THE DAILY FORK FULL
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.
These are interesting charts. While today's action certainly wasn't bullish, the MACD buy signals suggest that price wants to rise from here. The MACD divergences are worth paying attention to since they are occurring with the markets at extremely overbought levels.
The equity markets had a strong day Friday. The NASDAQ bolted past the 5000 level to tag 5042 before pulling back. SPX pushed higher but not quite back up to its previous high. The Dow rose to resistance just below its previous high.
Each of these blue extension lines is about $12 apart. Subtracting $12 from the current resistance line gives us $34.50 as the next support level and price target for the price of Oil.
Today's rally brings price up to deal with resistance at the lower median line extension of the blue modified-Schiff pitchfork. Just above that sits the zone of the failed triple bottom in the $1181 to $1184 range.
Based on the rules for using Andrews pitchforks price is always targeting the next median line. The lower median line extension of the mod-Schiff fork (ellipse #1) gives us a target around 0.99 and the lower median line of the Andrews fork (ellipse #2) is at 0.95.
One of the key factors in developing a rules-based trading strategy is deciding how to determine a market bias. Our market bias lets us know whether to be short or long and, at a finer level, whether to be conservative or aggressive in our trading strategy.
We've had a pretty significant pullback from the brief visit to NASDAQ 5000. In fact, the pullback has retraced a Fibonacci 38.2% of the upward move that started in early-February.
With Gold dropping $37 bucks Friday and soft equity markets to boot, mining stocks were beaten to a pulp.
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?
Governments and central banks can run the fiat currency printing presses and manipulate statistical economic data but they can’t force human beings to consume energy. As the demand for energy decreases the price of that commodity decreases – this is classic demand-supply economics and perhaps it is less subject to manipulation than other economic markers.
One of the likely effects of debasing a national currency is to have a rising stock market. Zimbabwe’s equity market was the best performer on the planet just before their currency became worthless. How much is a share of stock worth when the currency it is priced in has zero value?
The lower median line extension of the modified-Schiff fork (dashed blue lines) did not hold price and oil has dropped to test the support around $74. Notice that price is now inside a descending triangle formed by the median line of the red Andrews fork and the horizontal support at $74. Descending triangles, if this one continues to develop, are usually continuation patterns and the continuation in this case would be downwards. Support at the lower median line of the red fork is around $65.