1-21-16 – Prepare For A Bounce

The Dow Jones Industrial Average was down over 550 points yesterday and then rallied back into the end of the day, putting a form of reversal candle in place. Thursday morning the futures are RED, but we are at an extreme point that calls for a bounce/ rally. Yes it could last for days and weeks, but is the selling over? Lets review the markets and some stocks.

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The SPX  put in a large reversal candle too, after breaking below the August lows.  1730 is a normal downside target, but I think we rally first. It should be easy to get a swing low.  A move above yesterdays highs begins the process.

What do I expect from this move higher after it starts?

SPX WKLY–  You can see the 1730 as a 38.2% retrace, but 1604 is more likely.

Reminder :  Yesterday I said that one should wait for a pop above the 9 or 10sma & used this chart

IWM –  This is a break down.  Unless we get an all out plunge right now, I think we will see something like this.  I will explain a bit more in the weekend report.

Notice that all strong reversals do not ‘stick the landing’. They can be short covering, but if at first you dont succeed,   try try again?  This “Selling” looks to be exhausting for now.

Many Biotech Stocks had real looking reversals,  and if we are going to get a decent bounce, some short term traders may want to trade the bounces.  IDRA, TROV, ZIOP, etc turned green yesterday.  Augusts crash produced a 3 week rally in Idra of  over 90+%.

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WTIC –

Do you remember yesterdays report I pointed out what looked like the start of capitulation volume?

Wednesdays volume dwarfed it ( almost double).  IT is too early to call this THE BOTTOM,  but that does look like capitulation.  Back in NOVEMBER my target was $26+, and this may be close enough.   I believe the OIL contract rolled, so the numbers readjusted?  Notice how the 20sma was holding oil down ( red arrows),  now it even struggled at the 10sma.  OIL is tricky, most should wait for proof of lows,  though the short covering rally may be fast & furious like NATGAS was.

The hard part is that we see our old favorite OIL stocks bouncing 20 – 40 % in 1 day!!  The problem is, we see them dip that amount too.  I have received emails that people want to trade this bounce.  IT IS RISKY.  Everyone is waiting for someone to call that bottom in Oil and buy Oil stocks that will double & triple.   My advice =  ONLY EXPERIENCED TRADERS  should trade this area until THE lows are in.  With OIL I am watching that 20sma for longer term relief.

Yes, we saw some reversals yesterday, but you can see that NADL already had 2 large reversals without follow through.   We’ll see if these get any follow through above the 10sma,  since these could just base out too.

Tempting when you see moves like REXX had yesterday.  A 100% move higher from lows to high.

NATGAS –  This is a possible count in NATGAS, and that would indicate a move higher.  I looked at the Futures this morning and the recent move also looks like a bear flag,  so anyone taking a position should keep a stop below recent lows  (C) for safety sake.

GOLD, SILVER, MINERS

Oh my word, what can I say about this sector that hasn’t been said in the last 10 reports  

GOLD – I dont like to tell the markets what to do,  but,  “Hey  GOLD!  You should be moving higher here!” The set up remains Bullish technically and cyclically.

Silver – This week is already pulling the indicator to the Zero line after the sideways move.  We usually get a POP after that.

MINERS

GDX   Intraday   -I drew this chart for a friend of mine.  GDX was dropping and many got frustrated that Gold was higher and GDX gapped open and dropped, so I pointed out GAPS that often fill,   ( better now than later).

GDX – I also see a measured move that may be complete, and drew this at Noon. Possibly the selling was exhausted in the Tuesday drop.

BY the end of the day,  we reversed higher and even recovered the break down. So that gap filled and we have a reversal so far.  If Gold moves higher, maybe we can get Miners to follow through,  even rally?

This usually leads to further upside.  We want to see this hold or improve Thursday & Friday for a bullish weekly chart. IF IT CANT,  Miners are very weak.

If the GDX & GDXJ  reversed, some individual Miners must have too,  so lets look at some individual Miners.

AG –  A Silver stock with a nice reversal. Read the chart though.

NGD –  These are called ‘railroad tracks’.  I often see this slam down / recovery of equal length as a rejection of lows. I usually buy these if I am interested in the stock, because under certain conditions I have seen this as a completed rejection of the lows.   Selling is complete in most cases.  We’ll see .

South African Miners  look very Bullish.  Some are DRD, HMY, GFI, AU, SBGL.  Look those charts up, they are doing very well, and even GFI is holding its 20sma very well while trending higher.  I bought and sold this right on the 20sma like a fickle child –  Lol.

SO all I can say is that the set up in Precious Metals remains Bullish,  but the follow through with Miners needs follow through this week in my opinion.  We want to see a break above the overhead down trend line & 10sma to be more comfortable.  I do think Miners will run higher as Gold continues higher. Be patient if choppy bottoms frustrate you.

   If you have been here for a while, you know that we’ve also discussed in the past how GDX will run up for 3 days and then curl back down in a  1-2-3-4-5 type move.   That 1-2 move is when you can buy the dip if you are patient.

GDXJ is a good example of the pop and drop back toward lows.

I always say that my  weekend report covers Monday and I have  Tuesday, Wednesday, and Thursday reports.  If nothing changes by Friday,  I’ll just see you in the weekend report.  Then we have a Draghi decision today, Oil inventories,  Natgas report, Jobs report Friday, etc etc  and everything goes crazy : ) .   For the past several weeks, I have had a Friday report anyway.   So let me just say that I think what I have written in this Thursday report should cover Friday too. Even if it does, maybe I will post a few trade set ups if things line up correctly. Either way,  thanks for being here and being a chart freak too.  Happy trading!

~ALEX

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Sidenote: Before & During the market crash, I posted several nice set ups that had already sold off and bottomed.  Did you know that they have remained relatively unaffected by the recent crash?   Some picks did sell off like my  GDDY, DANG, etc,  but take a look at these.  IF WE GET A MARKET BOUNCE,  these may perform well since the sell off didnt hurt them.

I pointed out MACYS, JC Penny , and WMT (Wal mart)  as basing out.

M –  JAN 11

ZUMZ –  then and now