A Good Hand

Have you ever heard the expression , “You have to play the hand you’re dealt.” ?  Well, that term is usually used when you are dealt a bad set of circumstances in life.  You need to do the best you can with what you have in front of you.  In the markets you can choose to sit this one out, use whats in front of you, and so on.  The choice is yours.  Right now we have been dealt a pretty good hand,  but tomorrow we’ll be playing against the Fed.  🙁    Thats not always a  bad thing, but we should also try to  think in terms of what could beat our hand and prepare accordingly. We will discuss that further in this report.  Lets discuss the charts right now.

We are seeing a variety of things in the markets.

First we see that the SPX landed on the 200sma. Futures as I write look ready to give the markets a good bounce.

Remember my bigger picture view posted in the weekend report looked like this…

Now take a  look at the weakness in the DJIA. Breaking down below its 200sma again.

I pointed out how the SEMI’s broke below their trendline  ( And the 200 sma)  in early July

SOX – Below the 200sma and showing divergence , the SOX Looks ready to bounce too.  I have to wonder if these markets arent telling us something. Are they showing us a weak hand?

 NASDAQ  or QQQ – This is the  stronger one apparently.   On July 20  I said I expected the NASDAQ  to back test its recent break out . We could also watch the 50sma.

The NASDAQ has been the one holding up the best,  but if they all start breaking down , do you think the NASDAQ will continue higher?  Or is the NASDAQ ‘bluffing’ with us . The back test & tag of the 50sma may be complete, for now.

This was my long term NASDAQ from the weekend report. A bearish rising wedge break down. You can see that the 5250 area  is still possible and this chart would remain valid.

It looks as though the markets could be topping.  October is known for its beat downs in the market, but I dont know if this will last that long.  The ‘SOXS’ has already been a good long trade  (That is ‘short the SOX’) . We may discuss shorting or buying  TZA, SDS, etc as time goes on.

SSEC –  trouble was brewing overseas.  It may double bottom at support,  but I wanted to draw a worst case scenario too.  The bounce got to overbought conditions. 

$USD – the dollar looks like it could bounce.  This would hinder GOLD, wouldnt it?  It also looks to be starting a new daily cycle.  If that is the case,  this may now run to 100 again.  More on that later.

WTIC –  Very oversold and overdone on the RSI 14- Is oil going to bounce? It has been weak.

$NATGAS –  went from Bullish  to “Neutral’ in my weekend report.

This is why it went neutral-  rejected at resistance.

GOLD SILVER &  MINERS

Here is where the card game gets serious. We are playing a hand that we were dealt that looks very likely to be an ICL.  The problem is, we are playing against the FED.  Tomorrow is FED WEDNESDAY so what can I say??  We have seen this show down before.  We need to Stay Frosty my friends.  You have to ask yourself ,  “ Will the dollar break out toward the 100 area?”   “If so , will GOLD slam down to below $1000 in a 4th daily cycle like last Oct?”  “Can the Dollar and Gold  both rise , since they both fell together recently?”

Well,  GOLD & MINERS  have almost all of the Hallmarks of an ICL.   That is the hand we’ve been dealt and it looks like 4 aces , how can we not use that?   For precious metals….Sentiment is trashed and Gold sold off as long as 34 days  , the C.O.T. is Bullish , the sell off was extreme , $BPGDX is ZERO, etc etc.  Lets examine our hand and look at what we have.  I am long Miners at this point.

GOLD –  I took this snapshot , because Gold looks similar to the MARCH lows, with that Long Candle and then a few days lingering at the lows.

SILVER – absolutely normal so far, right?  But needs a burst higher.  WILL the FED push this higher or drop the bomb on it?

GDX –  If Fridays reversal  was the low ,  I am asked , “Why did Miners drop Monday?  This is not normal,  this should not happen.  It is weak.” 

I say to that person ,  ” I wish it just took off upside too, but you cant look at charts and say that it isn’t normal.”  And I already pointed this out to prepare us for that type of action.

GDX 2008,  The Final Lows had a reversal and then a drop on day 2.  Day 3 even went lower, and reversed into the close.

GDX 2014 –  at the lows for days.  

I show people charts of the lows above and they say,  ” I would have easily bought that . No problem!”   The fact of the matter is, in real time, you have to wait day by day to see if it plays out as expected and it gets edgy.  Each day is an eternity , each day has concerns of its own.   Its best to use a stop and go out and play – enjoy a nice summer day

Now we have the FED WEDNESDAY tomorrow.  DO I even need to write a report tomorrow? Anything can happen and there is not much I can say.  Tomorrows report will be a brief overview of todays action,  but the FED can change things with a word ,  even if they are bluffing.  If she ever mentions that they think that inflation is higher than expected , Gold would probably blast off.   Many think a “Rate Hike” would kill Gold,  I think the market will surprise many in that area too.

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  For now, I have taken positions  because we have been dealt Aces with this set up.  This is a very rare set up in Miners.  Only in June 2013 and Nov 2014 has this steep of a break down occurred. Huge capitulation volume.  Notice that November prices  broke down below my borders 2x  quickly?  This was my July 20 chart and we have since broken down the same . 

This is GDXJ – Friday was our second break down and reversal.  THAT is my stop. Notice that each prior low ( Blue Arrow) has a drop shortly after like we saw yesterday ( red arrow)

This is my GDX  ‘Aces’ set up currently.  We remain outside the border !    CAN we get a sustained sell off from these extremes?  I cant see it.  This is extreme.  Never say Never , right?  Maybe  the FED could squeeze 1 more slam?  I never say never,  but this is only once in great while that you will see this set up.  Any sell off in Miners would have to snap back quickly in my opinion.

Thats all I can say.  Trying to buy at or near the lows is  NOT EASY.  I have been able to do it for years, so I know what this feels like.   Having the FED Speak tomorrow could be too much for some to hold through.  You know how the markets swing at 2 p.m., then 2:40 , then into the close and even Thursday morning.   KNOW WHO YOU ARE AS A TRADER.    Get out if you cant take the heat and then get back in after the dust settles.  It’s that easy.  I will not be available to answer emails during that time.  I am focused on this set up right now,  I view it as extremely rare.  Honor your stops in an area below Fridays reversal lows that is comfortable to you.    Those lows really shouldn’t get taken out.   If we get stopped out we will reassess the situation and go from there.  I still expect a summer rally soon. 🙂

~ALEX