Thursday, February 05, 2015

Rally Attempt In Trouble As Countless Major Red Flags Litter The Market

On the surface it could be said that the market appears bullish. Considering all the bad geopolitical news that keeps worsening with every news report, the market has barely budged to the downside and is sitting in a fairly tight range. But that is where all the good news ends.

Over almost the last two months, volume has been running well above average almost daily. The majority of those above average days have been distribution days. The few accumulation days that the market has mustered, volume never traded higher then the major distribution days, and over that time, the Nasdaq and SP 500 have registered 12 and 10 distribution days, respectively, verses four accumulation days, that were immediately undercut over the next few days.

The VIX, a measure of day to day volatility, has not fallen back as much as it did during the last few rally attempts, showing nervousness continues growing even as the market seems to hold up. Intra day volatility is completely out of control with the market ranging over 1 - 2% on many days. Not the type of action typically witnessed during strong rallies, and more indicative of growing uncertainty that generally precedes major corrections or bear markets.

Leading growth stocks are behaving poorly. Major market leaders, Chipotle Mexican Grill (CMG) and Gilead Sciences (GILD), are breaking down or falling apart, and Apple (AAPL), Biogen Idec (BIIB), and Facebook (FB), reported strong earnings but have struggled to make further progress while the market has pushed relentlessly higher for the past four days. Even shorter term trade setups are failing to make any progress, or at least enough to offset losses in losers. This is a strong indication that leading growth stocks should be avoided for the time being. They need quite some time to reset and tighten their consolidations before being considered for a longer term trade.

Short trading ideas are squeezing along with the market, but the majority have not fallen apart and continue to try and tighten up around low risk entry points. Short trading ideas need to be reviewed daily and considered for entry as they start to roll over, since the early movers tend to be the easiest to handle. And with the recent history this market has with rolling over suddenly and not looking back, the early birds really do get the worm.

Casino stocks, Wynn Resorts (WYNN) and Las Vegas Sand (LVS) have pulled back to their fifty day moving averages and getting closer to breaking down. Baidu (BIDU) and Autohome (ATHM) have ignored the market rally attempt and held tight in sideway consolidation within a downtrend. Ready to continue lower as the market rolls over or begins to stall.

Stay prepared and don't wait for too much confirmation. There's plenty of it already. Short trading ideas rolling over and following through will be the death of this latest rally attempt and potentially the start of the next leg of this correction.

Right now these are the facts on the ground. The few pieces of good news or big movers are over shadowed by the bad news and failing leading growth stocks. The market is clearly trying to paint the surface in gold to fool the most amount of traders and investors, but underneath the foundation is shaky looking for a reason to buckle. Keep stops tight if your long or risk major losses in positions with small losses or gains.

Wednesday, February 04, 2015

Gold and Miners Readying To Breakout Into ECB QE

Gold has been trading inversely to the US stock market for several weeks now, intra-day and daily. A weakening US dollar and anticipation of the ECB quantitative easing program starting, could prove bullish for gold over at least the next month or two. This would most likely coincide with a correction in the US stock market.

In, Gold Silver Ready To Follow Oil and Gas Collapse, I wrote that gold, silver, and related miners were ready to rollover. At the time, December 23, 2014, the commodity and related miners were consolidating in traditional short setups, but those fell up apart as quickly as I wrote the article. 

Instead of breaking down, they broke out over their respective fifty day moving averages and rallied nearer to their fifty two week highs over the last five to six weeks. 

The good news, the majority of the short setups would not have trapped traders into a trade, as the majority did not attempt to breakdown. Those that did attempt to breakdown, would have had tight stops and traders would have lost very little.

Currently, gold and related miners have been consolidating in cup and handle bases. Ideally, they will sell off/shake out, four to five percent more, over the next week or two, and setup a lower risk, higher probability trade. 

Since the market doesn't typically do what I like, the current entry would be a breakout above handle highs. Gold (GLD), Hecla Mining (HL), Rangold Resources (GOLD), Royal Gold (RGLD), Barrick Gold (ABX), and Newmont Minding (NEM), are forming cup and handle bases, with solid accumulation patterns and shook out under cut multi-year lows last year and early this year. Without the shakeout in the handle, the trade might be difficult to handle.