H&S formation Chart
TRADE UPDATE: Inverted H&S negated, still no opportunity at present.

Platinum - Due to retrace Chart
TRADE UPDATE 1/17: The chart is still indecisive - avoid.

DECK - Short, a break of the 50 DMA (now at $70) should take it down to $60. Chart
TRADE UPDATE 1/15: Target met, position closed. 18% gain New Chart

AZO - Now at $133, short to $120 looks reasonable. Chart

COH - Breakdown to $16 likely - Chart
TRADE UPDATE: $16 Target met, 15% gain.

Primed for the new year - UPDATED 1/6/09

2008-12-27T14:14:00.001-08:00

Gold saw a little spike that has a lot of people wondering "is this the run to $2000 that everyone is clamoring about"? While I expect gold to reach those levels eventually I believe it is premature right now. The $40 move in Gold was due to increased tension between Pakistan and India following the Mumbia attacks. Pakistan has canceled military leave for it's soldiers and has began moving them to the border with India. Not a good sign but the connection to Gold is tenuous at best.

What we see in the Gold chart is telling. There are 3 bad omens arguing against further appreciation.

1) Not only did it fail to exceed the 12/17 high but it reacted obediently to it's overhead descending trend line AND the 200 day moving average (red line).

2) The RSI and MACD oscillators are at levels that have proved insurmountable in recent history.

3) There is a lot of "overhead supply" Gold must contend with here.

So a long entry here would carry lot's of risk with the odds against you. What is more likely is that gold will retrace to support levels in the $780-800 range before making a new attempt higher.

GOLD

TRADE UPDATE 1/6/09: Getting ready for a Gold trade http://screencast.com/t/xaPo29F3BY

TRADE UPDATE 1/2/09: The Gold chart still warrants caution. See updated chart http://screencast.com/t/NBBzZ3L8TF

Crude on the other hand should be watched closely. It has made an awesome descent from its July high of $148. Commodity traders, hedge funds and investment banks have faced catastrophic deleveraging causing margin calls, panic and implosions. The trend has turned parabolic as waves of redemption calls from frightened fund stakeholders force funds to relinquish positions. The Maddoff scandal only heightened their fears.

As mentioned before deleveraging cares not for value but for survival. In the process markets almost always over correct. I believe that is what we've seen here, but the old adage "never catch a falling knife" applies. The chart offers no constructive price patterns but a bullish retracement is certainly due.

CRUDE OIL

TRADE UPDATE 1/6/09: 30% Gain - taking profits. See updated chart http://screencast.com/t/I9TS6x7FMl

TRADE UPDATE 1/2/09: 25% gain and growing! See updated chart http://screencast.com/t/VQja00kaT

With the foregoing in mind Oil drillers are showing positive divergence from the crude price. These are likely to respond nicely to a crude bounce with limited downside should we not see it.

CLR is one such stock currently showing a 4 week cup with handle. This is certainly not the only play in this segment. WTI is almost as a good with other drillers also showing resilience. Notice the difference between the crude chart above and CLR's chart below. CLR has refused to drop even as crude probes new lows. This is one to have on a watch list waiting for a green light from crude oil.

CLR

TRADE UPDATE 1/6/09: 20% Gain. This trade still looks strong.

The link to the updated chart shows 3 areas of price interest. We are at one of them now, however I am reluctant to take profits here as I suspect it can meet the next targets in the weeks/months ahead. This one requires the "Art of the Trade". Some may wish to scale back their position here letting the rest of their profits run. I will simply watch it for a few more days. I suspect crude oil may take a breather from its run of late. This is likely to cause a retracement in CLR. Both I consider buying opportunities. Trailing Stops are also an effective alternative here. A 2.5 pt trailing stop would make sense here. See the chart link for the next target levels: http://screencast.com/t/AfJ1yP2sJhT

TRADE UPDATE 1/02/09: Breakout from Cup w/ Handle base. See chart w/ targets http://screencast.com/t/nusqWMFlCds

Pivotal Juncture

2008-12-24T05:33:00.000-08:00

The Market is at a pivotal juncture. So far it has failed to break through overhead resistance and is approaching important support levels. A decisive move in either direction will set the tone for the new year. Indications are that we will head lower which will enhance our short positions.

Some Shorts

2008-12-19T12:19:00.000-08:00

UPDATE: All shorts scrapped for now. The market has broken out or resistance and is in Rally Mode! Keep an eye on the Radar. These will be back!

