THE DAILY FORK FULL
The Fed keeps saying they will raise rates eventually but rates appear to be rising without the Fed's intervention.
This particular doji occurred on the third day that price was pushing against resistance at the median line of the pink Andrews pitchfork. Having the doji at an obvious resistance level suggests topping and not just hesitation.
Instead of spending more time questioning the social media phenomena, let's focus on the stocks of the four biggest companies in the sector and see what the market thinks. After all, from our perspective as traders and investors, the market is where the rubber meets the road.
Gold is up about $35 in the last few days. Price has risen to the 50 day exponential moving average and is now pulling back a little to consolidate the fairly substantial rise.
Bull rallies don't end all at once, they end one stock at a time. Seeing signs of topping in a major stock like AAPL contributes to the idea that the current bull is getting tired of running.
There are several ways to trade this setup. The conservative play is to wait for a return to the bottom of the range and enter with a tight stop. Breakout traders can place a buy order just above the price range. Really conservative traders will wait for the breakout and then wait for price to pullback and test the breakout level for support.
Feeder Cattle are young and lean, ready to go to the feed lots where they will be fattened up. When they are fat enough they become Live Cattle and go to the slaughter house where they become dead cattle (sorry, couldn't resist that one!).
There are times however when these spikes can and should be ignored but knowing when to do so is a judgment call. Fortunately we can assess the validity of the resulting fork and decide if we made a good choice.
If the pullback continues we will probably see price test the 2060 level. There is horizontal support there as well as the median line of the Andrews fork.
Charts like these are eye-candy to a serious Gold bug like me. I hope you enjoy them as well.
To find the price target for the pattern we take the height of the triangle at its widest point and add that distance to the breakout point. In this case we get a target at $114.30 which, coincidentally, takes price to the upper median line extension of the Andrews pitchfork.
From a big picture perspective, I am still expecting the Euro to reach parity with the US Dollar. The Euro is in a significant downtrend and the current upward move is just a bear rally. In pitchfork terms, parity means reaching target #1 at the lower median line extension of the mod-Schiff fork.
Apple stock pushed higher into its earning announcement and then dropped sharply along with the overall market. If we focus on the big picture, however, price is still targeting $144.50 and $156.
Oil has finally put in something that looks like it could be a bottom. We have a price magnet at the intersection of the red and blue median lines. This magnet gives us a target at $60.75.
It is impossible to predict when a financial bubble will burst. There are two truisms, however, about all financial bubbles. One, they always burst; and two, after bursting they fully retrace all of the gains made during the bubble.
After 30+ years of declining interest rates, we have to assume that at some point they will start to rise again. The Fed is threatening higher rates so this upward drift my be caused by traders/investors front-running the Fed.
Let's take a look at the equity indexes this week. It looks like they are trying to break higher. We have new all-time highs this past week in the NYSE Composite, the S&P 500 and the Dow. The NASDAQ made a new all-time weekly high three weeks ago.
Gold is showing strength this past week and challenging its 200 day exponential moving average (EMA). This strength has motivated some of the mining stocks to push higher as well.
Is it possible we are seeing a turning point in this six year old cyclical bull market? Perhaps, but "buy the dip" seems to be the profitable strategy for now.
In summary, when we look at the small, mid and large-cap segments of the market, there is more weakness than strength visible. All three segments are showing MACD divergences and, even though higher prices are being reached, these price highs are occurring further below the median lines.
Today we are going to review all of the equity indexes looking for new breakouts, topping action and overbought-ness. On the bearish side, the markets could be showing us what a buying climax looks like after a six year cyclical bull market. On the bullish side, they could be demonstrating how a breakout into a new upleg occurs.
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.