Looking Below The Surface
Oct 24,2014 At times, things arent always as they appear on the surface. You may have to dig a little deeper to find out whats really there. Thats what I am attempting to do in the Precious metals mkts. Yesterday about an hour into trading I was watching Miners break down to new lows. Again the message boards lit up with “New Lows, that means we are going a lot lower” and “Going short here, much lower prices ahead”. For me, something hasn’t “Felt” right about that, so I knew that I had to dig deeper and see if I could reconcile the problem that I was having. The problem goes back to a prior report where I pointed out that I was getting signals for a “Meaningful Low” in Gold (An ICL).
In fact, since that report, GOLD has been acting correctly, running up to the 50sma and stalled just like MAY LOWS, but the MINERS have NOT been keeping up. NOTICE that GOLD Lows here have been like the TWIN of MAYs Meaningful LOWS (ICL). So to me…LOWS IN GOLD WERE IN.
AUDIO click here / then click ‘download’ / click ‘open’ & then come back to this page when you hear the report to follow the charts
The problem with everyone going short yesterday was what I had noted in other reports too…
The MINERS ( GDX ) were acting Just like DEC low, and THAT produced a “Shake Out” to new lows and immediately reversed higher. Last Dec when that occured, The Yahoo message boards were very eager to short “The Next Epic Leg Down”. I said to myself, “If golds lows (ICL) ARE in, and Miners just do a shakeout, this is going to drive people absolutely bananas! ” Wait a minute…isnt that what the markets always do?? To The CHARTS!!!
Starting with a quick review, let me walk you through my thinking as time went on…
OCT 14 I posted this chart and I mentioned certain indicators I use triggered for Gold, but not the Miners yet. And compared Miners to DEC Lows.
OCT 14 I also showed on this chart that at DEC new lows, MACD held up , so I would LOOK FOR THE MACD TO HOLD UP if we did dip as Dec did. Note also that I drew the Up & Down possibility of a sideways move in Miners before the “Shake out” (So at yesterdays new lows, I checked for that MACD reading)
Tuesday OCT 21 , I again reminded us that GDX looked like DEC LOWS (It dropped after the Blue arrow to new lows in Dec )
Knowing that HIGH VOLUME CANDLES often get tested, it began to look like we’d test those FED MINUTE LOWS. We were also about to get that “SHAKE OUT” move , similar to December, so I posted this chart at 11:30 a.m. showing that it looked like we would test those lows on 1/3 the volume. (THAT IS A SUCCESSFUL TEST AND OFTEN REVERSES IMMEDIATELY). Notice i wrote that I estimate maybe 30 million by days end, vs 115 million. We had 36 million at the close. 
If we could be getting a “Test” of lows , a possible “SHAKE OUT” and reversal, Lets Zoom in and take a close up.
I posted this : A wedge and a down channel
Then I updated with this TWEET : We were breaking free
Hourly – it gave an Hour to buy it at the lows with a tight stop, then it took off
This was the end result (Click to enlarge) .You can see that I wrote yesterdays report at THE LOWS. Will we test those lows or even go deeper and test that trendline today?
This is the GDX OCT 23 close. It DOES look like the DEC lows, doesnt it, complete with a shake out / stop run and the MACD is fine. Yes, its still scary to buy here, even when watching it unfold as expected & mentioned in a few prior reports!
As of yesterday, the GLD looked just like the MAY LOWS
Turning back to my indicators that give the “Safe” buy… Not QUITE YET on 1 indicator. All of this sideways action has eased the parameters so that It would likely trigger today if we get some follow through. A Short covering rally could push this into a Buy area, but …
the REAL SAFE buy is above the 20sma, “Stop” below the 20sma (which has held price back).
SO I am saying that $GOLD has bottomed as expected, and acted Just like the MAY ICL
Miner appear to have bottomed too, but are acting like the DEC ICL (As expected as it unfolded).
