Charts I am watching the week of July 25, 2011
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Tag Archive for: SI_F
Charts I am looking at for the week of July 18, 2011
Due to a death in the family, this may be my only post of the week.
Following are the charts that have my interest coming into a new week.
$AUDCAD — This forex pair completed a rounding top last week. I am short, but not as short as I would like to be. I will have orders in place to extend my leverage if the market can retest the top.
Silver: $SI_F, $SLV — The rally late last week completed a possible symmetrical triangle bottom. The bulls appear to be back in control in Silver. I do not have a position in Silver futures, but am long $SLV with a stop below last Wednesday’s low.
Was my forecast for $20 Silver wrong? Right now that is the way it seems. Trading is a marathon, not a sprint. I have some very bad news for all the Silver bulls who are such fond fans of my blog — I was NOT short last week. Sad, but true! I will let you know when I go short. By the way, I always trade with a stop and seldom risk more than 100 basis points per trading event (one percent of capital). 
There is another intrepretation of the Silver chart that is not as immediately bullish. I have a great dislike for chart patterns with diagonal boundaries. The symmetrical triangle is my worst enemy. I much prefer a horizontal chart boundary. Silver has not yet completed a bottom if we use horizontal boundaries to define the trading range over the past 10-weeks, as seen below.
Gold: $GC_F, $GLD — The Gold market completed a text-book continuation symmetrical triangle this past week. I am long Gold futures and Gold ETFs. Gold, unlike Silver, may one day be monetized.
Cotton: $CT_F — I feel like an idiot. I shorted Cotton really well based on the H&S top. I felt like a genius when I covered on Friday, only to have the market go limit down. I really thought the market would cover the opening gap. I got cute — and I doubt the market will let me back in. Big profits are important. I let one get away in Cotton. I should have been adding, not covering.
$EURUSD, $G6E_F, $UUP, $FXE — The decline on Wednesday completed a classic 6-point symmetrical triangle top. This completed triangle has been violated intraday, but not on a closing basis. I am short, using Thurday’s high as protection. I really thought I tagged a good one on Wednesday. The forex markets are vicious.
$USDJPY, $G6J_F, $FXY — The decline last week completed a triangle, but that is not the real story. Friday’s close is the lowest week-ending close in history, breaching the 1995 low (not shown). We may see Bank of Japan intervene next week, or it may be that the BofJ is capitulating until a lower price level is reached (such as 75.00). I am short $USDJPY and fully expect to have the BofJ run me out of the trade.
S&P 500: $SP_F, $ES_F, $SPY — This is my “pie-in-the-sky” chart. The daily graph displays a possible H&S top. If this analysis is correct (big IF), the right shoulder high is in place. This chart needs to be on everyone’s watch list. I am flat, tempted to go short under last week’s low. The CFTC Committment of Traders data released late last week was bearish.
Soybeans: $ZS_F — This is an extremely intriguing chart. I fully expect that this chart pattern will be completed by an upside breakout — whether the breakout has follow through is a different story. I am lightly long Soybean futures with a stop below the July 12 low. I will add if the market breaks out intraday. I will add more if the market breaks out on a closing basis.
All the above charts are fairly long-term in duration. As a token to you shorter-term chartists, I leave you with Crude Oil. I am not in this market and probably will not become involved due to travel, but an interesting story can be told for getting long.
Crude Oil: $CL_F, $USO — If Crude Oil was in a “for-real” bear trend, then the May low should have turned back any and all rallies. Yet, the market has now climbed back above the May low. This is a sign that the May to June decline was a correction, not the start of a new bear trend.
On a shorter-term basis, the market is forming a 7+ day symmetrical triangle. A completion of this small pattern would probably lead to a test of the June 1 high at 104+. See the hourly chart below.
Let me throw in a couple of final charts. For the first time in a very long time I have some encouraging words for the millions of you who think Natural Gas prices are too cheap.
Natural Gas: $NG_F, $UNG, $UNL, $GAZ — Being long Nat. Gas ETFs has been a losing game due to the huge carrying charges that disappear each month. The weekly chart of UNG shows the result of this time decay.
This time decay may continue to take place, but I can say with as much certainty as possible that the physical market has bottomed. The chart of Natural Gas futures shows that the market has lifted well off the 2010 low and is forming high lows and higher highs.
