Feb 7th – Flush And Then A Fresh Start?

The recent flush down of the markets is viewed by some as alarming and even terrifying, but in a bull market,  it’s often just a necessary flush of excess bullishness and a re-set to a fresh start.  It takes time to see exactly how this will play out,  but let’s take a look at the recent flush down and discuss those  possibilities…

SPX #1 – After a strong reversal, the SPX had a large ‘sell on strength’.  My thoughts? We just might not get the V-Bottom that many expect.  This still may be our ‘Lows’ for now, and I will show you what I am thinking shortly.  This was a massive flush down compared to any other pullback on this chart.  Please read the chart.

 It is usually safer to buy a swing low, but waiting for a ‘confirmed swing low’  after such a drastic drop can cause you to buy a lot higher.  The 10sma is left at the top with this kind of a drop, so when we see  a strong reversal, in Technical Analysis,  you can buy it with a stop under the lows.   I wanted to discuss something here though.  I hear many expecting a “V-Bottom and off to blue skies” again, so I am going to show you similar times when that was not the case-  just to prepare everyone for possibilities.  You should be aware that this can V-Bottom or ‘W’ bottom too.

 .

SPX #2 – This is more of the V-Bottom and it is a way that many get left behind. Many are just too shook up to buy near the lows & find that a ‘short covering rally’ & ‘steady buying’ can rocket price higher. We could see that, but are many ‘too shook up to buy right now?’…

SPX #3 – If this was not an ICL,  I have seen this happen as more of a ‘w’ bottom. in fact, take a look at August last year for a smaller version.

SPX #4 –    For a ‘W’ – bottom, the next daily cycle rolls over and forms the ‘w’. Notice the RED BOX.   Also in the Blue box is a V-Bottom & sideways move that eventually back test of the 200sma. These are not things to worry about because we would be buying close enough to the lows, but they are things to know just in case this drops again.  Time will answer many questions, but you try to buy as close to the lows as possible and adjust as things come your way. V-Bottom would be rewarding,  ‘W’- bottom might be frustrating.

I had been discussing the possible parabolic blow off top.  Let’s look at this drop  with regard to a parabolic top.

NASDAQ BLOW OFF TOP – Do you see these drops in the choppy zone? Let’s zoom in, we may be seeing that now.

NASDAQ BLOW OFF TOP – Zoomed in we see the similarities, roughly a 10% drop and it was a ‘w’ bottom too, to eventually tag the 50sma.

QQQ 15 minute chart – People have been buying the reversal each day, but it keeps failing. Again, a  V-Bottom will be rewarding, a ‘W’ – bottom may get frustrating.  I mention this simply because if you are prepared for it, you can plan ahead better if we get a surprise drop. (Sell a weak bounce  vs ride a stronger v-bottom).

QQQ – Plus the QQQ’s are notorious for being a rougher ride after a drop. This may or may not be as easy as the buyers think.  Time will tell, but last year we saw choppiness. Look at the sharp drop in June. We saw new lows a month after that.

WTIC – Oil isn’t selling off the way the General Markets did, but the COT still calls for more downside.

The XLE, OIH, and XOP DID sell off like the general markets and reversed in a similar way too. It may be that Energy stocks have bottomed or are about to start bottoming, and will bounce around forming bases above the 200sma as Oil drops down further.

I HAVE BEEN SAYING THAT I FEEL THAT GOLD WILL MOVE HIGHER, AND THE USD HAS ANOTHER DAILY CYCLE LOWER.  THIS IS HOW I SEE WHY  THIS IDEA COULD PLAY OUT.  ONLY TIME WILL TELL

# 1  USD – The USD peaks L.T. by day 11 and rolls over again into the next dcl. That could allow GOLD to bottom in a dcl now & run higher.

#2 USD – THE USD has room to drop to support and put in an ICL down there and …

#3 EURO – The EURO would push a bit higher along with GOLD

#4 EURO – The EURO would then drop to its next dcl as the USD rises out of an ICL, and Gold would pull back too. We’d see a back test of this recent support area.