DO you recall my two prior reports entitled Its an Illusion and We have been conditioned? I discussed how we are now conditioned to expect Miners to crash, but I pointed out several charts showing relative strength in some. It may help to show that currently, even with GDX / GDXJ breaking to new lows and threatening to crash…we have some nice reversals and charts . Here are just a few…
LSG – Breaking down?? Or Where could you safely enter?
HL – reversal amidst the fear of a break down yesterday
RIC – Healthy
GORO – perfect 61.8% re-trace & reversed BIG TIME on yesterdays sell off
FSM – ( honestly …If I covered up the name & showed you this chart saying that it was a tech stock, would you say “Bullish” or “Bearish” on that higher lows and reversal yesterday )
What do the above charts indicate to you? COULD the sell off be an illusion still? You have to decide for yourself. I try to dig a little deeper, see whats happening below the surface.
I know when I write these articles, this is often what I get in response, but thats what makes a market, right ? 
Click to enlarge-
Lets go Big Picture too… GDX MONTHLY
I was told that we have to go to $15 to test 2008 lows. I disagree…we MIGHT or we COULD go to $15, but we do not have to . On this monthly chart , look at the MACD, it crossed over upside and its rising. There is HUGE volume, but they cant push it down? It would seem that there is a lot of BUYING & SELLING going on here. Time will tell, this month ends next week.
Some also look at a chart of the EURO ETF.
The dollar was extremely strong, and may go higher, so is the Euro ready to Fall to 2010 lows? Or MIGHT the dollar double top and rest up a bit and the Euro turns up here? This is a Monthly chart, it ends next week, but so far it has higher lows since 2010 lows. Time will tell.
A longer term view – The problem that I have is that everyone is saying to short the euro in the strength of the dollar. It is currently as oversold as it has been, and at support or just above support.
I was looking at the SPX & QQQ because when I post about Gold /Miners I hear that SPX just put in lows and Miners will drop as it rises.
I see SPX & QQQ POSSIBLY ready to rest. WHY? It looks like a pure short covering rally so far. Quite strong and fast, but the QQQ broke above the 50sma and thn backed off and closed below it. The SPX also approached the 50sma and backed away. Often there is a pause before another attempt to take it out.
For earnings you can watch a few things ….MSFT beat / AMZN & IBM got crushed down a bit . KLAK looks good pre mkt, after being down graded : )
We’ll have to see how things play out, but now you know what I am watching for. ALSO- I had been tracking 2 stocks and thought of a possible buy after earnings. Yesterday they both had earnings and look set to GAP OPEN. I will show you both as of yesterdays close… they are quite bullish and earnings went well.
MXWL-
GIMO –
I just wanted to throw this report together to follow up with what I had presented yesterday. I am watching Miners closely and there is a good chance (In my observations) that GOLD DID BOTTOM and has acted correctly when you compare it to May lows. Miners have acted like the DEC lows…have they bottomed too and will they play “CATCH UP”? IF SO…..We are at the very bottom. There will be plenty of time to find a safe entry based on your risk tolerance and trading / investing preference.
Unfortunate, someone in NYC has been confirmed as having the Ebola Virus, and did some travelling since contracting it. This will likely cause a concern about it spreading and I would expect the EBOLA STOCKS to react in a supply & demand way. APT, LAKE, VSR, NLNK , TKMR and so on may be on the move today after pulling back this week. So there is a lot to look at, but my focus right now is mostly on the Miners. I want to see how this plays out . I’d like to see a GAP DOWN…as most of you know from a previous report …I hate gaps. Best wishes to all and thanks for reading along as I try to share the way I am looking at things!
~ALEX
Alex,
Great analysis, thanks for sharing your thought process. We really appreciate the effort it takes to annotate and explain your thoughts! Great to see you challenge yourself and take a contrarian approach!
