Can We Buy The Dips?

Yesterdays report mentioning Anti-Gravity stocks was just the right thing to start the corrections  🙂   In Energy stocks I think we were getting a bit spoiled with 70 & 80 % gains in a single trade,  but not so spoiled with giving back 20 – 25% today in BAS, LGCY, ARP, etc.  Commodities are pulling back and Miners may start joining them.  Will we be buying this dip?  Lets take a look.

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SPX – My chart from yesterday. I had called for a rally , but now calling for caution. 

SPX – And we did start a little selling Tuesday. We can go higher since we are still inside of that wedge, but eventually I expect a drop to at least the 50sma.

 

And my longer term view is still playing out .  We’ll need time to see if the markets can ‘recover” –  Or is this just a death bounce?  Overbought Stochastics.

I did have big write up in a December weekend report showing that high yield bonds were calling for the markets to drop. They were crashing and I said that that was not good for our markets.  The markets sold off for all of January in one of the worst January’s on record. 

NOW…The high yield bonds are almost recovering.  They are at least putting on a good show,  so there are things to monitor as we move forward.

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THE OIL / ENERGY REPORT COMES OUT THIS MORNING

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WTIC –  Oil took a break today and some of our oil stocks got taken down. I can picture oil just going sideways here ( resistance on the left) and forming an inverse H&S, but lets just see how this goes. Oil has LONG DAILY CYCLE COUNTS.  We’re at day 17, these can go on for 30-40 days . The report may even move Oil Higher

 

XLE – The XLE approaches an important resistance area,  the 200sma.

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GOLD –  Still grinding higher, but divergence is notable. Its hard to predict a pullback target if you cant be sure that the top is in, and  Gold hit $1279 today. Looking at this chart, a pullback to back test this break out around $1160 ish would be possible. 

GOLD –  If Gold topped today, I’d look at it something like this. It also drops us to the $1160ish area at the 50% retrace. 38.2% is possible too, testing the break out.

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I had to clip the headlines stream on Yahoo today.  The top one and the bottom one are at odds  🙂

 

SILVER –  Silver is weak at this point. ( Red Arrows)

GDX –  This has been a very strong run.  Miners usually drop fast in a panic when Gold wiggles, yet it has basically held the 8 ema for well over a month.  Strong.

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LETS TALK ABOUT PULLBACKS

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I have been discussing regularly   “Take some off the table, and let some ride” , because pull backs can come at any time. It’s good to lock in some gains when they are there.  Pullbacks in an uptrend can be a 1 or 2 day events , dropping price down to a moving average like the 8 ema, as seen on the GDX chart below. They also can become longer affairs (I will explain).

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GDX – I do see signs of a bigger pullback coming.  This could become a great buying opportunity in Miners, but I do need to point something out.  Some may think , “ If GDX is going to drop to the 50% line,  I’ll be loading up on Friday!”  Yes, it could drop there in days, but…

XAU – Look at that first run up from July lows to Sept . That also pulled back 50%….AND IT TOOK MONTHS.   Lets zoom in…

 

XAU ZOOMED IN–  Lets imagine that the move then is the move that we just rode from Jan lows. When would the next lows come in at 50%?  It ran straight up for weeks,  peaked in 2 months, and  pulled back sideways / down for 3  months ( June).  Wow.   So sometimes patience is the key.

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 So it takes time to watch things unfold.  The above pull back in XAU didn’t totally break down, so you could have bought it & held, but you’d be sick from the roller coaster ride.  Again, sometimes a pullback is only a week or 2,  sometimes a month or more.   We’ll keep an eye on things.

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Lets discuss these pull backs a bit more. I’ll switch to commodities.I already showed how VALE could pull back in 3 different ways in yesterdays report.  I did that to show how we need to allow time to give us clues when to buy, or you can just sacle in if you are certain of the bullish trend starting.

Lets look at X –  This is odd, I got a candle for today already?  🙂 The red candle is Tuesday. Even though X was strong and we would think that the 38% would be it for a pull back, sometimes they drop to ‘test’ the break out.That would be 61.8%.

X – IT could look like this and be totally normal.

