May 24th – Drop like a …

Let’s do a little review and discuss a little about a drop that I am expecting.

SPX – There are times when you are expecting a pullback and suddenly you get a large 1 or 2 day slam. That can exhaust the move down, or ‘clean the plate’ of sellers for a while , so price starts to rise again. I was looking for bounce & an overhead gap fill, but we are also due for a dcl.  So will the drop resume or was that it?  It could have been a dcl.   Let’s look at prior moves out of such a slam…

NAZ –  You can see that after a quick slam like that, often we get a move higher that slows up and rolls sideways. We are still going to be due for an ICL soon, so this may continue higher and then roll over to the ICL as shown in prior reports…

This was a drop to an ICL as shown here back on May 12th for the SPX WEEKLY  bigger picture view.

USD  – The USD almost put in a swing low 4 days ago and also yesterday.  A move above 97.33 does put in an unconfirmed swing ( Possible ICL), and this could drop Gold.  ( Edit: Overnight I believe the USD hit 97.40+)

WTIC – Yes,  Oil has had a nice run higher, but you’ll notice that it did that in March / April and we still watched it completely fall apart.  Are energy stocks flying higher and running up at a 45 degree angle too, to encourage us that an OIL ICL is in place?  No, they are not.

OIH MAY 18 – On the Oil run in March  there was no strong buying follow through taking place, it tagged the 50sma. Notice that a break above the 20sma was been held down by the 50sma during the last rally into April.  The ICL was not in place for Oil, it was just the possible back test that I mentioned in March.

OIH MAY 23 –  OIH still hasn’t reached the 50sma with OILS strong run. I view this as a warning that OIL can still drop again, as I have mentioned before.

NATGAS –  The Pops in NATGAS have no continuation either.  I have mentioned the Bearish Smart money short position growing in the COT in the weekend report, so I no longer wanted to take my long natgas trade after a false break out.   The MACD jumped on the 1st pop, it didnt on the last pop.

GOLD – So far we see a peak on day 7 and normally I would call this a bull flag looking set up.  Bull flags can break higher or fail. Yes, this one may have peaked, but it also could break higher and then roll over too.  Please know that they usually peak on day 8-11, but it is not a rule.  Gold has been stronger than miners all through this intermediate cycle, right?  So if Gold peaked on day 13 and dropped to a 30 day daily cycle-  it would still be L.T.  If it peaked on day 15 and dropped to a 33 day daily cycle, that is L.T. too.  I wouldnt expect the last highs to be taken out though.

GDXJ #2 – So GDX & GDXJ dropped rather sharply, and people think that this is it,  it will now crash, but is that necessarily the case? Usually once they start dropping into the DCL/ICL,  they drop like a rock, but they can drop like a feather until that acceleration takes hold. The opening picture was to remind us of that.

GDXJ #2 – Do yoou see the sharp drop on March 28 in the first box?  I was short at that point, and had to wait over 2 more weeks as price floated higher. So when price ‘peaks’ you dont automatically get a crash. I know some have gone all in heavily short.  That may work out, it may be scary over the next week or tow-  I cannot tell you. I do think Miners likely peaked though.

SO that is a review and a few reminders that sometimes we drop like a rock, other times we drop like a feather. If you see precious metals prices ‘floating around’, this may help us to understand what is happening better.  As always, honor stops whether you are short or long.  Oils inventory report comes out this morning, we’ll see what Oil does from that point.  Many also took positions in the trade ideas that I have presented recently, so we’ll cover just a couple of them next. For everyone else, Enjoy your Midweek trading and thank you for being a chartfreak!

~ALEX

CLF –  I saw a GAP in late April and wondered if this selling was aiming at that area around $6, or would it hold above the gap. It was getting oversold here & on a weekly chart.

CLF MAY 17th – It finally filled that gap at the $6 area , and a descending wedge formed. I caught the break out as it rode the 10sma.

CLF MAY 19th – As a small flat base formed, I pointed this out, but also…

MAY 23 – The RED LINE is the 10sma and CLF has moved above it before on the sell off, only to fall back down.   Notice that it never closed above the 20sma Blue Line.  Now it is closing above the 20, and that gives me a bit more confidence.  Also other ‘metals’ stocks are starting to perk up , and that helps us to feel that maybe this sector will begin to bottom & recover  ( or just bounce?).

AKS – On May 17th  AKS was right at a low risk entry, because it was right at the low of a trendline at $5.47.

AKS –  And that was the low so far.  We saw a nice POP of 10% on Tuesday,  and many Steel stocks also responded , moving higher.   We just need more follow through. A move above that 50sma would be the 1st time in a long time, and that would be bullish. ( Some MIGHT choose to sell there, just in case we are still in a bottoming process? You can always get back in if we get the break out.).

I am viewing other metals stocks as shown here with CLF & AKS. I will likely have other ‘low risk buy set ups’ as they present themselves , if this sector continues to perform well. Just be aware of when ‘earnings’ are for the stocks you own. CLF & AKS reported in April.

HBM for example.  This could be a double bottom forming, but without a sign of strength I may not enter it , because it can just continue the ‘bottoming process’.  I have seen stocks like this in the past form more of a long boring rounding bottom with a gradual climb higher. With that in mind, I often just monitor the progress until I see some strength.