Thank You Zig Zag – It does take more time, but I wanted the reader to understand and be able to follow the thought process rather than to think it was a guess. I appreciate your feedback & kind words.
Alex,
Great analysis, thanks for sharing your thought process. We really appreciate the effort it takes to annotate and explain your thoughts! Great to see you challenge yourself and take a contrarian approach!
Thank You Zig Zag – It does take more time, but I wanted the reader to understand and be able to follow the thought process rather than to think it was a guess. I appreciate your feedback & kind words.
Alex, very well written. I appreciate the time you must have put into this. Well done. One question, what are your buy signals? Cross of the 20SMA & cross of the MACD and rising RSI? Thanks again.
Hi Bhowe – Thx.
As for buy signals , I think it depends on trading style . You could have bought the reversal alone as a light volume test of the high volume Fed Minutes day. Thats high risk of failing the next day. Or the break from the down tending channel. My indicators are a bit more complex and I developed them over time for my self trading the metals markets. One could just enter a trade above the 10 or 20sma…its safer that way, usually up trending by then. so there are many ways to approach it, some safer than others. Also the MACD and RSI I do watch for divergence at lows or strength of a stock.
Alex, very well written. I appreciate the time you must have put into this. Well done. One question, what are your buy signals? Cross of the 20SMA & cross of the MACD and rising RSI? Thanks again.
Hi Bhowe – Thx.
As for buy signals , I think it depends on trading style . You could have bought the reversal alone as a light volume test of the high volume Fed Minutes day. Thats high risk of failing the next day. Or the break from the down tending channel. My indicators are a bit more complex and I developed them over time for my self trading the metals markets. One could just enter a trade above the 10 or 20sma…its safer that way, usually up trending by then. so there are many ways to approach it, some safer than others. Also the MACD and RSI I do watch for divergence at lows or strength of a stock.
Possible cup and handle on 60 min chart for FSM starting back at Sept 17 or so. My weekly indicators are on a buy. I wish I would have seen this one earlier. Thanks.
Yes, It has been holding up well until it dropped yesterday, but then it bounced off of the 20sma and reversed nicely, closing green. Now it is back above the 50sma and does look pretty good : )
Possible cup and handle on 60 min chart for FSM starting back at Sept 17 or so. My weekly indicators are on a buy. I wish I would have seen this one earlier. Thanks.
Yes, It has been holding up well until it dropped yesterday, but then it bounced off of the 20sma and reversed nicely, closing green. Now it is back above the 50sma and does look pretty good : )
Thanks Alex was an IPO winner on GIMO and did well haven’t looked at in awhile! I can’t believe its that low! Def Buy
Hi Liza,
Yes, $40 to $10 = ugly weekly chart, but they seemed to really like the earnings (if that GAP OPEN can stay open, its an Island Bottom Pattern (Bullish).
Note: I called an Island Bottom Pattern on RALY a month ago, and owned it for a while – it was working well, but gave up that gap on the recent mkt slide. If the MKTS slide again, many things might break down. If I were to enter, a stop at todays lows might be important.
Thanks Alex was an IPO winner on GIMO and did well haven’t looked at in awhile! I can’t believe its that low! Def Buy
Hi Liza,
Yes, $40 to $10 = ugly weekly chart, but they seemed to really like the earnings (if that GAP OPEN can stay open, its an Island Bottom Pattern (Bullish).
Note: I called an Island Bottom Pattern on RALY a month ago, and owned it for a while – it was working well, but gave up that gap on the recent mkt slide. If the MKTS slide again, many things might break down. If I were to enter, a stop at todays lows might be important.
A thought re gold shares. I went back to the bottoms of gold shares in 2008 and found that GDX and many others turned up from a weekly bottom around 11/24/08. Then I looked at UUP. It turned down from a top around11/24/08 – no surprise. To me, UUP just finished an abc correction to a wave 4 and may be rallying up to finish wave 5. Although I have gotten several weekly buys on gold shares, a couple have been negated. Also, I have not gotten a buy on GDX. Bottom line: The bears may be correct and we may have to confirm that UUP has topped. Perhaps if it breaks its recent low?
