9.12.14 – Is GLD In Trouble?

Retail sales climbing spurred more talk about the Fed raising rates sooner rather than later, pulling down equities today.  The Dow Industrials lost 61 points on above-average volume to close at 16,987.51.  The S&P 500 Index was off .60% while the Nasdaq Composite fell .53%.  Treasury yields continue to soar.

UVXY, the leveraged VXI short-term futures ETF, rose 4.52%.  SRTY, the leveraged short 20+ year Treasury Bond ETF, gained 3.14%.  DUG, the leveraged short oil & gas ETF, climbed 3.00%.  Please click on the symbols for details.

GLD has been in a downtrend for three years, peaking in September 2011. Should GLD fall below 113, it’s going to be Katy-bar-the-door time. Using the all-time high and low for the ETF on a monthly chart, GLD pulled back to about 114.50 in June and December of last year (horizontal blue trend line), just one point above the 50% Fibonacci retracement level (red line).   Just a skoosh above that is a long-term rising trend line, currently around 116.50 (rising black trend line). The 50% Fib. level is 113.44 . So you can see there is significant support in the 113 – 116 range:

GLD monthly

With GLD currently at 118, one way to play this is by placing a buy order somewhere in the middle of that range. Another way is to place a buy order at the top of the range but with only one-third or one-half of a normal-sized order. Buy an additional round of shares in the middle of the range and perhaps a third round at the bottom of the range. Should GLD start trading below 113, get the heck out of Dodge. If you get filled and GLD stabilizes, you may want to take some partial profits should it climb back to the 38.2% retracement level, around 130.50.

If 113 fails to hold it’s likely GLD will test the 61.8% retracement level (not seen in the chart), around 96.35.

I’m far from an experienced Elliott Wave practitioner – I know just enough to be dangerous – but it seems to me that GLD is in a Wave 4:

GLD monthly elliott

If that’s the case, GLD may find support between 113 and 116.  How so?  Under Elliott Wave theory, sharp corrections tend more often to retrace 61.8% or 50% of the previous wave:

GLD monthly elliott2

As you can see, GLD has retraced almost 61.8% of Wave 3.  So does this mean you should start loading up on GLD?  I’m afraid my crystal ball is in the shop this weekend so I can’t answer that question.

I’ll update Subscribers Only! on Sunday.  Enjoy your weekend.

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9.11.14 – A Day To Remember

 

I’m sure most if not all of us remember exactly where we were and what we were doing when we heard the news thirteen years ago.  I sure do.  Although I’ve been back to New York many times since then – the first time just a few weeks after 9-11, when we could smell in the airliner cabin the devastation still smoldering as we flew over lower Manhattan – I’ve never been able to bring myself to visit the site.  It’s still too fresh, still too painful.  I don’t think I’ll ever be over it.

Today was a quiet one for the Street.  The Dow Industrials slipped 19 points to close at 17,049.00 while the S&P 500 Index ticked up .09%.  The Nasdaq Composite was slightly better, up .12%.  Treasury bond yields continue to rise.

JNUG, the 3x leveraged junior gold miners ETF, shined bright as it gained 6.30%.  UCO, the leveraged crude oil ETF, bubbled up 2.59%.  Please click on the symbols for details.

Interest rates have been rising in anticipation of the Fed beginning to raise rates some time in the not-too-far-off future.  We’re about to see whether the Street is going to put its money where its mouth is.  TBT is the leveraged short 20+ year Treasury Bond ETF; it’s unleveraged sibling is TBF.  Both move in the same direction of yields, i.e., if yields go higher, so does TBT and TBF.  Both ETF’s bottomed at the very end of August and have been rising since but now they’re running into their respective 50-day SMAs, which acted as resistance when touched back in late June and early July.  You can see this on the TBT chart below, which can be made full-screen by clicking on it:

TBT

The stock market has been drifting lower since rates started rising.  If TBT and TBF pull back from their 50-day SMAs, will equities move higher?  The answer to that question is something we will know, in the fullness of time.

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9.10.14 – Mixed Blessings

The stock market bounced higher today as Apple, Inc’s. new products helped lift the Nasdaq and speculation continues to rage over when and how much the Fed will begin raising interest rates.  The Dow Industrials rose almost 55 points to close at 17,068.71 on higher volume than in yesterday’s decline.  The S&P 500 Index gained .36% and the Nasdaq Composite was up .75%.  Crude oil prices closed lower.