Autozone (AZO)(Hat tip Tim)

Initial target $120, secondary target $113, $139 Stop

Notice the convergance of indicators around $112-115. We have a 50% retracement corresponding with former resistance and the 50 DMA. This makes for a great target.

Gold (GC)

$780 Tartget, $880 Stop

Coach (COH)

$16 Target, $22 Stop

Announcing Disqus Comments

2008-12-18T21:34:00.001-08:00

Now featuring Disqus comments!

Dollar Update - How low will it go?

2008-12-16T19:59:00.000-08:00

12/18 UPDATE:
1st Target $77.81 met! We bounced off of a low yesterday of $77.69 and are seeing strength. This provides an early cue to trim or hedge commodity related positions. See updated chart at http://screencast.com/t/VgLFKk1AN9v

Implications? Commodity related positions (Gold, fertilizer and oil stocks) will likely deteriorate with Dollar strength. ***************************************************************************************

The object of technical analysis is not to simply to forecast but to identify attractive risk/reward opportunities. In previous posts we highlighted the Dollars peak and its subsequent slice through major support. In the process it flashed a textbook signal - a Head and Shoulders pattern. This signaled an intermediate trend change.

If you been reading and have taken advantage of this signal with appropriate currency pairs or going long commodities you should now be wondering how far will the slide last? More appropriately you should be asking at what point does the Dollar short cease be an attractive risk/reward? The chart below provides some helpful clues.

There is a convergence of indicators pointing to a near term target of $76-78 for the US Dollar index.

Head and Shoulders: First we see a clear representation of a Head and Shoulders pattern expressed on the US Dollar Index. A rule of thumb for H&S patterns is the height above the neckline is often matched by an equal depth below the neckline. Using a Fibonacci tool this implies a target of $77.81
Moving Average: The 200 DMA is nearing $77

Support levels: We see prior support coming in at $76. A prior resistance level at $80 was never tested and probably won't be much of a factor.

Alternate indicators: The RSI and Stochastics (highlighted in red) are entering oversold values. Simply reaching these values is not an automatic signal to cover (or buy long), but you should be paying close attention here.

The MACD is still very much bearish and persisting in that trend, but should be watched closely as well. This indicator will most likely provide the earliest signal for a rebound. A great tutorial on this important tool can be found here. I will be looking for an early divergence in the histogram followed by a crossover of the moving averages.

Why is the US Dollar so important? Take a look at the inverse relationship of the US Dollar and Commodities. Commodity related stocks have been coming to life, notably Gold and miners (GG, ABX) and to lesser extent Fertilizer stocks (CF, MOS, POT) and still lesser oil. Their performance is magnified by the action in the dollar.

In the Macro economic picture we experienced violent deleveraging. We continue to experience deflation as a result of credit contraction. There is a massive effort to offset the destructive effects of these by the Fed. The result has been a sharp increase in money supply -see "Bernanke's game plan" in the side bar. This new money is still being hoarded by banks seeking to shore up their balance sheets, but eventually it will make it's way into the market.

Long term it is clear the FED views a depreciation of the US dollar and even a sharp devaluation as an attractive monetary policy. Europe, Latin America and most notable China have all began to loosen (depreciate) monetary policy in a tactic know a "Beggar thy Neighbor" economics. Investors now should be worried about the value of the dollar going forward. A short term rebound of the dollar as indicated in the first chart may provide an second opportunity to enter commodity related issues at a discount or make follow-up buys.

Not all commodities are created equal. While commodities in general will "benefit" from a depreciating Dollar the world economy is deteriorating. Demand destruction remains a factor in energy related commodities, less so in Agricultural, and least so in precious metals. Gold in particular is faring nicely despite deleveraging, deflation and demand destruction (jewelry). The main reason is monetary uncertainty creates demand in Gold and to a lesser extent Silver.

It's time to pay attention.

100% Gain in 1 week

2008-12-15T06:22:00.000-08:00

With DRYS trading in near $11.00 we have realized over a 100% gain from our previous post. At this point there are 3 things that can be done:

1) Move up your stops
2) Take 1/2 your position off
3) Sell

I have highlighted developments that warrant caution.
First, price is retreating from a significant moving average.

Second, the MACD shows a momentum plateau.

Last, Stochastics peaked above 80 and are descending.

