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Market Report: Calling All Bears
It's been a few weeks since my last report so I thought I would update the ideas we have been working and what I think it's potentially setting up going forward.
Although we have seen some great price action in other markets, the US markets have remained in a small range, and we still are waiting for a strong break, or a resolution to our current ideas I suggested to members that we go looking for other ideas.
Since my last report back in Jan 27th the SPX has moved a whopping 17 points as of Fridays close, so not exactly something to write home about, although judging from the euphoria out in trader land you would think it's up 150 points.
On the SPX I am still working the large ending diagonal and whilst its chopped higher it's not yet negated the idea, although if the idea is going to work then it's at these levels I would expect to see a reversal, I originally penciled in a target of 1480-1500SPX back in Nov 2012 and found myself fighting the premature bears that were looking for crashes, thinking the high was finally in, much to their surprise, the markets melted higher and forced the bears to cover, although it came of no surprise to us as we understood what was going on and looking for the US markets to break above their respective September 2012 highs.
Short term, it's possible that there is a high in place but without any strong downside I think we need to test the highs made last week, but whilst we wait, we will turn our attention to other markets that have a stronger setup, such as the DAX or EURSTOXX50.
It may have gone unnoticed to some traders but many of the European markets appear to have broken lower already, particularly the DAX and EURSTOXX50.
I initially noticed a few weeks back that this market was looking ripe for a reversal and for members that had access to trade this market, it ended up being a great trade for us.
I recommended to members to scale in shorts, at current levels but we could have seen a small push higher, but overall the initial decline was suggesting the rally from Sept 2011 was over and that a new wave lower had likely started.
You can clearly see it looks like a 3 wave advance and having hit its 1x1 target, it's reversed nicely and I suspect it has just got started.
As you can see its broke well to the downside and whilst US members have been watching chop, European members have had a field trading these declines, I still think there is a lot more downside to come in the European markets, suffice to say I think that the US markets won't hold up much longer if these declines start to really take shape, so it could be a vital clue. I think it's unwise to ignore what other markets are doing around the world particularly the engine of Europe which is Germany.
A similar setup to the EURSTOXX50 appears to be setting up on the DAX and like the EURSTOXX50 idea we caught this move very early.
One of the reasons I figured the DAX truncated was the EURSTOXX had put in a new high, that gave us further conviction to suggest a high was in place on both markets, the call to sell was at 7800 with a stop at 7863, today the market sits at 7593, and in between that, we covered shorts and put those shorts back on again so made double the $$$. As I write we are well in profits, but this is not a short term trade for us, it's a medium term, as I suspect the DAX is going to see a substantial move lower, thus that should eventually see the US markets follow lower.
This turned out to be a great move, and again, whilst US traders were trading chop and junk, European members of our site had a blast trading this decline, not only did we catch this decline, we caught the lows and got out before it proceeded to push back to our bounce target where some members put back the shorts back on, that we covered at the lows.
I penciled in a target range to look to get re-short around 7700-7740. Both EURSTOXX50 and DAX declined in a virtual text book 5 wave decline, when it's this easy, it's like giving away free money, I only wish the markets were this clean all the time.
I suspect we still have a lot more downside to come, and if the European markets are making it this easy for us, it seems silly not to take advantage, and simply wait on the US markets to decide if they want to break our current setup or confirm, but as mentioned I suspect if the main European markets start to see some strong downside we should see the US markets move as well to the downside.
If you are interested in following our European ideas, come join us, at $15 a month, members made back that 20 times the past 2 weeks, and likely to make a whole lot more $$$.
In my last article I left readers with an idea on Natural Gas, and since then we have declined exactly as I suspected we would and a lot more than I bargained for, but then as some members were short and selling bounces, it's another market that we simply moved to whilst we wait on the US stock markets to make their minds up.
As traders we simply don't care which market we trade, all we want is a clear setup to put a trade on, we if we know our risk, we have a trade, as it turns out Natural Gas has been one of the stars for us this month and members have been make bundles of $$$.
When the markets are making it this easy to count, you really can't do much wrong as it's so clean that it's making the job far easier for us.
The great thing that we saw in this market was the clear wave structure, it keeps pushing lower in 5 waves and corrects in 3s, that is making our job so much simpler and offering us high reward, low risk ideas, when it's this clean you simply cannot refuse to trade these types of set ups.
Just by watching other markets setup the way we want, we found loads of opportunities to make $$$, the EURUSD was another market that offered members some great moves over the past 2 weeks and some members made great $$$ trading that FX pair.
This was just the tip of the iceberg for us, the set ups just kept coming and coming, and when they are coming like that, why do you need to trade the slow chop of the US markets?
Some of the grains are working our well for us, and Corn was a particular market that has declined well for members, although I do think that its potentially setting up for a decent bounce after we see a new low, so members are looking to get out of shorts having sat on them for a number of days, it's getting close to ring the register and look elsewhere for other setups. We don't want to outstay our welcome, bank the $$$ and move on elsewhere.