Biotechs jumped today, reflect in XBI, the biotech ETF, rising 3.26%.  Volume was still below its 50-day average but much heavier than yesterday.  SRS, the leveraged short real estate ETF, gained 2.76%.  TQQQ, the leveraged Nasdaq-100 Index ETF, was up 2.35%.  Please click on the symbols for details.

Commodity prices have been drifting lower since May 2011.  On the one hand, that’s bad news for producers of commodities.  Lower commodity prices mean lower profits for the copper companies, gold mines, and oil companies.  On the other hand, in theory lower commodity prices benefit the consumer.  Lower corn prices could result in lower costs at the grocery store on everything from cereal to everything made with corn syrup, which is almost everything. It will also lower cost of ethanol used in gasoline. A drop in cotton prices could lower cost of clothing, and other things made from cotton. Lower gas prices certainly benefit everyone who drives, but also it lowers the costs of delivery of raw materials and finished goods, which could reduce the upward pressure on prices.

In theory.

Gasoline prices have dropped about 25 cents in the past few months due to lower demand (more fuel efficient cars; more tele-commuting) and increased production in the United States.  But beef prices are at or near historic highs, due to ranchers thinning their herds due to drought.  It’s a mixed blessing – good if you’re a consumer, bad if you’re a producer.

As long as commodity prices stay low that helps take some of the pressure off the Fed to raise rates in order to tame inflation.  I’m a huge believer in not fighting the Fed.  When they start raising rates, eventually, and that typically means sooner rather than later, market allocaturs will react by shifting some of their assets out of equities and into fixed income investments.

“Some” is a squishy word.  Allocaturs control billions if not trillions of dollars in mutual funds, variable insurance products, variable annuities, and the like.  Just moving a small percentage out of equities and into higher-yielding fixed income investments could take a big chunk out of the stock market.

I like to watch DBC, the Commodity Index Powershares ETF, to get a read on commodity prices.  DBC has been trending lower since May 2011 and just this week undercut a double-bottom low.  Right now it’s formed a second double bottom, this time with the June 2012 low.  You can see this on the chart below which can be made full-screen by clicking on it:

DBC weekly

The red line is the former double bottom and the blue line is the current double bottom.

Keeping inflation pressure in check should go a long way towards keeping future rate increases modest, at least to start.  Higher commodity prices will hit us all where we live – in our pocketbooks and wallets.  You know what the impact will be from higher prices and declining purchasing power, so plan accordingly.

 

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9.9.14 – Living Up (Or Down?) To Expectations

September is historically the worst performing month and so far, this September is following suit.  Today was the biggest drop in the S&P 500 Index in a month as concerns grow that the Fed may raise interest rates sooner than expected.  A couple of weeks ago the market rallied on speculation the Fed may raise rates later rather than sooner, so go figure.  The S&P fell .65% while the Nasdaq Composite did worse, dropping .87%.  The Dow Industrials slipped 97 points to close at 17,013.87.  Gold and silver prices were slightly higher.

JNUG, the 3x leveraged junior gold miners ETF, jumped 8.65%.  It has been trending lower the past two months.  The sharp decline today goosed volatility and UVXY, the leveraged VIX short-term futures ETF, gained 5.14%.  BOIL, the leveraged natural gas ETF, was up 4.41% on more than double its 50-day SMA.  SRTY, the leveraged short Russell 2000 Index EFF , rose 3.63%.  Please click on the symbols for details.

Did today’s sharp decline push the equity market into an oversold position?  I never say never but I sort of doubt it.  Friday’s blog had a discussion of the Bollinger BandWidth indicator and the “Squeeze.”  The lower the BW value, the tighter the Bollinger Bands are squished together, a.k.a., the Squeeze.  Friday’s value was .3334; any value below .30 is considered squeezed and today’s closing value .2132.  After a Squeeze we expect a rise in volatility to begin anew and today’s performance in UVXY reflected that.  The daily chart below of the VIX, Bollinger Bands, SPY and the Bollinger BandWidth, shows the low-valued BandWidth and today’s VIX hitting its +2 Standard Deviation (SD) Bollinger Band:

VIX-SPYIf you look at past instances when the VIX reached the +2 SD Bollinger Band, that doesn’t always signal a short-term bottom; reaching the +3 or +4 SD is more reliable.  So the market may have a bit more downside ahead before we can look for a meaningful move higher.

But what the heck do I know?  Whether or not I’m correct is something we’ll know, in the fullness of time.