The current price is at our target (see previous post). The current chart no longer represents a definable edge and in fact shows potential deterioration. So when faced with a situation like this a trader must weigh risk vs. reward. 100% gains are rare. However big gains are made when you let your winners run. This is where Stops can be particularly useful.

Tale of two charts

2008-12-06T07:10:00.000-08:00

When looking for potential long candidates there are many things to consider. If you feel you must buy something then you are essentially gambling. As traders we are looking for opportunity buys only. Below are two charts that show two potential buys. Both have conducive price patterns as they have bounced off support. But only one is a worthy buy. Here is why.

In addition to price we look for other confirming indicators before we make a buy.

GG Goldcorp.

Goldcorp has been showing strength in our latest rally and has pulled back to support. So is it a safe entry? To answer that we can look at alternate indicators.

RSI is in the middle of the band. This is not itself bad, but it does not scream opportunity.

The MACD looks bad. We accumulation slowing and it drifting away from it's MA.

The Stochastic oscillator is also bad signaling more downside ahead.

External Factors: Goldcorp is a Gold mining company whose results are heavily dependant on the Price of Gold. Although not shown here, a chart of Gold show a bearish trend that is only begining to show signs of reversing. So Goldcorp is not an opportunity for us... yet. It may indeed go up. Strange things are happening in the Gold futures market that could have an effect on the future price of Gold. However until we see a more positive picture we'll pass on GG.

DRYS
Dryships is a bulk dry goods shipper who has gotten slaughtered. It has taken a 96% whack from well over $100 few months ago to $4.50 as of this writing. It's action lately though may provide a low risk buying opportunity. Like GG above we see DRYS bouncing off of support. We notice alternate indicators complement a bullish view.

RSI is coming off the sub 30 level which indicates support.

It's current price is low in the Bollinger Band

MACD indicators are drifting up

Stochastics indicate oversold levels

External Factors: This stock shows an excellent correlation to the Baltic Dry Index (not shown). This is an index of average shipping rates that shipping companies can charge for shipping goods. Shipping rates have plummeted over 90% taking all of the shipping companies with it. The massive slide in shipping rates seems to have found support as well. This is necessary for bulk shippers to rebound. Unless rates find a bottom there is risk of further downside. So it seems all factors point to a nice bounce from here providing the general market cooperates.

Always look for a low risk high reward entry.

Finally a confirmed turn up

2008-11-26T20:17:00.000-08:00

Our indicators began their turn positive at the close of Friday's trading. Actually intraday Friday if you were watching. I've been too busy positioning to update before now but here it is. We finally have a turn that's confirmed by 3 other indicators. Based on the dramatic plunge of late, we anticipate this run lasting weeks-months retracing close to 50% of the Oct/Nov plunge.

More Pain

2008-11-20T16:53:00.000-08:00

Broken!

2008-11-19T22:10:00.000-08:00

Today was significant. We broke through key support with decent volume. All indicators point down. DON'T BE FOOLED by a sucker rally.

Dollar Watch

2008-11-19T08:17:00.000-08:00

In a previous post I noted coorelation between commodity deleveraging and it's affect on the Dollar and Stocks - link . With that theory as a basis I believe the action in the dollar will have implications in commodities, namely a weakening dollar should accompany stronger commodity prices. The descent of commodities (in general) seems to have stalled although no tradable pattern has emerged yet. However the short term action in the dollar is flashing sell signals.

Dec Dollar futures, DZX8 as a proxy for the Dollar:

Ag commodities look poised to fare best in this scenario (hat tip to Tim). The pattern is not fully formed nor confirmed by volume, but promising and one to watch nonetheless.

I would like to see a reversal in the commodities index as well.

To summarize, I'm looking for the dollar to lead commodities. The dollar may be topping. I think AG commodities may be a better play than say oil or precious metals. The latter still have a bearish look to them.

Gut check

2008-11-17T21:43:00.000-08:00

Sorry folks, not every setup provides a clear indication. We are again at support. At this point its probably best to sit back and let the market speak. If we break support we could look to 2002 for our next support level.

Putting the chart aside, my gut is telling me this market still has some issues to resolve. It's inability to sustain a rally and move off of support is bothersome to the bull case. Although I reticent to short at these levels. In fact if we do break support my gut also tells me it will be shallow and fleeting. I am carrying a med-small long position based solely on the fact that we have fallen so far so quickly. The successful tests of support are looking less relevant as time goes on. The next few days are important.

Bullish hopes abound - is it a trap?