There is also some signs that UNG has bottomed — the March low may hold, despite the massive supply on hand and the negative publicity on fracking.
While there may come a time to be long the ETFs for the physical commodity, I would prefer to own the ETF for the producers and other companies deriving income from the production and processing of the product. A chart of FCG ends this post.
Markets: $AUDCAD, $SI_F, $SLV, $GC_F, $GLD, $IAU, $CT_F, $EURUSD, $FXE, $UUP, $ZS_F, $SP_F, $SPY, $CL_F, $USO, $USDJPY, $G6J_F, $UNG, $UNL, $GAZ, $FCG
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Gold/Silver ratio — on its way to 50 to 1?
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Silver — on its way to $20
Price pattern today almost a perfect image of 1980
The chart below overlays the Silver today with the Silver price in 1980. The time framing and price scales are not identifical. It is the price pattern itself that is important.
Based on the price pattern, Silver today is following the script of 1980 with uncanny accuracy. And, based on the similarily of the patterns, Silver is headed to $20 to $25, probably by the end of the year.
Yet, a survey released Monday by Bloomberg indicated that the median expectation of 100 commodity analysts is for Silver to rally back to $49.79 by December 31.
I will trust history rather than the commodity analysts.
Markets: $SIL, $SI_F, $SLV
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Some charts I am looking at now – June 16
There are a few charts that really have my attention right now — although that does not necessarily mean I have a position or will enter a position in these markets. It does mean that I have a position or am looking at strategies to establish a position in these markets.
First, Crude Oil. I have commented several times in recent weeks via this blog or on Chart.ly on the recent consolidation zone. It now appears as though a descending triangle is being completed. Look for confirmation, but be aware that a bear trap could also occur. This is one of those patterns that could provide a head fake to the downside but provide big profits on the upside. But for now, I am short in my proprietary account with relatively tight stops.
Next, I will focus on one of the best potential chart set ups I have seen in a year or so — Natural Gas. The January 2012 contract displays a classic H&S bottom on both the daily and weekly charts. A major bottom is being constructed in this market. I am sure I will comment many times on this pattern and the trading implications in futures and ETFs. [Note: Dan Chesler, an excellent energy market analyst, brought this chart to my attention. Dan’s web site is www.chesler.us]
Next, Copper. I have been bearish on this chart for weeks, but the market is making it hard for position traders who sell weakness. Yet, the market is rolling over. What appeared to be a bear flag has now turned into an awkward 5-week continuation H&S pattern. If the trend has really turned down prices could easily drop $1 per pound in two months.
Next, Soybean Oil. I have had an upward bias in this market based on a possible continuation inverted H&S pattern. However, a sharp drop would complete a H&S failure sell signal. Also, the closing price chart (and I am paying more attention to closing price charts because of increased market “noise”) has completed a symmetrical triangle top. I am presently short Bean Oil, but I will remain flexible.
Next, July Chicago Wheat. If there ever was a H&S top pattern for the books, this is it. The problem is that H&S tops are supposed to occur after a large move up (i.e., tops are supposed to reverse a previous trend). This pattern does not qualify for this criteria in that the pattern itself WAS the move up. Nevertheless, this is a facinating chart worthy of following. I may or may not go short Wheat.
Next, July Silver. This market is in a major bear trend. The daily chart completed a H&S failure pattern on June 13 when the June 3 low was penetrated. I want to make a MAJOR point here, folks. I trade based on set-ups, knowing that 60% of my set-ups will fail over an extended period of time (over shorter time frames in the past, up to 80% of my signals have failed to produce profitable trades). I comment on set-ups, not on market opinions.
Finally, DYY (the ultra long commodity ETF). I am engaged in a short-selling campaign in this ETF. See previous posts here and here. I will pursue the strategy I have already disclosed. I am short two layers of DYY and will short a third layer if the H&S top is completed.
That’s all for now, folks.
Symbols related to this post: $ZW_F $DYY $NG_F $ZL_F $SI_F $SLV $CL_F $DJP $SIVR $GAZ $DBA $UNG
Disclaimer: I am a pure chartist. I do not trade based on fundamental or macro-economic factors.
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Copper bear market continues to unfold
Silver is also setting up for a sell signal.
