Aug 1 – Who Liked The 1/4 Point Rate Cut?
Well, we’ll need a little more time to see how the markets play out for the rest of the week, but it certainly looked short term bearish in the initial reaction. Let’s look at the charts to see whether the initial move could be a fake out or a warning sign of something bigger?
**One stand out feature with the Miners July Fed Meeting is that it was not received as well as past Fed Mtgs in May & June. We know that that can be a 1 day knee jerk reaction, but it can also be the start of choppiness and selling down into a dcl, since we are on day 20+. Miners have had a good run and a consolidation will not hurt their longer term bullishness, but my gut feeling is that this may be the start of some sideways chop until we get a dcl. YOU PERSONALLY may be more comfortable lightening up until we get the next dcl. Others may just ride things out. I will discuss this at the end of the report…
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NASDAQ – I wrote this 2 days ago & re-posted in yesterdays report. It says that a dcl may not actually be in place yet
NAZ – As I continue to watch the General Markets chug along higher, The MACD went flat (Diverging ) as price reaches new highs and this really looks like a bearish rising wedge, so that leads me to think a couple of things.
1. We may not have that dcl yet, stops need to be under that recent swing low, and
2. That DCL could come near the 50sma like I originally thought. Therefore,
3. These markets may drop after the Fed. The MACD died.
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NASDAQ – The NASDAQ broke down out of that wedge, but it did manage to put in a reversal candle at the close. That may or may not hold up Thursday & Friday, we’ll need more time here. As mentioned recently, all the prior dips were higher lows, and not likely a dcl, but now we have a lower low that reversed higher into the close. That would make this day 41, and that is deep enough in time that a dcl can appear any day now.
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WTIC – Oil held up after the Inventory report.
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XOP – XOP tagged resistance and may need time to break out if it is recovering. It remains oversold and has a bullish MACD set up so far.
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LPI – SOME Oil/Energy stocks had follow through, while others did not.
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DNR – So some of these may still be considered a buying opportunity and the lows would be your stop. This remains very oversold and the MACD is quite divergent.
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USD – The USD surged strongly higher to new highs with the 1/4 rate cut, and Gold sold off. The USD looks like it can run higher to the blue trend line, so that should push Gold lower ( Maybe into a dcl?)
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I want to start just by saying obviously I don’t like what I saw yesterday in the Precious metals. The selling in some areas seemed a bit too drastic without bouncing into the close. The hard part is that, as you’ll see, in the past we’ve had 1 day reactions like that that recovered, but other times it just started the drop into the dcl. Add to that that Gold is still in that Triangle, and Triangle consolidations are always tricky, and Silver is not in sync with Gold , as You’ll see. We had only 2 hrs of post fed trading, so we’ll need to see how this plays out over the next couple of days. I sold 1/2 of my leverage (stopped out) and wanted to buy back lower, but I did not re-enter yet.
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GOLD – On this chart, I noticed a similarity in a prior mini triangle consolidation. It also broke down, paused, & then reversed higher quickly as a shake out. Gold could do a shake out here as a dcl.
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LIVE GOLD at 5 a.m. Pre Market today – Drawing the lines along the wicks of Golds Price – we still see a large triangle consolidation.
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SILVER – On day 19, Silver has had a different cycle count than Gold, and it looks as though it may only be a mid cycle dip and could continue higher, or…
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SILVER – With Silver being so early in a daily count, Silver could take off higher or just draw up a handle as shown here. THIS is what I mean by ‘a consolidation period leading into a dcl may be starting‘. It is not clear with the 1 day Fed Drop how this will play out short term. Can you ride this kind of chop? Or is it best for you to lighten up a bit?
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GDXJ – I was away for most of the morning, and when I got back before the Fed Mtg, GDX & GDXJ had dropped & recovered, but the Fed was still ahead. The 13 sma was broken at $38.61, but price recovered. I was stopped out of some leverage, and thought that I would buy back if the FED pushed this back to the lows and it reversed higher again, or if just jump back in if it broke out for another run, but…
GDXJ – GDXJ just sold off and kept dropping on very high volume drop, so I did not add leverage again. This could start the search for a dcl. GDXJ stopped at the 20 sma and closed there, but GDX Cut through its 20 & closed below it. That can be the start of a sell off to dcl like I drew with Silver. Interestingly, the last few high volume drops did not have follow through.
GDXJ -GDXJ is on the trend line support & 20sma. I’d like to see a bounce here.
I wanted to look for high volume drops in 2016 too…
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GDXJ – Notice that most did not have very much follow through selling, it got choppy & sideways often. Later on, the High volume drop in May did drop further to the 50sma.
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GDXJ 2016 zoomed in – Very very sideways & choppy, not an easy ride real time, so we should expect that we may see something similar here too.
