Over the years working with professional traders I found it interesting how each individual has their bellwether stock they follow to gauge the stock markets trend and identify reversals before they take place.
About 10 years ago I traded with a floor trader who swore that whatever GS (Goldman Sachs) did the market followed. Another said he only used XOM (Exxon Mobile), while Stan Weinstein says GM (General Motors) was the stock to follow.
While each of these traders have been highly successful with their bellwether stock, I wanted to cover these in more detail and show you have to get the best of each of their strategies working for you. This will help you properly time the market, identify the overall market health and at which point you should be getting long or short stocks in your portfolio.
Watch this quick video below:
If you would like to successfully trade both bull and bear markets then join my trading and investing newsletter today and catch the next hot sectors for 2014 using my ETF Trading Strategies.
https://thegoldandoilguy.com/wp-content/uploads/2014/03/vieo-play.jpg204204adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2014-03-15 08:03:312014-03-14 16:11:02What GM, GS and XOM Do, So Does the Broad Market – Trading Strategy
I have had a few emails asking about our silver position and why we are not moving our protective stops and taking more profits similar to how we are trading Natural Gas.
These are great questions and here are my thoughts:
Depending on your outlook and trading/investing type you will either be looking at silver as a quick trade to lock in gains, or as a early entry point into silver as precious metals start to form a basing pattern. What you do is up to you as I cannot give individual investment advice.
We/I did take some profits off the table and move our stop up last week for a portion of this position (1/3rd) and we moved our stops to breakeven. As shown in this morning video gold, silver and miners still have a LOT of work to do to build this basing pattern and it may take a few months yet. If you did not watch today’s video then do so for a visual.
I am more of a short term trader which is why I sold 1/3rd of our position last week. My brain/emotions demand I lock in profits when the market gives us a quick move in our favor. That being said, I really like the precious metals sector and feel we are getting in early and at a great price. If this basing pattern holds up and price continues to rally in our favor this year, it means we will be deep in the money on this position and can add a lot more money upon the next setup in gold, silver or miners with less risk because of our profit cushion on this first silver trade.
So I am holding the balance of my silver position with a breakeven stop looking for the longer term trend to pick up speed in the coming months.
Here is a perfect example showing how 3x leveraged ETF funds can lose value over a short period of time while the underlying investment is deep in our favor by 5% and should have our ETF in our favor by 15%). But instead we are under water by a few percent still…
This is a prime example of why I don’t trade 3x ETFs that often. And when you actually run the numbers on how much leverage you actually get with 3x ETFs its actually the same or less than if you just bought a single ETF with the same amount of capital and margin… 3X ETFs require you to have 90% margin, while a single ETF only requires you 30%. It’s a little complicated to crunch the numbers and explain but know that 3x ETFs are nothing special when you do the math for both long term and short term trades.
For example, if you wanted to buy $1000 worth of a 3x ETF, the margin requirements on these fund are 90% meaning you must have $900 in your MARGIN account to trade this position. But if you wanted to trade say a single ETF where the margin is only say 30% for a non levegeage fund, you can technically trade the same position size with the same amount of money WITHOUT the 3x leveraged fund price decay we all know is terrible in these highly leveraged funds.
So if you wanted a position to match the power of the $1000 3x leveraged ETF position but using the single ETF, you would only need to buy $3000 worth of the single ETF, but because its only 30% margin requirement. This may be confusing, the only point im trying to make here is that you can get almost the same trade using a single ETF simply because of the margin requirements between the two types of ETF funds. Most individuals do not realize the crazy margin required for 3x ETFs and its likely the reason most traders get margin calls with trading these funds.
Long story short, if today’s price action is a reversal day it will only take another big down day for us to be deep in the money on our inverse ETFs.
The Next Trading Session Is another Big Sell Off in our Favor – Current Live Trade
This is a continuation of yesterday’s post talking about how we needed another big down day for the ETF catch up to the natural gas price action.
Today Nat Gas is down another 10% and has sent our 3x leveraged ETF fund deep in the money with subscribers traded up over 18% in only a couple trading sessions.
