Monday, March 31, 2014

Mar 31. How To Trade Gold Today If You Have To.

It’s crucial for me as an independent trader to know when to be in the game and when to sit on the sidelines. Taking high-probability trades significantly increases my chances of survival while active trading in the market with low predictability threatens to bleed my account to death despite the proper risk management.
In my opinion, Gold is currently going through the period of low predictability. In July 2013 the Gold ETF (GLD) entered a consolidation phase (blue rectangle) and right now is in the centre of this consolidation. I could draw some charts and speculate what form this consolidation is going to take: a rectangle, triangle or inverse head-and-shoulders. The truth is it’s irrelevant and not necessary from the practical point of view. At this moment trying to predict the complete form of the ongoing correction in Gold and trade on this prediction gives no better odds than the tea leaves reading. The ADX (14) shows a lack of directional trend in the environment of low volatility. It is somewhat similar to the conditions that Gold traded in the first half of 2012.
The long horizon P&F chart gives a better visual representation of the ongoing consolidation process.
The current market conditions don’t favor directional trades in Gold. Experienced option traders may consider range bound directional neutral strategies (long butterflies, long condors).

Wednesday, March 12, 2014

Mar 12. SLW Is Setting Up For Higher Prices.

Silver Wheaton Corporation (SLW) - a silver and gold streaming company has completed forming an interim rounded bottom and is consolidating in a nice bull flag pattern just above the 24-24.5 strong support level. Decreased volume indicates that the market participants took a pause after February’s strong run. The recent volume spike (red arrow) when price tested the EMA (20) and bounced back confirms the validity of the EMA (20) as dynamic rising support during the current short-term uptrend. Note that SLW is outperforming Silver and Gold (upper panes) and any sustained strength in precious metals should trigger an upside breakout from the bull flag.
The horizontal count from the interim fulcrum bottom on the short horizon P&F chart projects the potential target at 29.5 which coincides with the next resistance level.
Disclosure: I am long SLW calls.

Sunday, March 2, 2014

Mar 02. Oil: Double Bottom Pattern Is Complete.

After forming a four-month interim double bottom the Oil ETF (USO) broke up through the neckline in the middle of February and has been consolidating since then in a small pennant - usually a continuation pattern. A measured move calculation gives us a potential target at ~39.5, the level of the past year highs.
Two horizontal counts from the fulcrum bottom on the short horizon S&P chart point to the same area (38.5 and 39.9). High volume on the last two upward breakout columns indicates that demand is strong. Right now the price is battling against the minor resistance at 36.75.
Also, pay attention that WTI Crude Oil has entered its seasonally strong period (chart from equityclock.com).

Sunday, February 23, 2014

Feb 23. XOP: Should We Expect The Upside Breakout?

The underlying strength in the Energy sector and the Exploration & Production industry in particular has caught my attention recently. The Oil & Gas Exploration & Production ETF (XOP) after hitting its all-time high in October 2013 retraced to the major support level at 64. Over the last three months XOP has been consolidating within a rectangle pattern (light blue) just above the major support. The rising trendline from the bottom in October 2011 provided the additional support and the price reached to the upper limits of the consolidation pattern. Note that XOP started to outperform the Energy Sector ETF (XLE) (upper pane).
The intermediate horizon P&F chart shows that a breakout from the 64-69 congestion area would trigger a buy signal (lime box) at 70 and establish a new horizontal count with the potential target at 81.2. It would be in close proximity to the horizontal count target from the bottom of 2012 at 82.6. Keep in mind that the 82 level is an intermediate-term target and may be months away. I would keep my eye on the recent highs at 73 first.
The seasonality chart courtesy of equityclock.com shows that the Exploration & Production industry enters the most favorable period in March-April and we might expect the upside breakout from the three-month consolidation on the XOP chart.

Monday, February 17, 2014

Feb 17. Silver Has Started To Outperform Gold.

After spending two and a half months forming a rectangle consolidation (light blue) the Silver ETF (SLV) has followed Gold and broken to the upside on twice its average volume. Friday’s breakaway gap and close above the strong resistance area at 20-20.5 validates the short-term trend reversal. The Average Directional Index (20) has turned up from below 10 confirming that a sideways trend is likely over (bottom pane). Note that SLV has started to outperform the Gold ETF (GLD) promising a better bang for the buck (top pane).
The short horizon P&F chart confirms the short-term trend reversal as well showing the completed interim fulcrum bottom with a buy signal (lime box) above the Bearish Resistance line. Two horizontal counts from this bottom project potential price targets at 24.3 and 25.5 with the next meaningful resistance at 22.2.

Saturday, February 8, 2014

Feb 08. Gold: Sharp Move Is Imminent.

Since my last update the Gold ETF (GLD) has broken from the Raff Regression Channel to the upside but is still continuing to battle against the resistance at 122. The volatility, meanwhile, collapsed to the level not seen from the last February (lower pane). It foreshadows a strong directional move. Though it is impossible to say in which direction this move will occur, the momentum (higher pane) and the upside volume (short horizon P&F chart below) favor the upside breakout.
If GLD clears the 122 resistance level, it will open a way to the next resistance at 131-132.

Sunday, February 2, 2014

Feb 02. US Dollar: Ascending Triangle Forming.

The US Dollar Index has been oscillating between support at 79.2 and resistance at 81.6 since October 2013. The forming consolidation pattern looks like an Upside Triangle on the intermediate horizon P&F chart.
An Upside Triangle is even more defined on the US Dollar Index ETF (UUP) intermediate horizon P&F chart. An Upside Triangle is considered being a pattern with bullish implications because of the up-sloping bottom line reflecting increasing demand. It’s not a safe bet, however, so it’s wise to wait for a decisive breakout. If a breakout from the pattern occurs to the upside, the intermediate downtrend will be reversed and the US Dollar Index will have potential to test its July’s highs again.