Digging Deeper

This is one of those weekend reports were there was a need to dip deeper and investigate several areas of the markets.  Why? In the last report you may recall that I discussed how the recent trading reminded me of riding the White Water Rapids. For example the SPX was up about 75 points for 3 days heading into the Fed Mtg, and then it dropped down about 70 points for  the next 2 days.  Gold rallied with the Fed Wednesday , sold off Thursday, and rebounded Friday.  Is there a waterfall ahead, or will this river smooth out?  Lets dig in for clues as to what may lie ahead.

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SPX – I posted this wkly chart to show ‘weakness’ in the indicators that I was using. This would indicate that more downside was likely. 

Take a good look at this chart of the SPX.  Later in this report I will explain why it is important…

Dec 14  –  I noticed that we have a potential H&S forming. I wanted to point out that they can be negated with a break higher ( left side of the chart).  However…

I also drew this on Dec 14 – We find ourselves currently at a wedge break down and back test. The light blue dotted line would offer a channel – so a break below that area would be dangerous. 

SPX WKLY –  Currently price is losing support that held in the uptrend. A sign of weakness in recent weeks, and there is plenty of downside room on that stochastics. At the end of this report I have additional info on the SPX.

My SPX chart on Fridays report. Failing and weak.

Friday showed follow through to the downside. Due to the cycle count, this could play out as a drop or stairway lower for the next couple of weeks. 

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USD –  The weekly chart is bullish, but my daily chart indicates that even though we had a strong surge higher, it is going to pause or drop soon. We’ll see, but this would be positive for Precious Metals.

So I would say that the Weekly Bullish chart may form a handle?

WTIC – Oil has been weak and I have avoided trading it.  It was rejected at the 20sma when it attempted to rally. I have a $26 target on a weekly basis, so until I see a real sign of strength, I am assuming that this target could be met. A break above that 20sma would have me taking a closer look.  A run to and then a break down at the 20sma may have me going short.

Oil could be ready to put in a temporary low, which I am assuming will be another weak attempt to rally. The XLE remains ugly, but Friday had some interesting reversals in many oil stocks.  See REXX, DYN, ERF, AREX, UPL, NADL,  etc.   Others like CJES and SGY  ( former favorites of mine) remained in the red.

NADL –  I didnt see any news on this.  Short covering? Oversold ? Up 60%.

NATGAS WKLY–  This was also getting beaten down ruthlessly and I ignored it most of the way down  ( I should have shorted it in hindsight) .  NOW I think that it is the timing to reach a meaningful low. This chart could be considered a buy, since it is a reversal candle outside of the B.B. on a wkly basis, it should pop.  We’ll look at the daily too.

NATGAS daily –  I am not personally taking this trade yet, but it may break upward above that 10sma and begin a move higher.  NATGAS is extremely oversold and due for a meaningful low. With further proof, I may take this trade.

GOLD, SILVER, & MINERS

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First this reminder  :  I have shown these next 2 charts in the past , but decided to repeat it as a reminder. MINERS BOTTOMED BEFORE GOLD & SILVER at the 2000 lows. 

HUI BOTTOMED NOVEMBER 2000

GOLD BOTTOMED IN SPRING OF 2001

With the above reminder,  I feel that Miners are currently acting as though they may be bottoming.  They were  holding higher lows as GOLD & SILVER Sold off recently. Time will tell if this is the case.  

GOLD WEEKLY – The C.O.T. is very Bullish and the weekly chart looks like it wants to rally soon. Lets be ready for that, though I may wait for confirmation before reporting a confident buy. (  Reminder:  Miners bottomed before Gold in 200-2001).  The Gold COT is Bullish. Miners have higher lows.

GOLD DAILY – There are healthy signs in this chart, but cycle -wise we wouldn’t want to see it tale out the recent lows. If it did, this may be a final daily cycle for Gold that could drop into the end of the year  ( Again, have Miners bottomed and would ignore this drop too?).   A break above the 10sma and the $1088.30 is bullish to me. A new ICL likely. A break ( And close ) above the blue dotted trend line is bullish enough for me to go long.  With the recent COT levels, this might rally strongly from here if it breaks higher. The RSI is strong for double bottom lows.

GDX WKLY–  The weekly chart is mixed, but the reason for that may be that GDX is further along in its daily cycle. The MACD and RSI show positive divergence.  A close above the $14.46 would be good for this weekly chart. Lets not break below Sept 11 lows.  Lets see the daily chart…

GDX DAILY – With a day 11 high, a daily cycle low Thursday would give us a day 20 low and a L.T. daily cycle. A drop to the blue arrow on Monday would give us a day 22 possible low. Also bullish if you ask me.  We want to see GDX overtake the 10sma to confirm a Daily Cycle Low and a trend line break. 