We continue to hold our remaining 1/3rd of our position in DGAZ with a stop 5% in the money in case price reverses hard today or this week.
https://thegoldandoilguy.com/wp-content/uploads/2014/02/ng-Gain.png400596adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2014-02-25 09:50:132014-03-03 13:33:59Price Erosion of 3x Leveraged Natural Gas ETFs
I apologize now for the Christmas colored charts below… Its a lot of red and green but these are the most understood colors for knowing what ranges means (bullish or bearish).
This was a very emotion week for traders. The strong selling Thursday and Friday has traders and investors running for the door and panicking out of positions. While I did close out our long SP500 swing trading on Thursday to lock in a profitable trade, I do feel as though we can re-enter next week a better price.
The only ones feeling pain today are those who do not have enough self-discipline to create rules and trade by them. Again this is talked about in GREAT DETAIL in my new book. If this is you, I recommend buying my book and reading it this weekend as it’s a quick and simple read. There is a paperback version or instant PDF download available: Get Book.
Without self-discipline no amount of courses are trading services will make you a successful trader.
Let’s get technical and jump into the charts…
Momentum Index – The Intraday Extreme Overbought/sold indicator
This is an indicator I follow daily to understand how strong the selling is. If it is broad based or sector related. The last two sessions clearly shows is broad based and that the market has moved to quickly in one direction and is primed for a knee jerk reaction bounce.
This is a fantastic tool for timing key pivot lows and highs in the broad market. We are nearing another key pivot low but there is still room for more selling next week.
Options Traders Are Fearful of Continued Selling
If you don’t know what the put/call ratio is, in simple terms it tells us when the majority of traders are buying put options (expecting stocks to fall, ratio of 1.0+), and when they are overly bullish (expecting stocks to rise, ratio below 0.60).
The chart below shows everyone is leaning towards more selling in the stock market. I use this as a contrarian indicator.
The Fear Trade – Shorting Fear with an Instrument that Naturally Loses Value: VXX
There is a lot of interesting way to trade the stock market and once way it through shorting the VXX ETF during bull markets. Instead of buying a long position in stocks, you could simply short the VXX fund. This thing loses value over time because of the way it’s managed/constructed. So logic says, shorting it on bounces can be very rewarding during times when fear is high.
Keep in mind this fund and its underlying index moves FAST with 20-30% percent swings… Trade small position sizes if you ever touch this thing…
Weekly Technical Trading Report Conclusion:
In short, (pardon the pun) I feel the stock market is setting up for another big bounce. The technicals and longer term trend remains bullish. I trade with the trend until proven wrong. Only then will I change the direction and trade with the new trend.
Precious Metals ETF Trading: It’s been a week since my last gold & silver report which I took a lot of heat because of my bearish outlook. Friday’s closing price has this sector trading precariously close to a major sell off if it’s not already started.
On a percentage bases I feel precious metals mining stocks as whole will be selling at a sharp discount in another week or three. ETF funds like the GDX, GDXJ and SIL have the most downside potential. The amount of emails I received from followers of those who have been buying more precious metals and gold stocks as price continues to fall was mind blowing.
If precious metals continue to fall on Monday and Tuesday of this week selling volume should spike as protective stops will be getting run and the individuals who are underwater with a large percentage of their portfolio in the precious metals sector could start getting margin calls and cause another washout, spike low similar to what we saw in 2008.
ETF Trading Charts:
Below are updated with Friday’s closing prices showing technical breakdowns across the board..
Sweet & Sour ETF Trading Analysis:
Just to make things a little more interesting I would like to point out a couple other types of analysis.
Sweet: Through analysis of the CEF Central Fund of Canada Ltd. chart and evaluation it is clear precious metals are falling out of favor at an increased rate. This fund owns physical gold and silver bullion and investors are fleeing the fund so fast that it is now trading at a 7% discount of its asset value. While this may not seem good for metals I see it as a positive.
When everyone is running for one door after an extended moves has already taken place it tends to act as a contrarian indicator. Knowing that some of the largest percent moves in a trend takes place before reversing, I see this information as an early warning that a bottom will soon be put in place.
Sour: While the USD index has not been much help compared to 2012, I feel as though a rising dollar is likely to unfold for a couple weeks which may lend a hand to pulling the precious metals sector down.
Precious Metals ETF Trading Conclusion:
While I am starting to get bullish for a long term investment in precious metals I know that a bottom has likely not yet been made. But even if it has been, it is better to buy during a basing pattern or breakout to the upside from a basing pattern than to be underwater with a position for an extended period of time along with all the other negatives that come along with it.