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Individual Miners handled it differently. Some do not look as pretty as they did Pre-Fed…
MAG -MAG was a very bullish looking set up, and now the ‘cup & handle ‘ set up looks damaged by that drop. It still may hold the 50sma & chop around, it may even reverse higher, but for now this went from pretty to damaged looking.
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KL – From very bullish Pre-Fed to damaged goods? It looks like this healthy looking run was hit after earnings & the Fed didn’t help, so we are seeing warning shots on some of these bullish set ups. I want to see how it reacts now that it is back at the 50sma. It can chop around as support, or it can slice through & go even lower.
AU – Some stocks that formed a bull flag actually saw weakening indicators on their new highs ( GDX & GDXJ did not show this much divergence). So this selling may continue, possibly bouncing around the 50sma for a while (dcl).
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As I stated above:
**One stand out feature with the Miners July Fed Meeting is that it was not received as well as past Fed Mtgs in May & June. We know that that can be a 1 day knee jerk reaction, but it can also be the start of choppiness and selling down into a dcl, since we are on day 20+. Miners have had a good run and a consolidation will not hurt their longer term bullishness, but my gut feeling is that this may be the start of some sideways chop and not a quick move higher. It will take time to know for sure, but a DCL is coming due soon, so let’s look into this a bit more-
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Conclusion for Miners: Right now I don’t like the way several leading stocks like AU, RGLD, GOLD (Barrick), etc went quickly from very healthy looking to somewhat short term ‘broken’. I see a difference in the selling yesterday, so I’ll briefly explain what I mean by that, and we can watch this going forward. it also might mean lightening up, locking in some gains, etc. We’ll take a look at RGLD, which I think looks even better than Barrick Gold, MAG, KL, etc…
RGLD #1 – This was a beautiful run with hardly any multi-day pull backs. Now suddenly it drops sharply and closes under the 13 sma. THIS CATCHES MY ATTENTION AS A CHANGE IN ITs CHARACTER, and especially so when it happens to more than 1 or 2 stocks in the sector. It’s not the end of the bullishness longer term, but it may signal the end of the steep rise for now, and entering consolidation and sideways chop.
RGLD #2 – So I start to think about what a drop could lead to and draw up FIB Numbers. You can see that the pull back can be deep and yet still be a bullish set up. Notice that the 50sma and the 50% retrace are the same, and they are a bit of a deep drop from here. That doesn’t have to happen though…
RGLD #3 – The 50sma is rising, and can rise to the 38%, which is where a normal drop could take place during a dcl pull back in a bull Run. So if we saw this, it would be a normal pull back / consolidation in a Bull Run, but in real time, it may feel like losses are adding up in the account. That is how Bull Runs always feel.
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By now we all know that Bull runs in AAPL, GOOG, NVDA, FB, ETC all have had this type of chop. I have shown charts of that in several past reports. Many see how AAAPL runs from $60 to $250 and they wish they got in & just rode it higher, but it is not that easy in real time. That is where Miners come in now. How you play it or ride it out is up to you, but longer term it still should be a Bull Run.
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So with the Fed Cut, we suddenly saw our steep bullish run drop sharply in many Miners. When they drop in a way that changes the character of the run, we need to start to prepare for any changes that may be developing. It may be the ‘Sell The News’ event where price is already figured in, and now price will need to ‘consolidate’. That can lead to choppier trading in Miners and an eventual drop to a dcl.
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Is this a 1 day fed event, designed to knock the Bulls off before 1 more quick sprint higher? Maybe. Gold is still in that Triangle, so it could be, but my point is that I did see a change of character in several Miners. Some were hardly dipping down( RGLD, KL, ETC) , and now we saw a large down day. That changes the character of their run. As a trader, for you that could mean
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1. lightening up to comfortably ride things out until the next dcl comes?
2. Adding a bit of a hedge to lighten the effects of any dips?
3. Stay invested and ride it out to the next dcl and see what the next daily cycle brings?
4. Sell partial positions ( 1/4? 1/2?) to lighten up , knowing that a dcl is coming due.
5. Then you could decide if you want to add those positions back at the dcl.
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The choice is yours, but know that riding it out fully invested to a dcl may get uncomfortable. A rally should follow and we’ll decide then when to sell or ride it further. I sold ( or got stopped out ) of most of my leverage as GDXJ broke the 13 sma and bounced. If we bounce I may release the rest, unless this is a dcl forming in this area. GOLD is still in a triangle and that makes this very very difficult. Add to that the fact that SILVER is still not in sync with Gold, which can also affect Miners.
We have only seen 2 hrs of trading since the Fed Cut & Speech, so there are no definite answers until we see how this plays out further. Time is needed to see add some clues to what is now a bit more puzzling, but longer term, this should still be a Bull Market breaking out from their bases. That almost always leads to a trending move higher unless they break back down into that base.
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Let’s see what Thursdays trading brings to the table, and we may get a better feel for what is going to happen between now and the coming dcl. Enjoy your Thursday trading.
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~ALEX
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