The Hardest Part

According to Tom Petty,  “The waiting is the hardest part”.   I do believe he’s right, but at times it is the safest thing to do.  For example, did you see the futures yesterday in the morning? The Dow was set to open up hundreds of points higher and in fact, most of the day the Dow was up 300+ points. We were putting in a very nice bounce and suddenly going into the close the Dow sold off and closed down 2o4 points.  The S&P and NASDAQ did the same thing.  Lets take a look.

DJIA – Both Monday and Tuesday if traders entered the markets during the rally, they were stopped out or seeing red by the close.  Today the Futures are up big again. 

 The markets are very oversold.  I expect a bounce up to the major moving averages, but that may actually be a shorting opportunity. Now If you look at the Dow this way, you can see that several  more days like we just saw and you could make the case for the formation of a bear flag, wearing off oversold conditions.

SPX–  The SPX was the same story. Futures were up strongly in the morning, people were jumping in to catch the “Snap back rally”,  and then it sold off for a second day in a row.  The S&P 500 range was 1948 to the close of 1867 . 81 points!

Trading is fast and furious and  until these markets settle down a bit,  the waiting may be the best part for most.  Patience.

USD – As expected, we are getting our bounce in the dollar, which will likely bring about our drop in Gold. I do not expect this to be a strong , long lasting rally.

WTIC– speaking of waiting! Oil sold off very hard from $100+ to $43.58. After a nice rally, it resumed its sell off. $33.55 is an area of interest, and there is a lot of support in that area from 200-2004 as seen here.

  Is oil reversing here?  Again, maybe waiting is the hardest part,  but to be safe, wait for OIL to close over the 10sma before taking a long position. I personally know some that bought the reversal at the end of July .  Not honoring or using stops, they are hurting for now. That was a false reversal.

 GOLD, SILVER, & MINERS

GOLD – Quick review. As of Friday we hit resistance and the dollar was bottoming. Expect selling to start.

GOLD reversal Monday , but we got a higher high, so we have a high on day 21 cycle-wise. This is Bullish and we expect a higher high after this correction. 3 basic targets.

Gold as of Tuesdays close.  I want to see a break of the 10sma and a trend line break. This is what is expected at a Daily Cycle low  (DCL). Then we look for a reversal higher and a swing low recovering that 10sma.

Gold here is showing were some support to the left is possible.

In yesterdays report, I went over miners pretty extensively. If you are new here, please read over some of the past reports when you have time to get a better idea of what we are looking at and expecting going forward.

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At times, Miners will have a steady short covering rally coming up out of their lows. There is more of a move sideways move as they seek out there daily cycle low. If you sell out at that time, it can be impossible to find another good entry, so sometimes I try to hold my positions from the ICL  (Deep lows at the bottom) to the top of the 2nd daily cycle.  This occurred in May 2014.  Notice that if you sold your positions, it would have been very hard to re-enter. 

Other times, The pullback can feel harsh,  especially if you are leveraged.  Miners can pullback 50% , 61.8%  or more, even returning all the way back to their lows. The 2nd daily cycle is usually a strong rally and makes up for these pullbacks, but it is very hard to mentally accept that miners are doing this with Gold holding up.

  We are experiencing a rather quick sharp drop off now in Miners.  🙁

As pointed out in yesterdays report,  we have seen this before, even at the very meaningful lows of 2008. After the first daily cycles rally, price dipped down twice toward the lows before moving up higher.

The big question is, “Will miners keep selling off with Gold seeking its DCL,  maybe even doing a stop run to new lows?  Or will miners start bottoming?” Time will tell.

Sidenote : There is one problem with ‘waiting’ in certain situations.  

I have had people email me that they dont dare to buy when I recommend it at the ICL lows. Understandable.   They have their own systems that tell them when it is ‘safe’.  These systems may even wait for price to get above the 50sma. Also there are some that bought this all the way down at the recommendation of other letter writers.  What if you bought miners only after they got above their 50sma and other signals fired off, and you are still holding on?  That could be painful.  Buying at the lows, rallying higher, and holding back down to the lows is painful in its own way.  Buying above the 50sma was buying at the highs. Riding that down is not good.  What to do?

If this plays out as expected,  we should be rallying back to new highs, so your positions should be in the green in a week or so.   In the future, if you’re buying late in the daily cycle, stops are your safety net.   Yes, I had mentioned riding out the entire first & second daily cycle as a profitable trade, but that is best when buying at the lows and lightening up on leverage 1/2 way through the cycle.   It doesn’t always work out well if you mix your buy points at higher levels ( Above the 50sma) and do not use stops.   In that scenario, you need to honor stops because as we’ve seen, these sell offs into a dcl can be deeper than expected.   Remember that protecting funds is important and you can always get back in, there is always another trade.  I buy right around the lows, so riding it back down is breaking even or giving up gains. My stop is below my buy points. That is how they should be.

SO we are waiting for a DCL in precious metals, and Energy is really starting to look like it is going to offer some nice trades too. Some of the energy stocks are bouncing here and there , and they are doing it at 15-25% pops.  I saw 25% 1 day pops  in WG, GDP, and quite a few others, but there was no follow through.  They sold off shortly after, so Waiting is a good idea there too.   SDRL had positive earnings release – watch that today and see if it POPS.   I will be looking for good set ups in both Metals and Energy in the upcoming days. For now- I am trying to be patient as Gold looks to be seeking out its daily cycle low.   Gold & Silver are selling off pretty good here this morning, Silver has broken down  to fresh new lows.  We’ll have to see if Miners can start finding a bottom early or will they just keep dropping down with the Metals.

~ALEX