I do like the idea of CEF as a long term investment when I feel the time is right. I have invested and traded it many times in the past. The key to trading the fund is to be sure you are buying it at fair value or a discount from the net asset value. You do not want to be buying it when it is trading at a 5-7% premium. The fund owns both gold and silver making it a simple diversified precious metals play.
We all know quantitative easing devalues the Dollar but contrary to that general statement it looks as though we could see the dollar index continue to rise for a few more weeks.
If we analyze the chart of the Dollar ETF (UUP) it is clear that the short term momentum has turned up. The break above the down trend line and recent bounce off support bodes well for the dollar index.
The bull flag chart pattern that has formed in the past month has a measured move price target of roughly $22.30. The level also happens to be a key pivot point on the chart along with high volume resistance.
I expect the dollar to continue to work its way higher over the next week or two with $22.30 being the line in the sand where sellers will jump on price and drive it back down, or at minimum force price to consolidate for a few days.
US Dollar ETF Trading Strategy – Daily Chart Analysis
A couple weeks ago I posted these same charts talking about the pending breakout (in either direction) with silver, gold and mining stocks. Fast forwarding to this week its clear this sector continues its struggle to rally. Key support levels are now being tested and if these levels fail prepare for a sharp correction with mining stocks showing the most downside potential of roughly 25% for the GDX ETF trading fund.
Let’s take a quick look at what is going on.
Gold Trading Chart:
The chart of gold shows price being wedge into the apex of the down sloping resistance trend line and the rising support trendline. Gold was trading below this level but has since bounced. But if gold closes the week below this line in the sand the price could start to fall quickly and test the $1200 per ounce within a week or two.
Silver Trading Chart:
Silver is under performing gold and trading below its support level currently. If silver does not recover by Friday’s closing bell then things could get ugly for a few weeks as investors start to exit their positions. That being said, I need to point out that silver is more of a wild card when using trend lines like this. Both gold and gold miners should be confirming this breakdown in silver if it is the real deal.
Gold Mining Stocks ETF:
The chart of gold miners I like the most. I like it because it’s pointing to lower prices, roughly 25% lower if the breakdown takes place. Gold mining stocks could be a fantastic long term investment if we see the $17.50 level reached on this GDX etf.
Last week I talked about ETF trading strategies and the big picture on gold, silver, miners and bonds. They look to be nearing a major bottom and once they do bottom it should be a great buying opportunity for specific stocks or the entire sector.
The next few weeks are going to be crucial for precious metals and we will keep an eye on them as this bottom unfolds. Get more reports like this here: www.GoldAndOilGuy.com
Chris Vermeulen
http://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.png00adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2013-11-18 16:23:472013-11-18 16:23:47Silver, Gold & Miners About To Sell Off Again
Stock market continue its momentum from yesterday but struggled to climb. More weak comments from Fed Chair nominee Janet Yellen suggested that she would likely see QE continue for a while to help the US economy get back up on its feet.
QE liquidity has been one of the main forces driving the stock rally over the past year and today was no exception. The Dow and S&P broke out to new highs while the NASDAQ lagged a bit weighed down by Cisco’s poor earnings numbers. Gold and silver also rebounded today but with falling gold demand, it still has work to do to convince traders this is more than just a dead cat bounce.
Retailer Nordstrom beat expected earnings, which offset Wal-Mart’s disappointment numbers this morning. This news, along with Macy’s and JC Penney’s numbers suggest that high-end retailers are starting to outperform discounters, a sign on increasing consumer spending and an improving economy.
A Canadian magazine I read today shows that 91% of Canadian startup companies are planning to hire more staff in the 2014. That is very encouraging numbers…
ETF Trading Strategies video analysis and forecasts
SP500, gold, silver, oil, natural gas, bonds & the dollar index
This video provides insight on current trend and some new big trends likely to unfold early in 2014. With the proper ETF trading strategies we will be able to profit from both rising and falling market conditions.
My Stock market trend analysis is likely different from what you think is about to unfold. Keep an open mind as this is just showing you both sides of the coin from a technical stand point. Remember, the market likes to trend in the direction which causes the most investor pain.