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VALE again– Somehow I sold 1/2 of my position near the top above $4.50, and then sold the rest near the top Monday .  THAT doesn’t happen often. I do want to own VALE longer term if commodities bottomed, the potential is great. I dont mind scaling back in. I do think that support at $3.50 is a logical place for this to land.  Notice that the last 2 pull backs in Feb ( Blue arrows) took maybe 5 days, this may take 5 or more days too.

I also posted this March 4th chart in Mondays report. Just a Flag.  I would just buy the dips on that with a stop right below.

But over all, this is what looks important to me. This actually could drop to $3 and test the break out, but doesn’t have to.  That is why I might scale in,  buying a little on each dip near Fib Levels.

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Those commodity stocks & Miners ran for weeks-  so they could pull back for days and weeks.  The ENERGY stocks that we’ve looked at JUST STARTED to run , just starting to break from bases.  The pull backs may be short and scary, but also may not need to last too long.  We’ll have to wait and see.

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LGCY – The 50sma has been important as resistance.  Will it act as support? This is the big picture.

LGCY –  There is a gap.  If we drift down into the gap and reverse back over the 50sma, THAT is a buy in my opinion.   It may just hold up here.  I bought this Friday before the break out and added Monday –  ( I rode it up & down, still own it).

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ARP – I pointed this break out on Monday.  It was at 83 cents and I had mentioned that I bought it. Volume at 10 a.m. Eastern time was huge already.

 

ARP –   ARP  had a 70% POP on Monday and a 18% drop Tuesday.  This could be a 1 day pull back that looks normal, but when you own it?  It only feels like a 20% drop  that could keep going, right?  

This is still a bullish set up, the drop was on 1/2 the volume as the pop. 

 

SO for now I just want to say that Miners and Commodities have been running from January through March.  They ‘MIGHT’ need a bit more of a pull back.  I’m looking to add on the pull back, but I need to watch it unfold first and see if there is any indication as to what kind of a pull back we will get. 

As for ENERGY  ( The OIL & ENERGY REPORT IS RELEASED THIS MORNING) , These POPS out of their bases could just be the start of some nice runs if conditions remain favorable.  Why not look back at MINERS and COMMODITIES to see their early pops, since we know how they eventually ran.  

ABX WKLY-  Please note that It POPPED from its base on the 1st week of JAN.  Did it go straight up day after day?  You can see that it immediately pulled back the next week & THEN popped again and started the run near the end of January.

ABX DAILY – Here we see the pop in early Jan / the immediate drop for 5 days/ and then a straight up run started.  Our Energy stocks may be in a similar time frame.  Its a time of accumulation.

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Look again at VALE-  Was the POP from the base an automatic run higher? Lets pretend that this is our energy stock.  The yellow box is the initial base.  That is where I like to buy to ride out the wiggles.

SO that is just to refresh our minds on the idea that pull backs are tricky and by design, they shake out new entries. I like to enter near the lows, because downside risk is defined risk / reward wise.  Many of my energy picks popped 50 – 80 % in a day- they could have been sold that day,  but I like to catch the lows,  Maybe sell a little on the pop or a run higher,  and ride out the wiggles, unless I see something more concerning. 

The OIL report this am might cause Oil to drop or Pop. If you hold Energy, The above charts are to help guide you.  You can also use the first hr of trading to lighten up if the bottom action is not for you.   Someone that missed the pop in energy might even add after looking at those bases above.   I think we are putting in lows, but as you know and we saw with the miners and Commodities –  lows are tricky.  Look again above at the commodity / miners stocks at their lows.  Look again at Miners when they were in their bases.  Many missed the move after it started higher because the move got explosive and only had 1 day pull backs.   Traders were afraid to jump in as it went higher.  If you see ENERGY stocks breaking from bases and bouncing around,  it may be time to buy the dips.  I will keep an eye on things as the days go by, but I still like the set up in Energy / Oil stocks.  I hope this detailed report on Pullbacks can act as a guide for you.

 

~ALEX

 

P.S.  If a report like todays helps you with pull backs, etc,  why not right down the date or title of the report in a notebook and look it up again later for reference?  🙂