What’s Next?

We go into a Fed Day knowing that there will be volatility. It doesn’t matter what my expectations are longterm, the short term volatility can be difficult for many. That’s why I wrote this on Wednesday morning before the Fed release when asked about Gold ( and miners)…

Even the good looking set ups can end up rocking and rolling after the Fed Release.

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SO after 2 p.m. , Gold and Miners rocketed higher. It looked so bullish that everything looked like clear sailing. However,  we are in a Bull Market and they try to buck people off, so by 2:30 down she went.  It was not at the time of the Fed Release that Miners sold off, it was a bit later. Everyone was scrambling to find “the news”.  What is causing this sell off?  The general markets were rocking too, and it was a volatile day in all sectors really.  Lets take a look at the charts for answers.

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SPX OCT 31 – I’ve been looking for a drop into an ICL for a while after this sideways continuation.

SPX – This can drop further, so we look for clues that a low is here, and we do not see clues of that yet.

USD – I’ve also been looking for a drop in the USD as shownon Oct 31.

USD – The USD is dropping as expected, but I still see more downside likely.  The lower trendline at the 50sma should actually be broken before we have a daily cycle low.

( Note: This could bounce and then continue down in an A-B-C-D type drop too).

ENERGY

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Most here know that we caught The Lows in February and we made great returns throughout the spring in Energy and Miners. I also  traded Oil in the summer and September, but I took profit and  left Energy behind for the preferred set up forming in Precious Metals  ( A possible ICL).    I see some people would like to be in the energy sector again with the lure of further gains, but as I watch the OIL and NATGAS sectors pull back, I want to say that I do not like what I see yet.  I have heard people discussing jumping into energy and energy stocks early,  but based on what I am seeing, caution is warranted. Lets review.

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WTIC – We were watching this trend line for possible support.  This is important , because it is the Intermediate trend line. I was expecting a run to $60 in Oil, but honestly I see things in the bigger picture that I do not like.

Oil broke below the trend line, so that indicates that we should be seeing an intermediate decline starting now. That is early,  so I feel that the downside could get ugly.  Oil is only on day 31 of its daily cycle. A drop to the 200sma is normal, but if this is an intermediate decline, we could really see Oil drop over time. This new development will be covered further in our weekend report.

Some of my favorite energy stocks like CWEI, RICE, ECA, WPX and so on are not ugly or broken yet, but they are selling down.  Maybe they will set up for a future buying opportunity, but for now I need to see how this plays out further.

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NATGAS –  This is a weekly chart and the weekly divergence on NATGAS is huge. Also the stochastics has plenty of downside room, so lets remain cautious here in energy. I’m not playing the downside at this point.

With those concerns of weakness, I decided to look at a few other areas.

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CRB – The CRB appears to be breaking down too. Was that a breakdown and then a back test of the blue trendline in August? It looks like it could have been as this September / October bounce is now rolling over.

So I looked at Precious Metals, Steal, and Copper.  They all look bullsih at this point.

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Copper – Copper actually looks like it is preparing to break from a long weekly base. This would be quite bullish.

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GOLD , SILVER, & MINERS

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GOLD – I posted this chart of Gold to point out a resistance area that Gold will battle with. $1300 – $1310 could give gold a little trouble short term. Gold is getting later in the daily cycle, so it could begin to seek out its daily cycle low, but it also could just burst higher after a slight pause and then drop into a much higher dcl.  Only time will tell the short term direction.

GOLD has reached that area. It also broke through the 50sma like a champ and that little base-building consolidation at the lows may have built up enough steam to push this even higher.  But what happened to the Miners?  They sold off into the close.  Is that what Gold will begin to do? We will discuss that after Silver.

SILVER – Silver also broke and closed above the 50sma and the macd and volume look bullish.

So on the above charts please notice the 50sma and the 200sma. If Gold and silver drop from here and lose the 50sma, they could get pinched between these two moving averages.  That would be bullish longer term too.

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GDX – Miners gapped higher Wednesday and after the Fed release they stayed strong ( for a bit).  At 2:10 GDX  was at the highs printing a price of $25.81.  At 2:15 Eastern time , 15 minutes after the fed release, GDX was still $25.40. Then it sold off quickly to $24.55.  Was it just a gap fill and a tag of the 10sma? Or is this the start of its dip to the dcl. We are within timing for that dip to start.  Lets take a look at that 1 day reversal plunge first.

Looking back at past 1 day reversals, it didn’t always indicate that a dreadful plunge was on the way.  Often , in this bull run, it lasted for 1 or 2 days and exhausted itself of sellers. With this, I see a possibility that GDX could bounce around or hold near the 10sma if it is not ready to drop into that dcl.  If the 10sma gives way and GDX closes below it, I’d say we are seeking out a dcl.

GDX – Since I am believing that an ICL is in place, that bouncing around and seeking out a dcl could even be a mild drop something along this idea, and then a strong run higher for the 2nd daily cycle should occur.

This is NOT any different than what we were expecting going into the Fed day. The daily cycle was on day 18, they can begin seeking out a dcl at anytime in that area, so I drew these 2 possibilities and really, aren’t we seeing this first one play out so far?  So it’s not a big surprise, it is just a little more disappointing that we aren’t getting a huge surge higher and then a dip into the dcl.  We still could get that in the next few days, but if not, I think that this means that the big surge higher will come in the 2nd dcycle. 

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These were the 2 charts posted at the end of the FED DAY report.  We can’t say that we weren’t expecting one or the other, and actually they are still both feasible possibilities.

This late in various daily cycles, we can conclude that Thursday and Friday trading will clarify the Post Fed direction for these areas of the markets.  1 day activity does not a market make!

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~ALEX

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I use Cycle timing as a part of my analyses. I have newer readers that have joined us over the months, and it has been a while since I discussed what the terms DCL (Daily Cycle low) and ICL ( Intermediate Cycle Low) mean. Let me quickly show newer readers unfamiliar with these terms an example of what I am discussing. You may need to study this a few times to help you to see what these daily cycles and intermediate cycles look and act  like.

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CYCLES –

Within the movement of the markets, we see patterns of cycles.  In Bull and Bear Markets, we see stairway like moves of higher lows and higher highs,  or lower lows and lower highs. Within those moves are waves from Lows to a Peak and then a dip to another low. That is a daily cycle.   I have explained this in prior reports, so I am going to cut & paste that explanation here with 2 charts. It should be enough to help readers that are newer to this idea to pick up on what I am discussing over time.

This shows an Intermediate Cycle in an uptrend. It has 4 daily cycles within it. If the peak forms to the right of the 1/2 way point, it is a R.T.  ( Right translated daily cycle), and that shows strength.  L.T. is when it ‘peaks’ early and usually indicates weakness.

THIS IS GOLD DURING THE BOTTOMING PROCESS OF THE RECENT BEAR MARKET. You see 3 Intermediate cycles of roughly 4-6 months, and the daily cycles roughly 1 month in length inside the Intermediate Cycles are pointed out.