2008-11-16T10:11:00.000-08:00

The four major indexes are flashing bullish signs right now. We successfully tested the bottom last week with a hard bounce. The next day's profit taking resulted in a higher low - not unexpected and still positive.

Let's review some facts affecting biases. Selling in the past month has been violently amplified by deleveraging across all asset classes. Deleveraging cares not for valuation, but survival. We know in every case market plunges produced powerful rebounds that revert to or near the mean. We are dramatically off significant moving averages. However, aside from these developments alternate indicators cannot rule out the potential for more downside.

The dramatic fall in commodities seems to have caused a rise of the US Dollar and a fall in stocks. This is most likely due to the unwinding of leveraged bets back into cash, i.e Dollars.

The chart below indicates the Dollar's rise may not be over implying the potential for more pain in asset classes. I say this tenatively because I believe the Dollars rise is an "effect" not the "cause". The tail doesn't wag the dog, but the chart should nonetheless considered in our decision making.

So is it safe to go back into the pool? Maybe. I sense we're close if not there. The Hedge fund redemption window closed this Saturday. This could signal an end to deleveraging. I'll be watchting the performance of commodities for clues. But let's not get lulled into thinking all lights are green. They are not.

Intraday Alert

2008-11-14T09:47:00.000-08:00

Exiting AAPL short @ $91.55

INTRADAY ALERT

2008-11-13T11:47:00.000-08:00

Positive reversal in progress (2:30pm). This is a very bullish sign. The market bounced hard off of support (DOW 8000 see previous post/chart) and is poised to finish 100+ today. Trimming shorts, adding longs. i.e IWM

After Close Update

Bloodbath!

2008-11-12T21:01:00.000-08:00

The market has rewarded short positions and is likely to continue to do so in the days ahead. And while individual stock charts may be attractive (to short) in their own right, they should also be viewed in the context of the overall market. We are at very oversold conditions. We may go lower, in fact with the new wrinkle provided by Paulson et al, we will likely probe new lows. The market loaths uncertainty and the turn about has raised more questions than it answers. Longterm the market will likely go MUCH lower. However, risk based trading demands favorable odds. Shorts (and longs) should be kept with tight stops and positions scrutinized before the end of each trading day.

Breakout! and charts of interest

2008-11-11T18:45:00.001-08:00

GXDX

A thin stock on the cusp of a new 52 week high showing impressive strength on a down day and managed to pierce a new high (intraday) off of a Cup and Handle. Volume was light so look for continued strength and increase in volume at or above $40 for buys or followups.

From a fundementals standpoint the recent move is not a fluke. The last two quarters show accelerating earnings growth in a leading sector (medical services) with an increase in sales.

EBS

Also making new all time highs with strong fundementals to back them. This one demands patience though.

And a short candidate - FSLR

I'm inclined toward a general market rally from here which makes me cautious with shorts right now. But....

PMG's

2008-11-08T22:31:00.001-08:00

An interesting divergance may be occuring in the Platinum Metals Group (PMG's). Palladium appears to have bounced off a bottom while Platinum looks poised for another leg down. These typically trend together so it will be interesting to see if the divergance persists. Both are at very oversold levels so I suspect Platinum breaks from tradition.

Charts of interest

2008-11-08T21:09:00.000-08:00

Our current stock market is in a secondary up trend. This is a counter move to the primary down trend and may last a few months. I expect bullish activity to prevail until the primary trend resumes. The movement of the US dollar has been effecting the markets of late so a chart is also included.

USD

SYNA

APEI

Some Short ideas:

Mastercard

Google

Apple

Rally Update

2008-11-04T20:07:00.001-08:00

S&P

DOW

A study of Market plunges

2008-11-02T18:06:00.000-08:00

1987 Big plunge amidst a bull market. A rally ensues right after the plunge but that isn't entirely useful since economic conditions are much different than they are now.

1973 A double bottom and then a rally making up the entire plunge.

Two plunges from the late 30's, two rally's ensure - eventually making up more than half of the plunge.

Of course no plunge study would be complete without the infamous 1929

And now a look at our current market.

It's difficult to make an absolute conclusion, but after a plunge the bias is clearly upward. The risks are in the potential for retracements. The 1937-1938 chart shows one possible pitfall. What looks like a bottom is in actuality a pause before making a new low. One comfort is that this new low is not much below the initial plunge and recovers very quickly and eventually follows with a legitimate rally that makes up more than half the plunge.

