Category: Trading Articles

$Silver- 13.73 target, bottom near? Update 12/16/14

$Silver may be bottoming here, or not- see the following 20month weekly chart.

Read more: $Silver- 13.73 target, bottom near? Update 12/16/14

  • Written by Gary Caumont

Category: Trading Articles

USO turning?

The energy sector may hold the next big trade

Staying on the right side of the market isn't simple but not impossible either. Over the past two months we witnessed a short term market top, a plunge and washout bottom and now another violent V-Shaped rally to new highs. Predicting these turn of events was virtually impossible and if anyone actually predicted it, then they should head down to the local drug store and pick up a lottery ticket. But one doesn't have to predict to profit. That correlation is not necessary. You just have to see when risk is increasing - up or down - and position appropriately. You need to recognize where opportunity lies across the many trading and investment opportunities available to you and seize it.


Reducing risk near the highs then adding some of that exposure back at the washout lows and later as the bearish retest and regenerate failed to stop the advance, are the latest examples of neoclassical reads - pure tape reading focused on how supply and demand line up. These reads are not limited to equities only but apply to all markets where volume, time and price are available for analysis. This includes currencies by examining their ETF proxies. As recently stated, almost all currencies were set to devalue relative to the dollar and were doing so even before China and Europe teamed up late last week to push them even lower. A reading of the tape had already told us this was coming so a further devaluation in the Euro should not have been a surprise. Supply and demand do rule.

So where might the next opportunity to stake out a potentially larger directional trade be?

One possibility is energy equities. The energy sector has, by far, been the west performing sector. Whether you are looking at the large cap integrated oils or the drillers, the carnage has been absolute. A 30% decline in the drillers in less than half of year is a testament to just how bloodied the group is. But where there is pain there eventually come relief. The key is to be patient enough until the supply/demand equation starts to turn and the formation of bullish patterns develop.

If we look at the commodity that is the root cause of the pain in this sector, it has finally begun to show signs of supply/demand equilibrium. Although these first signs of a tentative turn are now evident, we still do not yet have enough information to know that the bearish plunge in prices has bottomed and some sort of range trading is now in order. The chart tells us that we are at a point where this potentiality can take root.

OPEC is slated to meet the end of this week. Saudi Arabia has been reluctant to pull back production short term as their longer term goal seems to be to fatally wound the fracking competition - to make it untenable for the U.S. producers to continue to drill in this fashion. In the process they are wounding the OPEC community. The market at least senses that a potential turn is at hand. The confirmation that a turn is at hand would be for the bearish retest and regenerate zone to fail indicating that a range trade is most likely on this time frame. 

Clearly, the market has discounted a lot of the effects of the oil plunge in those companies tied to it be it the drillers or the large cap integrated oil concerns. But again, here we are seeing signs of a potential turn as well. With the drillers and the integrated oils, price has refused to trade lower in spite of commodity doing so over the past five weeks. Here's a chart of the integrated concerns which are clearly trending higher now.

Integrated's trending higher

A glance at the drillers charts shows that they too are refusing to move lower anymore.

OIH consolidating and building for move higher

Any way you look at it, the potential for a bottom looks high as does a press back to even higher prices. Of course one has to pick their spots to make the money and risk management work, but in a mature bull market; one that has just witnessed another fast stretch higher, rotation into the lagging groups is the norm, not the exception and this group finally looks like it may be primed for some of that action.

 

This article originally printed on MarketWatch on Nov 25, 2014 9:26 a.m. ET

 

  • Written by LA Little

Category: Trading Articles

Mean-Time-To-Failure statistics give the green light

In 2010, when doing research for my third book, Trend Trading Set-ups, it I stumbled across the idea that trend is like a light bulb - it has a life cycle. Since trends aren't all created equally that life cycle varies depending on the time frame and the quality of the trend but the great thing is that it can be measured. The result is that one can therefore forecast the cumulative probability of a trend failure (MTTF) at any given point in time. Two months ago, the probability of such a failure on the intermediate term time frame was quite high (80+%) across the major indexes and then, like magic, we got a hard fast correction over four weeks that broke swing points and ended up resetting the MTTFs. That reset has provided a green light for a push higher on the daily and weekly time frames not only through the end of this year but potentially beyond that.

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  • Written by LA Little

Category: Trading Articles

$Compq- 4752 big picture target hit (almost) Update 12/31/14

We hit the 4752 long term and 4742.6 intermediate term targets today- see the following 30month daily chart.

Read more: $Compq- 4752 big picture target hit (almost) Update 12/31/14

  • Written by Gary Caumont

Category: Trading Articles

For currencies, worthlessness is in vogue

August 15, 1971 is not a date that most would remember. It does happen to have a historical ring to it though since it was on the day that President Nixon nixed the gold standard and cast aside the Bretton Woods agreement. That announcement, and the easy money policy of Nixon's friend and Federal Reserve Chairman Arthur Burns, eventually led to other countries dropping their peg to the dollar. The end result was floating exchange rates between currencies. Now, more than forty years later, floating exchange rates are seemingly in disarray. Never has the world witnessed what it is seeing now - a fast paced race to worthlessness by most major currencies. Why is this happening and where does it lead?

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  • Written by LA Little