 

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9.8.14 – If It Isn’t One Thing, It’s Another

The air conditioner in my office gave up the ghost and it’s about 85 degrees in here, too hot for me to sit two hours and write the blog.  Until the unit is repaired or replaced, the blog will be on hold.  Hopefully, I’ll be back in business before the end of the week.

Oh, and today the dentist told me I’ll need another root canal (number 9!).  The hits just keep on coming!

I will update Subscribers Only! every morning.  Apologies to my subscribers who prefer reading it in the evening.

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9.5.14 – Wasp Waist

 

Speculation that weaker-than-expected job numbers will hold the Fed back from raising rates anytime soon helped push the stock market higher today.  The Dow Industrials added 67 points to close at 17,137.36 while the S&P 500 Index gained .50%.  Despite weakness in the biotech arena, the Nasdaq Composite still rose a respectable .45%.  Treasury bond yields continue to rise.

GDXJ, the junior gold miners ETF, rose 2.99%.  RSX, the Russia ETF, was up 2.76%.  Corn prices have been trending lower for the past 12 months but CORN, the corn ETN, popped up 2.61% on below average volume.  Please click on the symbols for details.

Fashionistas may be familiar with the term “wasp waist.”  It refers to a woman’s fashion that features an abrupt transition from a natural-width rib cage to an exceedingly small waist, similar to a wasp’s segmented body.  Put another way, the waist is squeezed into a much smaller diameter than usual…sort of like what I see developing in the VIX Bollinger Bands.

What I’m talking about is called the Bollinger Band Squeeze.  The Squeeze is the term Mr. Bollinger coined for when the Bollinger Bands narrow and the Bollinger BandWidth decreases.  Bollinger BandWidth is an indicator derived from the Bollinger Bands.  StockCharts.com provides an excellent explanation of what Bollinger Bandwidth is and how it’s interpreted:

“BandWidth measures the percentage difference between the upper band and the lower band. BandWidth decreases as Bollinger Bands narrow and increases as Bollinger Bands widen. Because Bollinger Bands are based on the standard deviation, falling BandWidth reflects decreasing volatility and rising BandWidth reflects increasing volatility.”

Bandwidth is simply the difference between the value of the upper Band and the lower Band, divided by the value of the middle Band.  When the BandWidth is narrow, volatility tends to be low and the range of an ETF is also narrow.  Since one of the best ways to capture a gain is to buy or short when it breaks out of a narrow range, scanning for a narrow BandWidth can be an excellent method for finding ETF’s that are getting ready to break out.

But how narrow is narrow?  Put another way, can “narrow” be quantified?  The short is answer is Yes…and No.  What’s narrow to one ETF may be wide to another.  I find the most effective method is to look at a 6 – 9 month chart of an ETF with the Bollinger Bandwidth charted and look for periods of time where the Bands have narrowed.  The Squeeze occurs when volatility is very low.  The chart below shows the Bollinger Bands squeezing together on the VIX, the CBOE Options Volatility Index:

VIX-SPY

Below the VIX surrounded by its Bollinger Bands is the SPY and below that, the Bollinger BandWidth.  The red line is measuring the degree of Squeeze.  When the Bandwidth falls below .30, the Bands are squeezed together.  Today’s closing Bandwidth was .3334, the tightest it’s been since in five weeks.  When the BandWidth falls below .30 there tends to be a sharp move shortly thereafter in the VIX and the stock market as volatility expands, i.e., reverts to its mean.

Last year, VIX Bandwidth started rising on December 2 and the SPY dropped 2.2% before bottoming.  Not a huge decline but in May of this year when the Bandwidth narrowed to .1581 (May 15) and then expanded, the SPY never fell at all – on May 15 it closed at 187.40 and moved steadily higher until the end of July.  So just because the BandWidth is narrowing and then expanding, doesn’t necessarily mean the market will fall.  All it means is that volatility is likely to pick up and the market will begin moving out of its range.  Which direction that will be is up to you to determine.

Enjoy your weekend.

 

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9.4.14 – Blog Will Resume Tomorrow

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9.4.14 – The Evil Queen Strikes Again!

 

Disney aficionado’s know who the Evil Queen, a.k.a. Queen Grimhilde, is…she’s the witch who fed Snow White the poison apple.  Today is was Apple Inc. that poisoned the Nasdaq, dragging the composite index down .56% after Samsung announced their new smartphones.  The S&P 500 Index slipped .08% but the Dow Industrials ticked up 10 points to close at 17,078.28.