With the way the markets are moving it should not be that hard to find a setup as long as traders are willing to move to other markets and be flexible, members of WPT will be ready to take the next trade.
A bounce should be close for Corn as it's declined a tremendous amount in such a short space of time, but overall long term I still expect more downside as the Grains look poised to see some nasty declines over the coming months.
I presented this chart in an article some time back and it's worked out, well enough now that I actually think we could have a short term low nearby in Gold stocks.
You can read that article here http://www.safehaven.com/article/28082/market-report-gold-vs-gold-stocks-hui-who-is-leading-who
In that article the HUI was 437, today it's at 379, I actually thought we would see the 400-410 area tested and then a bounce, it's actually pushed a bit lower than I originally thought. Although when I look at some of the Gold stocks in the HUI, there are 3 stocks that stand out, as an investor in value, they are getting my attention, 2 of them have a pattern where I can limit risk very tight and look to see if we can find a short term low and look to the long side for a decent rally.
As usual I find myself looking to go against others, when I posted that article I was getting some emails suggesting that we would never see the 370-80 area tested; I guess the owners of the emails were wrong on that idea.
Funnymentals huh!!! The FED is printing gazillions yet Gold stocks are still puking, errrr why? Who cares? Price is all that matters to me.
With many bulls now puking their guts up having ridden the decline, it's now that we are seeing some signs of capitulation, yet members were aware that I was looking lower and to stay out of Gold stocks and wait for the new lows, with many well known "faces" capitulating, it's now that I am seriously interested in trading the long side of Gold stocks.
Short term I think we come back and test this weekly trend line support around 370. If the bulls can't muster a bounce from that area and the trap door is opened, then this market is going to be in a world of pain.
3 Gold stocks
3 stocks that I have been following are finally coming into focus, although ABX has met its objective already, but the other 2 potentially need a bit lower 1st, I am personally interested in NEM and GFI for my personal broker account, but with a bit lower ideally needed for the ending diagonal ideas, we have some clear risk parameters, having waited for a while for these stocks to setup, it's now that I want to look get long these stocks.
With many bulls puking up Gold stocks, it feels like a decent low is setting up. If you are reading this and are still long Gold stocks, you could have saved yourselves so much pain if you simply followed what price was doing and not what the funnymental analysts were suggesting you to.
A bit lower towards $11 would complete this idea, we have a key area of support that must not be violated or the idea is wrong, so we have some risk control and if support can be found around the $11 I think it could be a great long setup, at least potentially for a bounce to see the $14 area, but we will evaluate it if we see any upside after a low is in place.
A similar idea to GFI although this has made the new low needed for this smaller ending diagonal idea, although we want to see some decent upside, we had a potential low in last week, but it failed to hold the initial spike, but I am still watching the HUI around that weekly support area at 370, I suspect ABX will be one of the key benefactors if the HUI does reversal higher as ABX has the 2nd largest stock weighting in the HUI.
This is the 3rd weighted stock in the HUI, and it too has a potential ending diagonal, so a small new low is required then I want to see a strong reversal, although being a key component of the HUI, we should see this reverse if the HUI can based on or around current levels into 370.
So it's set up nicely, 2 months on from the last Gold stocks article, we have some great set ups, and I feel a lot more comfortable now looking for a low than I did back in Dec 2012.
So look at the results and ask yourselves do you really need that advisor or broker, or will you see the light and focus on what really counts and that is price and patterns.
"Whilst Gold remains under $1750, short term it remains in a bearish trend and I think the $1680 support area will likely get tested and be broken, for a sharp move towards $1620-1600"
The above is taken from that article. Gold never even got anywhere near $1750, but as I write this article Gold sits at $1609, so not a bad guess after all.
Price and pattern rule over the funymentals. Luckily for members of WPT they have not been caught long or even suffering the pain of holding on to Gold stocks looking for some sort of fantasy bounce that I kept reading about over the past 2 months.
Now that we have price and structure meeting the requirements I wanted, it's only now that I think Gold stocks offer some value, and looking to get long, for a decent bounce to correct the decline from the Sept 2012 highs.
Your broker or adviser will never tell you to sell, then they don't have your best interests at hand, unlike us, we look after our members, if a member has a question about a stock or market, it's our business to make sure he/she is on the right side of the trade and can limit risk if we are wrong on an idea.
If you are stuck and took a massive draw down on Gold stocks I really feel sorry for your predicament, but sadly it's a story I am reading too often.
Some new members are only now realizing that they have been stuck in the decline, and that they should have got out far earlier and regret ever listing to advisors that use funnymentals. It's going to be a struggle to make up the losses.
But if they are willing to adapt and move around I am positive that we can help recover some of the lost gains.
With the volatility starting to pickup, traders that are interested in actual trading will be the ones that prosper the most, as members old and new are finding out, if you expand your horizons a little its surprising easy to find setup and trade them effectively, and if it doubt on the idea, you can always ask for advice or simply move to a market that you do understand.
Until next time,
Have a profitable week ahead.