GOLD – So GOLD would have to put in a dcl soon when the USD tops as L.T.  ( if the above scenario plays out).  The USD can go higher for a couple more days, and also GOLD could run stops near $1300 ( or it could do this overnight too).

GOLD – $1300 is also the 50sma and the 50% retrace,  so it makes sense to me. It is not that far down, but Miners are already dropping quite a bit.

GDX – Miners have been dropping further than expected, this is why I recommended a ‘safer’  buy of a swing low, and not to ‘keep trying to catch a falling knife’ , as they say.   This is heading back to the ICL levels.  Have I ever seen this before?   Yes, rarely,  but it happened.

HUI 2004 – During the Bull run in 2000-2008, HUI dropped deeply while Gold was actually still climbing too. This actually was 2 months of frustration and then it took off to the highs.

 So you can see where we are right now.  It is difficult to recommend buying when most of my readers probably work all day during market hours and have been coming home to see this type of volatility.    That said, a strong reversal like we saw yesterday could have put in ‘the lows for now’, and it is usually a ‘buy’ in technical analysis with a stop under the recent lows.  Volatility may remain until we shake loose more bullishness.   Wouldn’t you say that EVERYONE was very excited to buy this dip, even the ones that are usually very fearful in a sell off were just jumping in day after day?   Has this dip changed sentiment?  Maybe, maybe not.  That said,  My mind wonders if this will be the v-bottom sling shot  lows that leave most behind?  Or as I have pointed out for you to see,  is everyone ‘back in’  and then we get that rough ride, the more frustrating ‘W’-bottom, to change sentiment.   That is just the way my mind thinks, and we won’t know for sure until days later, but either way it can be bought.   As I write this morning, the Dow Futures are down 200 points.

  It may take some time for the dust to settle,  so it is up to you to decide what you feel comfortable doing.  You do have choices in trading.  1. Start small, buying a dip here with a stop under recent lows?  2. Go in heavy and try to sell some on a bounce & ride the rest? 3.  Or waiting for the dust to settle, just to see how things level off, even if it means entering higher.  It does look like the temporary lows were put in yesterday with that strong reversal, so with Futures down, you may get a good pre-market entry in TQQQ, UPRO, etc. if you can handle volatility.  

  Shake ups like we are seeing are actually usually very good for setting up trade ideas.   I did see some promising looking charts finally shaping up in the commodities pull backa nd some semiconductor stocks, etc.  We were buying Metals stocks near the last consolidation lows in Steel, Copper, and Aluminum ,  and while some of these stocks did sell off with the markets recently, others held up nicely.    I want to show you some   examples at the end of the report.   Buying anything in this volatility can be tough, so waiting another day or two is an option that some may want to consider to sleep better at night. Short term active traders may be looking for some set ups to form, and this may be one area setting up.  Missing THE BOTTOM  does not mean missing THE entire %-Gainers if these markets continue higher,  but if they do continue to be volatile, you will sleep better watching for another day.  It is your choice.

   Enjoy your Wednesday trading and well see what Wednesday throws our way.  Thanks for being here…

~ALEX

GGB– This formed a very nice W cup, the handle may or may not be done, but it held support and could be at a low. That doesn’t mean that it won’t go sideweays for a while too however.

CLF #1– Taking a look at CLF, it got caught up in the sell off, but it is ugly or closer to a buy with prices on sale? It put in a nice reversal yesterday.

CLF #2– This could run from $6 to $9 again, and even higher with commodities looking bullish in the big picture.

CENX – I saw some pretty good looking reversals in VALE, HBM, CENX, SID, and more.  I think active traders may lok in this area for some short term or medium term trade set ups…

I will let another day go by and probably offer some ‘buy set ups’ if they remain in place after Wednesdays trade, but many of these may be worth a buy for the active traders in front of the screen.  I really liked the look of  SID, GGB, and a few others  short term & Long.  I just want to see how the markets trade today.  You should review this report a 2nd time if you have time, there is a lot to digest here, but you will be well informed.