THE DAILY FORK FULL
The bullish nature of the charts we are going to look at today surprised me.
It doesn't get much more sideways than this. Price is moving sideways. The 50 day exponential moving average is moving sideways. MACD is moving sideways.
The wick above today's candle suggests that price just made a new pivot point and will head lower from here. Everything else about the chart, however, suggests that price wants to head higher.
Consumer loans tend to key off the interest rate on 10 year Treasury Notes. This rate has been trending lower for 34 years now - how much lower can it get?
Bullish action in the NASDAQ suggests another run at the 5000 level and perhaps the prior high. Who knows, perhaps we will see a challenge of the all-time high at 5132.
Apple was downgraded today by Societe Generale but they stayed with their price target of $130. The price action was a little weak today (because of the downgrade probably) but support held along the median line of the modified-Schiff pitchfork.
I found myself wondering today why AAPL was replacing AT&T in the Dow. Hmmm… stock that is struggling to remain above $32 or ten-bagger with clear targets another $20+ higher – the choice isn’t terribly difficult.
We could describe the last two years worth of action in XOM as a descending triangle. That pattern gives us a price target because we can take the height of the triangle and subtract it from the breakout point. Edwards and Magee describe this method in Technical Analysis of Stock Trends. The target we arrive at is $70.
Tim Morge refers to the intersection of two median lines as a price magnet or energy point since price is often drawn into these areas. The action around these areas can be impulsive with price moving rapidly into and/or out of the energy point.
Remember that the triple bottom around $1183 failed back in late-October so there is a significant amount of energy in this "jumble zone" as I have been calling it. Price has been bouncing around on either side of the zone since late-October.
Gold has put on an admirable show in recent days rising all the way from support at $1150 to a high at $1220. After this $70 run Gold deserves a break to consolidate its gains and gather energy for the next push higher.
Based on the guidelines for using Andrews pitchforks TNX is targeting the forks median line and an interest rate around 0.5%.
AAPL had a bad day today, trading lower along with the overall markets. Support at the 20 day moving average and horizontal level was broken and now price is probing lower to find new support.
Gold has done an admirable job of rising through the "jumble zone" this week and currently sits just above that level. Unfortunately there is still a considerable amount of resistance to be overcome and price may be running low on upside energy.
I’ll be the first to admit that I suffer from goldbugitis. Perhaps there should be a support group: “My name is Bryan and I’m a Gold Bug. It’s been 3 days since I fondled my Gold coins…”.
Several of the charts we look at regularly are poised to issue MACD buy signals and those signals will be occurring with MACD near the zero line. This means there will be plenty of room for MACD to rise before being overbought is an issue.
On Friday the BLS released the Payroll Report while the markets were closed for Good Friday. The report was weak and the futures reacted to the information by dropping hard. In a single 240 minute price bar the S&P 500 lost 23 points, the Dow shed 183 points and the NASDAQ lost 48 points.
The recent decline in the equity markets was powerful. Price plunged right through levels where support could reasonably be expected. After finding support the markets have risen but appear to be staging a bear rally and not the start of a new upward move.
In an uptrend resistance becomes support. The precious metals are in a secular (15 to 20+ years) uptrend and they are currently pulling back to long-term support levels.
That’s my story and I’m sticking to it!
I remain convinced that the metals are experiencing a cyclical bear market within a larger secular bull market. As Richard Russell points out, all bull markets end with a mania phase and this hasn’t occurred yet in either the metals or mining shares. Given the duration of this cyclical bear the final phase of the bull market should be one for the record books!
Based on the rules for using Andrews pitchforks we know that price is always targeting the next median line which, in this case, means the fork’s upper median line. When price fails to reach the target we understand that price energy is waning and we should be alert for a change in behavior.
We continue to get mixed signals from the precious metals sector. A few of the mining stocks are looking bullish while the mining indexes remain fairly bearish. Gold looks somewhat bullish in the daily timeframe but the weekly chart is bearish. These mixed signals may be part of a bottoming process but after three years of relentlessly lower prices caution remains the order of the day.
The PSAR indicator is smarter than I am. Last week I did a three part analysis of the HUI index detailing all the reasons that price should find support at its current level and turn higher. Price ignored my in-depth analysis and headed lower.
We reviewed the charts of more than 100 junior miners this week and found two that we especially liked. When the precious metals finish their bear cycle and return to bull mode, the junior miners are likely to zoom higher. As the saying goes, even pigs fly in a high wind. The better performing juniors today should be the price leaders in a rally.
The precious metals and the mining stocks remain in a long-term downtrend. We may be seeing the beginning of a new bull phase but caution is warranted. The sector became overbought in recent weeks and we are seeing a pullback. Price will show us where it wants to go next as the current decline plays out and finds support. If you are accumulating on weakness stick with the relative strength leaders.
Part of our mission at the Pitchfork Playground is to teach others how to use Andrews pitchforks. This week’s quotes are aimed at the teaching aspect of our mission. We want to help you learn to fish and part of the learning process is ‘doing’ which means drawing forks on your own charts. Hopefully the examples we look at each week provide insight into how you can analyze the charts you are interested in.
Europe’s QE, as announced, is going to be 60 billion Euros per month for 18 months – that’s over $1 trillion US and about 10% of GDP in Europe – i.e., this is a significant level of money printing. Based on the US experience we can expect that lots of this fiat money will end up in the equity markets. Allocating some money to European stocks is worth considering. ETFs like FEZ (Euro STOXX 50) and IEV (iShares Europe) give us an easy way to gain exposure to the European markets.
Copper’s history goes back to at least 8000 B.C. when it was first used for coins. Around 5500 B.C. copper tools helped humans emerge from the Stone Age. In today’s society copper is used in building construction, power generation and transmission, transportation, plumbing, heating and cooling systems, electronics and telecommunications. The car you drive has between 45 and 100 pounds of copper depending on its size and whether it is a hybrid or not.
There is a simple and consistent way to make money in the markets: buy strength and sell weakness. The challenge is determining what is strong and what is weak – that’s the motivation for performing technical analysis (charting) and using tools like Andrews pitchforks.
In the August 10 letter we talked about adjusting our trading rules as our market bias changes. When our perception of the market turns more bearish we can tighten the stops on our existing bullish positions, take partial profits, lower our profit targets or exit the markets all together. Discretionary traders may make these adjustments using intuition while rules-based traders will have pre-determined guidelines to follow.
Some analysts suggest that CAT is one of the true bellwethers of the global economy since they produce the heavy machinery used in mining and construction. How healthy is the economy if mining and construction are declining? It is also worth noting that CAT spent $4.2 billion in 2014 buying shares of their own stock and the stock is still declining. As the saying goes, “buy strength – sell weakness” – draw your own conclusions.
We got a healthy pullback in the equity markets but this week’s smoking-hot rally has taken prices right back to the unhealthy, over-extended levels where we started. Santa may give us a few more days of upward action going into year’s end but we should be careful taking new long positions.
The ugliness in Oil continues. Last week it looked like support around $65 might hold but this week we can see that price has dropped well below this support. Next targets are $54 at the blue median line extension and $50 at the red extension. MACD and Stochastics are giving no indication that the price plunge is nearing an end.
The mid-cap segment of the market accounts for 35 to 45% of the NYSE-listed stocks and the small caps make up another 45 to 55%. We have rising 50 day moving averages in both of these segments so 80% or more of the market has an upward bias at this point. Santa Claus rally anyone?