Tuesday Dec 13 – A Pre-Fed Hike

 We are one day away from the FOMC meeting  that is expected to result in the first rate hike of 2016.  After a quick  review of the markets, we’ll discuss some action in the markets Monday that may be of interest to many of us.

The general markets ( SPX, DJIA, NASDAQ, IWM, etc) have been on a tear since putting in their ICL in early November.  They are pushing on and riding outside of their Bollinger Bands too,so since they are a tad extended, they could drop down to the 10sma like they did at the end of November. A deeper drop from a Fed reaction could send it down into a DCL at the 50sma and back test the break out.   Do you know what happened when they raised rates in Dec 2015?

SPX DEC 2015 Rate Hike –  The Market was dropping heading into that day, and it reversed and drew people into going long and turning bullish into the end of December. It then sold off in January 2016. 

SPX WEEKLY – I would expect the markets to pull back after the FOMC meeting. The VIX is very low too. Very experienced traders could attempt a trade in TZA, SDS, and other ‘short’ trades, but the FOMC Wednesday can get extremely volatile and you must be ready for that.

USD – I see weakness here near the highs, but with Fed Wednesday, anything can happen. We are only on day 3 and I do expect the USD to roll over shortly to seek out an ICL, but a nice quick POP to new highs after the Hike could fool the bulls and draw them in first. We could see a move similar to July. The USD does look weak here.

WTIC – This was the Oil chart from Friday. I wondered , “Would Oil break out or dip down and build up more steam to burst higher?”

WTIC – Oil was up over 4% in a break out move overnight. As the day went on, Oil pulled back and we see a reversal candle that usually occurs at tops. I drew in the blue resistance line and that held Oil down. So we may go sideways and build more strength before we get some some solid follow through.

XLE actually broke out a while ago, and it also put in a reversal top on Monday. I have drawn what could be a back test and a sideways move before energy resumes its upward motion. Both Oil and the XLE could also just tag the break out and run higher, or drop back inside the channel and become a false break out.  What to do in that situation? Tighten stops or sell when you see a reversal candle after a long run higher and watch how it plays out.

OIH WEEKLY – A black candle appeared on the daily at the top of a long run Monday.  That is a reversal candle.  Here on the weekly chart, we see it is outside of the B.B. completely.  We should expect a reversal and a dip in many Energy stocks. This should become a “buy the dip’ opportunity.

OAS  CHART #1– OAS is an example of an extended run.   It just ran from $9 to $17 in a little over a month, so I would expect it to drop back to the break out area  ( $13ish). If you know of other Oil stocks that put in a reversal after a strong run, they could become buy the dip candidates in the near future. This sector does look bullish so far.

OAS CHART #2 –  Here is a visual of that ‘dip’ and then it could move to above $20.

NADL is an energy stock that is not as extended as some of the others. It could pull back or it could also continue to  move higher.  It did also POP and reverse Monday, and in the past when it did this, it would often drift to the 10sma or 50sma ( see March and May). I think that various individual Oil & Energy stocks may each act individually if oil just goes sideways, so you will need to decide to sell or hold and see how it plays out  if you own some.

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GOLD, SILVER, and MINERS

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GOLD – $1152.50 on Day 45, and we are OVERDUE for that ICL.  Fed Wednesday now looks Bullish for Gold, simply because we are so overdue for a Meaningful low. I do not know exactly how Gold will react on Wednesday, we have seen false moves and spikes in the past. Gold HAS NOT closed above the 10sma yet, so we HAVE NOT had a dcl yet. This causes me to expect a run higher.

I personally think that a break toward $1180 is going to signal that a low is in place. This is a wedge that is bullish with a break above the upper line.

SILVER –  Again, Silver is leading Gold, and has broken above its 10sma and even broke down and recovered it again on Monday. Both GOLD & SILVER now have reversals in place.

GDX didn’t do very much on Monday, but some individual Miners were actually acting rather bullishly. Is that encouraging as we look for a low?  Yes. Could they still get whipsawed around on Fed Wednesday? Sure, but while I’m looking for signs of life to develop while we are in the timing for a low, the following Miners are a welcome sign.  These charts were captured Midday. They had higher volume and looked even better at the end of the day. 

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DRD at the close-  This looks like such a BUY! It looks ready to just burst above that 50sma and run higher.

GPL ended up closing the day with 6 million in volume

MGH – MGH ended up with almost double this volume by the close, and closed above the 50sma ( Not shown)!

TRX – TRX was up 7% , but it doesn’t look like much. If TRX breaks this wedge to the upside, I believe that we could see a repeat of June.  No promises, but we did buy this last summer and it ran up about 300%.

NAK – I mentioned that I sold a portion at $2 and I said that I would reenter when it gets to $1.55 or less.  We could be there tomorrow or Wednesday. Prior moves lower were a lot more sideways, so this also could unfold that way.

Tuesday and Wednesday will be trading into a market that is almost certain to get a rate hike. How will the various sectors react on Wednesday afternoon? With the General markets extended to the upside and Precious Metals extended to the downside, I would expect them to likely reverse direction , at least for a while. REVERSALS IN SPX, OIL  (XLE, OIH) , and PRECIOUS METALS .  WITH THAT IN MIND, I do not plan on covering them in Wednesday mornings report. This report covers my expectations on the Post -FOMC directional changes  and Wednesday morning I need to finally cover the subject of interest rate hikes and how they affected markets in the past.  I intended to do that today, but with Oil breaking out and reversing lower, and a few Miners perking up, that took precedence at this time.

Today I will be watching how the OIL and Energy Stocks act after the Oil surge and reversal. I will also be looking for more signs of life in any Miners as a possible sign that that sector could also be close to bottoming. Stocks like GPL, PAAS, AUMN, MGH, DRD, and a few others are acting like Gold did not hit a new low Monday. That type of divergence is usually bullish for the sector at lows. As mentioned in the weekend report, I am holding some Miners & Energy stocks, I sold leverage ( JNUG / NUGT) heading into the FED, due to possible whipsaw action, and I’m looking for a swing low in Gold.  A break and close above the 10sma is a start. I think we are going to see some very nice trades in the near future. Enjoy your Tuesday trading and thanks for being here at Chartfreak!

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~ALEX