Thx Gary-
However, in Dec 2013 GDX WKLY moved up the last 2 weeks of DEC and first 3 weeks of Jan 2014. UUP WKLY also moved higher in that 5 week period. Most of the time they correlate, sometimes they move separately. I am mostly working with what I reported in the report., but I would need to see follow thru next week
A thought re gold shares. I went back to the bottoms of gold shares in 2008 and found that GDX and many others turned up from a weekly bottom around 11/24/08. Then I looked at UUP. It turned down from a top around11/24/08 – no surprise. To me, UUP just finished an abc correction to a wave 4 and may be rallying up to finish wave 5. Although I have gotten several weekly buys on gold shares, a couple have been negated. Also, I have not gotten a buy on GDX. Bottom line: The bears may be correct and we may have to confirm that UUP has topped. Perhaps if it breaks its recent low?
Thx Gary-
However, in Dec 2013 GDX WKLY moved up the last 2 weeks of DEC and first 3 weeks of Jan 2014. UUP WKLY also moved higher in that 5 week period. Most of the time they correlate, sometimes they move separately. I am mostly working with what I reported in the report., but I would need to see follow thru next week
Challenging the Tepper trade …sacrilege!
LOL – He did well with the Long AAPL / Short RUSSELL 2000 in MAY
http://seekingalpha.com/article/2221313-tepper-hedge-fund-trade-long-apple-short-russell-2000
But I ‘m not sure what has he said lately : )
He’s telling folks to short the Euro
I see – well Thats ok – Even on my 2nd EURO chart, It can drop a tad more : ) I actually hear a ton of “Short the Euro” calls out there, but if you look at my chart, its Stochastics is as oversold as its ever been on a monthly basis. I realize that extremes often do stay extreme and it CAN drop more, but I’d be nervous shorting the Euro here ,unless it really breaks down.
I will admit that the dollar had a very nice run up and could bull flag here and break to new highs too.
Thanks John – Have a good weekend!
Challenging the Tepper trade …sacrilege!
LOL – He did well with the Long AAPL / Short RUSSELL 2000 in MAY
http://seekingalpha.com/article/2221313-tepper-hedge-fund-trade-long-apple-short-russell-2000
But I ‘m not sure what has he said lately : )
He’s telling folks to short the Euro
I see – well Thats ok – Even on my 2nd EURO chart, It can drop a tad more : ) I actually hear a ton of “Short the Euro” calls out there, but if you look at my chart, its Stochastics is as oversold as its ever been on a monthly basis. I realize that extremes often do stay extreme and it CAN drop more, but I’d be nervous shorting the Euro here ,unless it really breaks down.
I will admit that the dollar had a very nice run up and could bull flag here and break to new highs too.
Thanks John – Have a good weekend!
Any observations today? Like flat for fomc?
Any observations today? Like flat for fomc?
Just wondering what you thought of metals action today. I got stopped out of EXK last week, but was thinking of re-entering soon. Seems like nobody is willing to trade miners now. Also, bought some XONE today, looked like it broke out and a few days ago backtested the 10/20 cross successfully. Today’s move looked good–just wondering if you thought maybe my entry is premature because not a large volume influx to confirm. But relatively decent accumulation lately… hmm… hopefully I’ll pick a winner soon:)
Just wondering what you thought of metals action today. I got stopped out of EXK last week, but was thinking of re-entering soon. Seems like nobody is willing to trade miners now. Also, bought some XONE today, looked like it broke out and a few days ago backtested the 10/20 cross successfully. Today’s move looked good–just wondering if you thought maybe my entry is premature because not a large volume influx to confirm. But relatively decent accumulation lately… hmm… hopefully I’ll pick a winner soon:)