Since the stock market bottom in 2009 equities has been rising which is great, but this train could be setting up to do the unthinkable. What do I mean? Well, let’s take a look at the two possible outcomes.
The Bear Market Trend & Investor Negative Credit
The S&P500 has been forming a large broadening formation over the last 13 years. The recent run to new highs and record amounts of money being borrowed to buy stocks on margin has me skeptical about prices continuing higher.
Take a look at the chart below which I found on the ZeroHedge website last week. This chart shows the SP500 index relative to positive and negative investor credit balances. As you can see we are starting to reach some extreme leverage again on the stock market. I do feel we are close to a strong correction or possible bear market, but we must remember that a correction may be all we get. It does not take much for this type of borrowed money to be washed clean and removed. A simple 2-6 week correction will do this and then stocks will be free to continue higher.
Monthly Bearish Trend Outlook
Below you can see the simple logical move that should occur next for stocks based on the average bull market lasts four years (it has been four years) and the fact the negative credit is so high again.
Also, poor earnings continue to be released for many individual names across all sectors of the market. While corporate profits may be holding up or growing in some of the big name stocks, revenues are not. This means the big guys are simply laying off workers and cutting costs still.
Overall the stock market is entering its strongest period of the year. So things could get choppy here with strong up and down days until Jan. After that stocks could start to top out and eventually confirm a down trend. Keep in mind, major market tops are a process. They take 6-12 months to form so do not think this is a simple short trade. The market will be choppy until a confirmed down trend is in place.
Monthly BULLISH Trend Outlook
This scenario is the least likely one floating around market participant’s minds. It just does not seem possible with the global issues trying to be resolved. With the Federal Reserve continuing to print tens of billions of dollars each month inflating the stocks market this bullish scenario has some legs to stand on and makes for the perfect “Wall of Worry” for stocks to climb.
The US dollar is likely to continue falling in the long run, but I do not think it will collapse. Instead, it will likely grind lower and trade almost in a sideways pattern for years to come.
Major Stock Market Trend Conclusion:
In summary, I remain bullish with the trend, but once price and the technical indicators confirm a down trend I will happily jump ships and take advantage of lower prices.
Remember, this is big picture stuff using Monthly and quarterly charts. So these plays will take some time to unfold and within these larger moves are many shorter term opportunities that we will be trading regardless of which direction the market is trending. As active traders and investors we will profit either way.
Traders and investors all around the world is having trouble climbing over the wall of worry/fear with the US stock market, and rightly so. There is a lot of things taking place and unfolding that carry a high level of uncertainty. Let’s face it, who wants to invest money into the market when it’s hard to come by (high unemployment, banks are still extremely tight with their money, companies are nowhere near wanting to hiring new staff).
The hard pill to swallow is the fact that the stock market loves to rise when uncertainty is high. It’s almost doing it just to drive investor’s nuts who sold out near market bottom or recent correction. You must overcome the urge to short the market when the economy looks so bearish in the years ahead, and continue to trade with the trend.
Short Term Investing – Weekly Volatility Index Chart
Below you can see the fear index. The chart is self-explanatory showing where it should move next. But if you are not familiar with the VIX then here is definition by investopedia:
“The first VIX, introduced by the CBOE in 1993, was a weighted measure of the implied volatility of eight S&P 100 at-the-money put and call options. Ten years later, it expanded to use options based on a broader index, the S&P 500, which allows for a more accurate view of investors’ expectations on future market volatility. VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.”
Weekly Investing Chart of the SP500 Index
After reviewing the VIX chart above which points to stocks nearing a level of selling pressure, then review the chart below we come to a conclusion that a minor pullback of 2-5% is likely to take place in the next week ortwo.
The divergence in the Relative Strength Index is a bearish sign for the broad market. While I feel a pullback is do and needed for the market to regroup, it is important to review the seasonality chart and know that we are entering one the strongest times of the year for stocks.
SP500 Seasonality Chart
Again, using the data from the previous two charts along with this graph clearly shows that a pullback in the stocks is likely going to be bought back up by the brave investors willing to override their fear and go with the trend. For more interesting charts check out my stock chartlists: https://stockcharts.com/public/1992897
The Wall Of Worry Conclusion:
In short, expect the stock market to correct in the next week or two. But once we get a correction of two percent or more, be prepared for buyers to step back in and buy things up into year end.
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