4-19 The Calm Before The Storm

In yesterdays report, I was complaining about the boring ‘put you to sleep’ type of sideways action in the markets lately. Apparently that was the calm before the storm, because later that day we finally saw some pretty big changes take place all in one day. Something interesting occurred in the General markets, Oil had a big drop of almost 4% (!) and the selling in the many of the junior Miners that I had been pointing out picked up the pace too.  Let’s take a look at the markets and discuss the recent developments.

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SPX – Not a lot has changed here, but I’ve mentioned that I’m a bit concerned with the XLF .  Now there are new threats to the General Markets.  The SPX remains under the 50sma and threatens to break below the prior lows. A break down could lead to a good sell off, and a break out higher could lead to a decent rally, but it is getting late in the 3rd daily cycle, so upside may be limited the longer time goes on.

This is interesting though…

The IWM looked as though it was going to break out, but it was rejected too.  Time will tell if this was an initial attempt at a future break out or a false rally. The chart actually looks to be improving, but now let me show you another concern…

DJIA–  THIS is a warning to me- The DOW has taken out its March lows and volume is increasing.  I view this as a breakdown more than a shake out. I often use the NYA as a strong gauge for the markets, and it is also breaking down. This is a failure under the 50sma and can lead to accelerated selling. This consolidation has been a series of lower highs and lower lows.

XLF – The XLF showed one of those phantom ‘spike downs’ at 2:30 in the afternoon ( it later disappeared).  If these really are predictive, this would also indicate that the markets could be set up to drop.

The USD dropped rapidly on Tuesday and I used this chart to show that in the past, a strong drop often was a 1 day event followed by a bounce.  Wednesday,  the USD did a little bounce higher just like these other times. The chart is currently inconclusive when it comes to bullishness or bearishness.

WTIC –  The Story with OIL , a step – by – step review.

OIL SHORTS were at record levels and I originally expected a Drop, and back test of that trend line break, and a resumption of the drop into an ICL. using this and other charts over a month ago. I wanted to go short at the ‘B’ back test.

After OIL rallied to that “B” point, I noticed that the XLE & ENERGY STOCKS actually looked to be recovering. They broke over the 50sma and also broke downtrend line & channel.  That said, I decided that I wouldn’t short Oil at the B point.  This was the XLE recovery on April 10, and we viewed it along with LPI, OAS, SWN, MRO,  WPX, etc etc .

Recently,  Those Energy stocks started to pull back again ( That is Normal), but when they broke back below the 50sma and started to look suspect, I mentioned concerns.  I then said that I was NOT looking to buy Energy stocks on this pull back, and it seemed like something was wrong.  When Energy stocks are leading the way lower and Oil was still at the highs, it was concerning.  I posted this CHART & COMMENT in yesterdays report…

So also in yesterdays report, OIL looked strong. The Energy stocks had dropped back below the 50sma, so maybe I should have shorted Oil at the ‘B’ point when XLE broke down?  This was Oil on Tuesday.

This is OIL on Wednesday, now following the Energy stocks.  So far, Oil actually did exactly what I originally thought it might.  It took so long to travel this path, that I had doubts.  So what I am saying is that this may now drop to a lower low and give is the real ICL.  I will be watching Energy stocks as this drop unfolds, because they may show signs of strength BEFORE oil bottoms, and the lows could be a great entry again, this time with a sustained move higher.

XLE – Leading the way lower,  we now see that the XLE broke to new lows Wednesday.  This may be indicating that OIL will do the same. We already see divergence at the lows in the MACD- that can be a good sign.

NATGAS –  NATGAS inventories are released on Thursday morning. I expected a drop to a DCL at the support area of the 50 & 200sma that are now joined together. Inventories may cause that drop, or they may cause a break out. That could become day 2 of a new daily cycle if it closed above the 10sma and that down trend line.  That is considered a low risk entry for the next ‘long Natgas’ trade.