News of a possible ceasefire in Ukraine sent RUSL, the 3x leveraged Russia Bull ETF, soaring, up 17.69% on almost double average daily volume.  UCO, the leveraged crude oil ETF, gained 4.34%.  FXI, the China 25 ETF, rose 3.32% on strong volume.  EPOL, the Poland Investable Market ETF, was up 3.08%.  Please click on the symbols for details.

Last month I discussed in the blog how the monthly action on DIA, the Dow 30 ETF, had stalled at the 138.2% Fibonacci extension level.  That’s exactly where it ended up at the end of August, at 170.88 and the extension level is at 171.17.  This is turning into a tough nut to crack and with the average September return turning in a 1% loss, it’s anyone’s guess as to when – or if – that level is broken:

DIA monthly1

August is the monthly bar with the black up arrow underneath it.

I need to cut things short tonight because I have to run some errands so I’ll see you tomorrow.

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9.2.14 – What Do Strong Transports Tell You?

The transportation index was up sharply today.  What does that tell you?  It tells me that cheap oil is helping airline stocks.  It also tells me that lower oil prices are good for the U.S. economy.  But despite this good news the Dow Jones Industrials still slipped almost 31 points to close at 17,067.56.  The S&P 500 Index was down fractionally, falling .05%, while Tesla Motors and pharmaceutical stocks helped push the Nasdaq Composite .39% higher.  Volume for last month was extremely slow, the lowest in six years.  Interest rates were sharply higher.

DGAZ, the 3x leveraged inverse natural gas ETF, skyrocketed up 12.70%.  It’s still trading below its 200-day SMA, however.  SCO, the leveraged short crude oil ETF, bubbled up 5.48%.  Friday it dipped slightly below its 200-day SMA after closing above it August 14th, but closed back above today on almost double average daily volume.  JO, the coffee ETN, percolated 4% on 1.7x average daily volume.  TBT, the leveraged short 20+ year Treasury Bond ETF, gained 3.41%.  Please click on the symbols for details.

Even with today’s large jump in TBT – and the corresponding sharp decline in TLT, the 20+ year Treasury Bond ETF – I’m still holding on to my TLT position.  This is the longest I’ve ever owned an ETF, purchased back in January on a buy signal in Dave Landry’s Bow-Tie indicator.  The Bow-Tie is constructed using three moving averages: the 10-bar SMA, the 20-bar EMA, and the 30-bar EMA.  When the 10-bar is above the 20-bar; and the 20-bar is above the 30-bar; the moving averages are said to be in the proper upside order.  When the 10 is below the 20 and the 20 is below the 30, they are said to be in the proper downside order.  The bars moved into the proper upside order in January and TLT has made a heckuva run since then, climbing from 105 to as high as 119 last week before pulling back today.

The moving averages came close to moving into the proper downside order in June, with the 10 < 20, but the reversal didn’t quite happen.  TLT righted itself in July and has been sailing with the wind at its back since.  You can see this in the chart below, which can be made full-screen by clicking in it:

TLT

The light blue ellipse is the transition to the proper upside order.

Landry suggests that trades be held until the ETF starts trading back to or below its 20- or 30-day EMA.  That doesn’t mean you should automatically sell there, although taking partial profits is never a bad idea.  Use other technical indicators to confirm the trend is changing.  If you’re still in the ETF and the moving averages reverse to a proper downside order, however, exit the trade.

My personal preference is to hold the trade as long as the moving averages don’t reverse into the proper downside order.  It’s okay to continue holding the trade if the 10-day SMA falls below the 20-day EMA, as long as the 10 and/or 20 are still above the 30-day EMA.

Last week I discussed a bearish divergence between SPY and its Volume Zone and Price Zone Oscillators.  The divergence is worsening as the oscillators fall further (VZO is now barely above zero) even though the the SPY keeps rising:

SPY VZO

We had a swing trade fire off an entry signal on an ETF today that backtests out with an 80% success rate.  Which ETF is it?  Why, mosey on over to Subscribers Only! and find out!  New subscribers get the first two weeks of service free and the cost is only $5 per month.

Something has to cry Uncle soon and I’m betting SPY pulls back, albeit short-lived.  But maybe the oscillators bottom here – they tend to remain above zero in a bull market – and SPY keeps rising?  The answer to that question is something we will know, in the fullness of time.

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8.28.14 – Blog Will Resume Tuesday

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