One clear warning eminates from the 1929 era. Although the market went on to rally for a few months, it then launched a long, slow brutal bear market that erased over 80% of market value. Buyer beware.

Market update and a few charts

2008-10-30T20:21:00.001-07:00

DOW - One possible outcome.....

PCG - Thanks for the ride... it's been a gas.

FDO - Hey buddy, spare a Dollar?

Some Breakouts !

2008-10-30T11:58:00.001-07:00

STRA....

AFAM broke nicely from a consolidation range. Fairly extended intraday. We should get pullback near $42 making a good entry point.

New Chart

2008-10-30T05:30:00.001-07:00

Charts of interest

2008-10-29T20:50:00.000-07:00

ISYS

Although it appears to be breaking through support, the astute technician will also notice a Head & Shoulder pattern has formed back in August. A retest of former resistance levels is not unusual before a stock falls back beneath. Be careful of this one. It needs to build support above former resistance first.

Family Dollar

This stock has held up rather well through the mayhem (considering).

EBS

Looks promising, volatile and a little risky to enter at this point. One to keep an eye on though.

The Dollar peak

2008-10-29T19:52:00.000-07:00

The dollar has stopped it's meteoric rise. It's important to understand that's it's strength HAS NOT come from strong economic fundamentals. The dollars strength can be attributed to a few things:

Deleveraging

Currency traders have had two favorite currencies to borrow from - the Yen and the Dollar. The Yen offered near zero interest while cross currencies from Australia and New Zealand were paying interest rates from 8-10% while appreciating in value. Free money! Until it wasn't. As these leveraged trades unwind the money gets repatriated to the country of origin to pay back what was borrowed. Both the Yen and the Dollar have seen rapid appreciation from the unwind of these trades while the investments (AUD, NZD, Commodities,etc) these currencies funded sold off ...massively

Flight to safety

As the Credit Crisis spread to Europe the darling Euro's potential as an alternate to the dollar has been questioned. Certain European nations are now asking themselves if they should bail out other members who engaged in reckless lending just to support a unified currency. That question remains. Many speculate that the Euro could be abandoned as a result. Those who sought safety in an appreciating Euro put that money back into the good old dollar.

Deflation

Lets not forget deflation. The destruction of credit-money now taking place is affecting money supply despite the Feds best efforts to keep the balloon inflated. The rapidity of the Dollars appreciation concurrent with the fall in equities is consistent with a nasty deflationary spiral of deleveraging and credit contraction.

But the important thing to realize is:

1) The Dollar's rise has abated.

2) It's current level is likely to be temporary.

3) Our economy is not strengthening, it's weakening.

4) Fed bailout's, stimulus and liquidity measures create inflationary pressure.

Notice in both charts the carnage began in July. Commodity and currency markets show a similar trend. This is indication that borrowed bets on commodities, equities and cross currencies started to deteriorate and positions were liquidated causing traders to buy back the currency they borrowed against - the Yen and Dollar.

All commodities should "benefit", but especially Oil related equities.

PCG - 1st Target Met!

2008-10-28T12:36:00.000-07:00

PCG surges ahead today meeting it's first price target. The next price target is near the $38 level. (see previous post)

2nd UPDATE: PCG blew past it's first target and is close to meeting it's 2nd target at $38. It makes sense to take profits soon.

Stay tuned for a new post this evening.

Market update

2008-10-27T19:27:00.000-07:00

Hopes for a bottom are fading fast as the indices enter dangerous territory. The last few sessions produced a series of lower highs and lower lows. A retest of former support levels looks likely.

The macroeconomic picture is deteriorating, not improving. Mish has two great articles detailing what's happening globally:
Economic Crisis Around The Globe Continues
Currency Crisis Meltdown in Europe, Japan, Australia

The news is always its worst at the bottom. The problem is, the worst keeps coming. Deleveraging continues with the Yen and Dollar carry trades unwinding causing them to soar while popular cross currencies and commodities continue to plummet.

Cash is a position that looks better every day.

Rally attempt update

2008-10-21T21:08:00.000-07:00

Update on our newborn rally attempt. Despite todays -231 drawdown the market is trading above support. Remember "churning above support is Bullish". Continue to watch the diagonal trendline. A break of this line is a first sign of trouble. A break below the old low is reason to exit.

PCG is still attractive at $33.6 There are 2 resistance levels it must overcome. $36 looks very likely. $38-39 look like good secondary targets.