  Conclusion –  We need a little more time to see whether GOLD will hold these lows and whether Miners will hold above their Sept 11  lows (Bullish).  If not we will have to discuss the possibilities going forward.  I have done some additional research in this area, and will present it in future reports when it is applicable.   My overall view?  Bullish  Precious Metals.  I think we will be rallying in the early part of 2016 and it may be starting now.   I think OIL could have another daily cycle down, and my target of $26 may be reached in future weeks, so I am staying away from Energy unless I see a real sign of strength , or bounce and final break down  (Possible Short) .  Eventually Oil stocks may bottom before Oil, similar to some Miners before Gold & Silver.  NATGAS might be nearing its final lows. It is very oversold, even on the weekly chart, breaking below the B.Band. It has been a bloodbath day after day, so it is risky, but I know that traders may want to buy with a tight stop –  that is your call. 

  I also said that I dug deeper in other areas, and I want to share what I’m seeing in the equity markets. I will use the SPX as my subject. 

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   I want to show you what is happening in High Yield Bonds. They have put in some very bullish runs over the past 6 years, but this year we see a change.

HYG – Notice the Higher lows year after year until 2015.  A break down without recovery .

JNK – Higher lows, until 2015.  A break down. 

HIO – 

  High yield Bonds are not only rolling over, but massive outflows are occurring  and some funds are shutting down.

Below  is a quote & a clickable link to an article that discusses High Yield Bonds.

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What to do if you own High Yield Bonds

The above article states ,  “Investors are getting antsy. After pouring nearly $10 billion into high-yield bond funds and ETFs in October and the first week in November, they have since pulled out nearly $7 billion, according to Thomson Reuters Lipper.

One of the biggest high-yield bond ETFs, SPDR Barclays High-Yield Bond JNK, -0.39% saw investor outflows of over $1 billion in just the five trading days ended Dec. 10, according to ETF.com. Zacks Investment Research reported that the $10.7 billion ETF has lost 10.6% so far this year.”

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 When you do a little research you can see how the junk bond market is related to the stock market, and has moved step by step with the SPX.    Let me quickly show you a chart that shows that movement.  Notice the red arrow highs and Green arrow lows are almost step by step matching up  –  EXCEPT RIGHT now in the SPX.  These Funds made lower lows below their AUGUST lows recently and are falling apart. To me, this could be indicating that SPX will play catch up.  NOTICE THAT  HIO, JNK, HYG Broke August lows.

SPX –  So if it plays catch up with High Yield Bonds, you should  see AUG lows broken by the SPX to get the matching lower lows.  As I mentioned ,  our daily cycle failed.  We have possibly 2 more weeks of downside.   This chart and research that I was putting together was done on Dec 15 for this weekend report.  The SPX is now at 2005 and sold off for 2 days after the FED interest rate hike.  Was that interest rate hike the game changer? Will the SPX sell off to new lows ,  catching up to what the smarter JNK BOND investors already did  “ In just 5 trading days leading up to Dec 10th”, according to the link above ?  

  I dont short Bull markets, but this may be the end of the ‘bull market’ for a little while, as a larger correction takes place. If you are one that does go short, you can use the above information to monitor your trade potential.  How big of a correction can we get and still remain longer term Bullish? 

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NAZ – You wouldn’t believe it if I told you,  but 50% corrections are common sentiment changers.  Notice how the 2008  drop had a much deeper sentiment changer. I drew this 2 weeks ago when I saw that JNK etf .  This id just an idea of how serious a sell off could get and still remain Bullish.

   So really,  we are experiencing a fast moving and possibly rapidly changing  period in the markets.  With that last Fed Meeting we saw Gold up, down and up again.   The SPX rallied 75 points and then dropped 70 points Thursday and Friday. There is a lot of action and it can be a little hard to hold on at times.   Stay in Cash until things resolve one way or the other?  Take a trade and keep a tight stop?  The choice is yours based on your trading style and risk parameters.  We will have a BUY if GDX breaks higher and has put in a DCL along with Gold itself.  I am focusing on the Precious Metals sector for the most part at this time.  This should be kept in the back of your mind –   In the U.S. , Markets close early Thursday and are closed Friday.  Gold does not follow that schedule.  I’ll be watching things unfold on this shortened holiday trading week, and report what I see,  but Wednesday is my last report this week.

I hope you all had a great weekend!  This week should be interesting even if it is a shortened holiday week  🙂

~ALEX