GOLD & MINERS

GDX: GLD APRIL 17 – This was curling down, showing that MINERS were starting to sell off ahead of GOLD.  A cross down is a strong signal that selling has begun leading Miners into a dcl/Icl.

GDX: GOLD now with a simplified view  – Miners are selling off and broke down below the uptrend line.  Notice how this compares with the Feb sell off.  If the selling is similar, we have more of a drop left in the move.

GOLD –  This was GOLD on Monday.  I used this chart to show that Gold was due for a top ‘timing wise’ and possibly completing this measured move near the $1300 area.

This is Gold now 2 days later , and it looks like the drop may have started with a swing high now in place. Please read the chart.  What a strong rally in GOLD, but MINERS were strong out of the gate and weaker after a Feb peak.  So Gold could seek out a 3rd daily cycle low, and then have a 4th daily cycle low into an ICL as shown.

MINERS have been weaker than GOLD, and I have been shorting  GDXJ  at the 50sma.  It took an eternity for this trade in JDST to stop running from $12 .75 to $15+ and back, repeat, repeat, repeat.    Lets review some charts from prior reports.

GDX MONDAY APRIL 17th –  THE MEASURED MOVE COULD BE COMPLETE AT THE 200SMA

GDX WEDNESDAY –  Measured move was the TOP.   You can see that if this were to drop like it did in February, there could be plenty of downside left.   That trend line doesn’t have to stop it.

GDXJ MONDAY  – I mentioned that prior daily cycles had double tops and then dropped.  The timing was right and GDXJ was at that 50sma last Thursday & Friday.

YESTERDAYS REPORT–  These 2 charts pointed out that even though the USD dropped rapidly,  Gold went higher, and MINERS sold off.  TIMING was late in the daily cycle and we are due for a drop into a DCL.  Again, That measured move was pointed out in blue.  It was just a matter of TIME before GDX would sell down.

GDXJ –  I even showed what a drop may look like in GDXJ if it drops, bounces in a 4th daily cycle,  and then drops into an ICL later.

GDXJ –  GDXJ dropped yesterday.  Please look at the final days of the sell off in FEB into the lows.   You do see that it was Down 1 day, up 1 day, down 1 day, up 1 day, etc etc etc into March, right?  I have readers asking me if I think Miners will be down or up on Thursday & what about Friday?    Look at this chart and you can gain some insight as to how they can act heading into the lows.

So I would say that our sleepy markets, with the day after day sideways choppiness, are finally moving in the right direction. It could have just been the calm before the storm, and the selling can continue for days.  There may be bounces or reversal candles along the way, but it is not time to go long Miners when prices could be MUCH lower at the end of the 4th daily cycle low.   Please believe me, if we are dropping into an ICL, miners can drop like they’re falling off of a cliff, no matter how good they may have looked over the past couple of weeks.   These could break their Nov-Dec lows before the selling is completely finished.

The General Markets look precarious here with the DJIA and the XLF breaking below prior lows.  I’m watching to see how this plays out, but it still looks like it wants to drop.

OIL started selling off in a big way Wednesday, and we’ll have to see if it drops and takes out the lows like the Energy stocks  (XLE)  just did.    Energy stocks may start bottoming first in the near future,  for those looking for an entry point.

NATGAS  looks to be near its lows now and the inventory report at 10 a.m. today may push it one way or the other.

For those patiently waiting for an opportunity to go long Miners,  that time is approaching in the coming weeks after this sell off finishes up.  They always do very well after we get that ICL in place. You do not even need to catch THE LOWS to make a great profit, but we will enter at the lows or at least very close to those lows when it finally arrives.   For those still short the Miners,  they can bounce around and a dcl could also form and then it would be a week or two before the 4th daily cycle rolls over, so I’ll  be monitoring that area going forward too.   Enjoy your Thursday & Friday trading, and I will look to see if I can find a few short term trade ideas for active traders in a short Friday morning report.

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~ALEX