ACI still behaving but will face some tests in the near future. Since July it has failed to overcome previous resistance. $27-28 will be it's first test.

UPDATE: ACI climbed to the $27 level and fell hard from resistance to make a new low.

Monday wrap

2008-10-20T18:59:00.000-07:00

Let's be clear about expectations for a bottom and a possible new rally. The market is in a primary downtrend. I suspect we will see DOW 7,000's again (actually much lower) before we see DOW 14,000's again, so trading counter trends is not for weak stomachs. What looks like a "bottom" and the onset of a new rally are is most likely a retracement to the mean. Volatility can change hope to fear quickly. But in light of our recent plunge the implications of just such a retracement are big. For many stocks a retracement to moving averages indicate 50-100% gains within the span of weeks or months.

The powerful sell-off we've seen in the past few weeks was amplified by deleveraging. Margin calls make valuations irrelevant. Cash to maintain capital ratio's or bolster investor confidence is the differance between living to play another day, or dying a quick and ugly death. Just ask Bear Stearns, Lehman or any number of Hedge funds. When it is over or even "over for now" opportunities will be left among the ashes.

And now for a chart:

Notice the weak volume. The price action indication confirms a new uptrend, but volume leaves a little to be desired.

I expect some profit taking but a violation of the lower trend line is the first que to an exit.

The Credit Market continues to show improvement which bolsters confidence in a new uptrend.

The Bloomberg chart hasn't updated for some reason

The Trade...

Probing buys have led to followup buys in Ag's, the OIH and Coal. I cut a laggard loose (RIMM) and still have a cash reserves and nothing on margin. I await a mild pullback to consider adding to existing positions. At this point I have no short positions but am building a watchlist while the bulls frolic.

So things appear to be easing, if only for now.

Monday morning update

2008-10-20T08:30:00.000-07:00

Trade update:

I cut RIMM off this a.m. In the face of an early rally RIMM was selling off with decent volume. Bye bye RIMM @$53.8 My stop was never violated but if a beaten down ostensibly oversold stock can't rebound with the market, something is wrong.

Fertilizer stocks are showing strength so RIMM is replaced with long probes in AGU and MOS. I'm also keeping an eye on sister plays in CF and POT.

Coal is also showing strength with ACI in play and MEE on the radar.

Intraday Update: Added to MOS @ $38.3

RIMM, ACI

2008-10-19T23:28:00.000-07:00

RIMM shows two significant Fibonacci levels, one at ~$82, another at ~$100. The $82 level looks likely and $100 less so. Not shown is the 50 DMA sloping just below $100 providing yet another ceiling.

Stops $50.12

1st target $82

2nd target $99

ACI

The picture is less clear here. The first conservative Fib level shows at ~34. The $42 level shows significant overhead supply threatening moves higher.

Stops $19.94

Target $34.10

The OIH

A nice chart. Lots of air between the current price and the first hint of resistance at $146.

Inaugural post: Bottom or just a pause?

2008-10-19T19:52:00.000-07:00

The month of October has lived up to its hype logging one of the most dramatic sustained plunges in recent history. The notion of a Bear market and a recession are no longer questioned by pundits. Multiple measures point to a near term bottom, but in this market nothing should be taken for granted.

The case for a bottom (near term)

Exibit A: Note the 34% divergence from the 200DMA

We have to go all the way back to 1929 to find a similar MA divergance.

I say "similar" because in Oct 1929 the divergance was slightly less at ~30%.

Exibit B: The VIX (new) logged a record 80+ on record market volume. The VXO also reached a near record high above $100. (only 1987 saw the VXO spike higher) The differences between the VXO and VIX are subtle but important. Visit the CBOE site for more info. Nonetheless, spikes above 40 have reliably marked bottoms in the past.

Caveat: We are still at extreme VIX/VXO highs. The conservative (and likey late) move would be to wait until these retreat to near normal levels.

Exibit C: The Libor as measured by the TED Spread has backed off it's peak. This is the most significant development. The credit market has been leading the equities market by the nose. Without a break here the carnage would continue.

We're far from safe and buying here is unsettling as it should be at a bottom. I have become Bullish, albeit reluctantly and only temporarily. Position size should be commensurate with risk appetite and be assured risks are high. This is no market to make a last stand. However, with the above premise last Thursday I launched a few long probes (small experimental long positions) in RIMM, ACI, PCG and the $OIH. I made followup buys to these on Friday with Stops at last weeks lows. A detailed analysis of these to follow.