I last commented on Copper in a June 1 post titled, “Major chart top in Copper – Target is 360.” The bear flag identified in that post appears poised for completion. A move and close below the June 2 low of 403.25 (July contract) would put the finishing touches on the red metal. The chart below is a closing price chart — the close-only flag would be completed today by a close below 408. Such a close would have initial targets of the May 12 low at 385.35 and the November low at 360 to 365. The diamond top projects to 363.
In my opinion, if Copper has really rolled over (if the bull trend from the December 2008 low has run its course), the most likely target for a bear thrust on the weekly chart is the 2010 low at around 276. The bull trendline on the weekly log chart has been penetrated. Keep in mind that the violation of a trendline is not a signal in my trading, but simply indicates a change in a market’s behavior.
Selling Copper on weakness has not been a profitable manuever. If the flag is confirmed, Copper should be shorted on 700 to 800 point rallies.
A postnote on Silver. This market is setup to signal a H&S failure. I will short Silver if the June 3 low at 3506 is penetrated, risking about 50 basis points.
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Silver: Going According to the Script – DOWN!
The markets whip me around often enough that I will take credit when I make a correct call…and my next call for Silver is DOWN.
Every once in a while a trader gets “in-step” with a market. And when that happens, a trader needs to ride that horse until the first time the horse bucks the trader off. At that point the trader needs to dust him or herself off and find a new horse.
On April 24, I posted the blog, “How do you spell bubble?…SILVER!” A chart included in the posting is shown below. In the posting I stated that the market was within weeks or even days of a major top. In fact, the high had already been made on April 25. On April 28 the market tested the high and the subsequent decline was historic.
On May 1, I posted the blog, “8 years of global Silver supply changed hands last week.” My conclusion was that a major distribution of ownership had occurred from the strong hands to the week hands. The chart I included in the post is shown below. The next day, May 2, Silver droped $5.65 per ounce at its low.
On May 10, I posted the blog, “Silver – What’s next short-term?” The chart from the post is shown below. My conclusion was that Silver would drop to new lows for the decline, then rally into the low 40s, then drop sharply.
I was correct on projecting new lows for the decline, but I think I was wrong on forcasting the rally into the low 40s. Earlier this week I posed the possibility of a 4-week H&S bottom with an extended right shoulder. While this is still a possibility, my preferred interpretation is that a H&S failure will occur. Extended right shoulders should generally cast doubt upon a H&S interpretation.
A H&S bottom failure occurs when:
- The pattern is briefly completed, but the advance immediately terminates and the trend preceeding the H&S bottom returns, or,
- A right shoulder rally falters short of the neckline and prices fall below the existing right shoulder low, completing the H&S failure pattern. [Note: I consider the H&S failure to be a pattern unto itself.]
The current chart of July Silver is shown, highlighting an idealized H&S failure.
I want to conclude with two points. First, neither the H&S bottom nor the H&S bottom failure have been completed. This market remains anyone’s guess. Charts are constantly evolving with one pattern morphing into the next, into the next, into the next, and on and on it goes. The real value (arguably, the only value) of charts is they provide traders with trigger points containing favorable risk/reward relationships.
Second, I am flat but would go long if the H&S bottom is completed or short if the H&S bottom failure is completed. Either event would be a tradeable signal for me. My bias is that the H&S failure will occur. The H&S failure formation would have a pattern target of 28.52 and a swing target of 21.58.
If the market continues to drift sideways in a choppy manner and then completes the H&S bottom, the chances are great that the H&S bottom completion will be a giant bull trap.
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Another strike against intraday stops
It’s the line that counts.
Every thing else is noise and clatter intended to confuse and separate traders from their money. Where a market closes is all that matters.
My final thought for the weekend.
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Flags flying at half-mast – a sign of death!
Risk On – Numerous charts show signs of a pending decline
In the markets, as in real life, flags flying at half mast symbolize death. A number of half-mast flags and pennants in the raw material markets indicate that the steep decline in early May was just Act 1 in a two-act play. The flags are symbolic of the intermission between the Act 1 (the first decline) and Act 2 (the next phase of the bear trend).
Bear flags or pennants are present in the following markets:
- Crude Oil
- Heating Oil
- Gold
- Sugar
- Soybean Oil
Crude Oil and Heating Oil display classic pennants. Rallies toward the May 11 high (while not necessary) would be an excellent shorting opportunity. The target of the pennant is Crude Oil is 84.80.
The target in Heating Oil is 2.5060.
The Gold displays chart construction similar to the energy products with two exceptions. First, there is potentially enormous support under the Gold market in the form of a previously completed 4-month continuation inverted H&S pattern. However, old support sometimes has a way of disappearing. Second, the huge volume on May 5 could indicate accumulation buying by strong hands. However, if the energy pennants lead to a strong decline it will be difficult for Gold to hold up in a Risk On/Risk Off market environment.
Sugar also displays a classic bear pennant. This market is in a well-established bear trend and has been since early February. Notice that the pennant in the October contract is forming just below the neckline of a 5-month H&S top. The target in October Sugar is 17.83.
If my analysis is correct in Soybean Oil, the current pause in the form of a flag should be the last support before a sustained markdown in price. Once this flag gives way, prices should trend to 45.60. (Caveat: The pattern in Bean Oil could prove to be an extremely bullish continuation H&S pattern. Traders need to be flexible on this one.)
Additionally, a number of other markets present technically bearish potential. These markets include:
- Russell 2000
- S&P 500
- Silver
- Corn
- Soybean Meal
The Russell 2000 is hovering right at the major 8+ month trendline. A violation of this trendline would indicate that the bull trend since March 2009 is seriously aging. The initial target would be 770 as part of the transition from bull market to bear market.
A confluence of technical developments can add to the legitimacy of a breakout. There are four factors that could trigger a sell signal in the S&Ps simultaneously by a decline below the May 6 low. First, the 2-month cup and handle bottom would fail; second, the 2-month trendline would be violated; third, the May 2 Ben Laden blow-off would be confirmed;
and, finally, the hourly chart symmetrical triangle would be completed.
I touched the third rail in late April when I announced that Silver was in the bubble phase. I was tarred and feathered on May 1 when I pronounced the previous week’s volume (7.5 years of global supply) was a strong sign that Silver had topped. The market has found support in the low 30s and a bounce into the low 40s is possible as Silver develops its own half-mast bear pattern.
New crop December Corn has traced out a H&S top. It would not be unusual for Corn to top now.
The seasonal chart shown indicates a strong tendency for new crop Corn to top in May or June.
Finally, the daily chart of August Soybean Meal displays a very clear possible descending triangle. A close below the recent lows would complete this pattern and establish a target of 300.
Adding all things up, the period just ahead could be a tough life for raw materials (and stocks).
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What Now, Silver Cow?
Just for fun, yesterday I did a snarky post on a very short-term “pie-in-the-sky” forecast for Silver. I called for the bounce to stop between 39 and 42 (actual high was 39.47) followed by a decline to below 33, then a rally to 42. The lines on the chart below were drawn yesterday morning.
So far so good. Pure luck…if I am right it will be pure luck. A wild guess! A hail-mary pass! I admit it. Of course, I am far from right yet. Alot can happen. The Silver market (and any other market) can do anything it wants to do whenever it wants to do it and it would not surprise me. The Silver market is NOT accountable to my whims or wishes or wild guesses.
I had a number of folks challenge my forecast, wanting to know on what technical or chart basis I would come to such conclusions.
I have no idea if I will be right — like I stated above, I was taking a wild swing in the dark — but I will share with you my reasoning (right or wrong).
My price scenario was based purely and soley on what I thought the market had (has) to do to most severely punish Silver bulls, more specifically, Silver bulls that are long above 40 per oz. My secret is out! I have told it all. My market call had NO basis in technical analysis. Period! My career as a classical chartist is over. I have sinned against my craft. I created a scenario that was based on what I thought the Silver market could do to most demoralize the johnny-come-lately Silver bulls.
I could have also created a price scenario of what I think the Silver market could do to most severely punish the Silver bears. Perhaps I will share this in the days to come. Perhaps a “punish-the-bears” scenario is the real agenda of the Silver market.
The truth be told, I could care less which scenario comes to pass. I have no vested interest in Silver. I am a trader. I trade price, not market biases, not fundamental scenarios, not Fed doomsday events, not the future value of the US$. And by the way, the last time I checked the U.S. Dollar is not traded in the Silver pit. Never has been. Never will be. There is an actual contract for trading the Dollar.
That’s all for now, folks.
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