Buying a long stock position an auto maker right now doesn’t seem to make much sense at first blush … however, I can’t help myself but starting to like the longer-term set-up of Ford here now. I bought a 1,000 shares so that it stays on my radar going forward. Here are the charts …
Ford – Monthly Chart
December was a large and rather nasty looking red candle for Ford on the monthly chart … the three subsequent monthly candles are all inside candles and to me we could have made a longer-term floor to trade against with that December 2018 low. Don’t get me wrong, the chart is not screaming a longer-term bullish move, but I am always on the look-out for stocks that may have been washed-out on the bigger time frames.
Ford – Weekly Chart
The weekly chart for Ford is actually showing a nice pennant/triangle formation. Generally, these type of price patterns are just consolidations that resolve themselves in the direction of the bigger trend that existed going into the consolidation phase – that implies another move lower in Ford. That could happen, but if it did, I think that could actually be the final thrust lower on the monthly/weekly charts for some time to come.
Ford – Daily Chart
So if price is going to break-out of that weekly consolidation pattern, we should be able to see the signs of that move here on the daily chart first. To me, the daily chart is more bullish looking than it is bearish looking.
Bottom-line … while Ford may not be finished with its move lower on the monthly/weekly charts, it looks to me we are near if not already there. I started a small position to keep a closer eye on this one going forward.
LULU reports after the close today … I have been keeping an eye on this stock lately and I am thinking any bearish news from this earnings report could see LULU become a pretty decent bearish short position for me. Here are the charts …
LULU – Daily Chart
To me the daily chart looks like one that is ripe to see price start to head lower … the price chart is in a bearish position – price itself is below its 20SMA; the 20SMA is below its signal line, and the ATRs are in a position of resistance.
The poor price performance of NKE since its earnings gives me more confidence that if the market doesn’t like what it hears today after the close, then we could get multiple days of a leaking stock price.
LULU – Weekly Chart
LULU – Monthly Chart
The bigger time frame charts are less bearish, so LULU may not be in any serious trouble here. The weekly chart shows that price is below its 10SMA but the 10SMA is still above its signal line (barely!!).
The monthly chart has broken its ATR support so that is what makes me a little more suspicious of the weekly chart’s bullish signals (ATR is a position of support). If the monthly chart has in fact made an important pivot high, then this bounce on the weekly time frame is just a bounce and the fact that price broke above the weekly ATR is nothing but a false signal.
More chopping may be necessary, but if LULU bounces after their earnings today, I will pay more attention for a possible spot over the next couple of weeks to try and start a long dated bearish option position in LULU. If price starts to weaken here after earnings, I think an outright short position will be a good risk/reward trade.
The cloud stocks have been wonderful stocks during this bull market … the longer-term weekly charts are starting to show that the best days for these stocks may be behind us.
CRM – Weekly Chart
Price pushed to new all-time highs last week, but that weekly candle actually looked like a potential doji topping candle. When I look at the Time Segmented Volume indicator on the second panel, it is clear to me that money flows have been weakening in this name since September 2018.
Relative strength vs the SPY is also showing weakening performance … the 8 period momentum indicator is fighting to stay above the +ve/-ve mendoza line.
The bottom line is that the days of leading the market by a large margin are likely a thing of the past.
CRM – Daily Chart
The daily chart shows in greater detail the weekly charts’ weakening … the ATR and 20SMA are still in bullish positions, but indicators are clearly showing a weakening of strength. Obviously, things can re-accelerate from current levels, but I think the bigger weekly chart is foretelling an overall weakening stock performer.
Bottom Line – I am going to start writing out of the money calls until the charts turn more bearish – at that point, outright shorting intra-day or positionally may be good risk/reward trades.
Stock market bulls have slowly come to the realization that the global synchronized growth that they were counting on since the beginning of 2018, has fizzled out and their only remaining hope for higher S&P 500 profits/PE multiples is the domestic economy.
Since small cap stocks in the US are widely acknowledged as the best barometer for the health of the domestic US economy, it makes sense for equity investors to pay attention to what small caps are doing here recently … let’s start with the bigger picture and then work our way down to the daily chart.
Russell 2000 Small Cap ETF (IWM) – Monthly Chart
So to me, the IWM looks to have completed a 3-wave pattern right at the 1.618x extension target back in August 2018 (ahead of the Sept top in the SPY). The move off of that possible 3rd wave high looks impulsive to me, so I think that Wave 3 to the upside is almost certainly complete. Let’s see if the weekly chart gave a complete wave pattern into that possible monthly Wave 3 high.
Russell 2000 Small Cap ETF (IWM) – Weekly Chart #1
Again, it looks like the August 2018 high completed a 3-wave price pattern on the weekly chart … that makes me completely confident that the monthly chart’s price pattern has completed and that we are now in a corrective pattern on a monthly time frame.
That monthly correction will need to make its way down into the SLOT support zone identified above, and that move lower will take the form of either an ABC or a 3-wave price pattern. Since one of these two patterns is now a certainty, traders should look for support at either the 1.272x (in the case of an ABC move) or the 1.618x level (if the move lower morphs into a 3-wave price pattern).
Where are those levels, and how do they relate to the bigger monthly SLOT support zone?
Russell 2000 Small Cap ETF (IWM) – Weekly Chart #2
Again, let me restate that I am very confident that the monthly chart has completed a 3-wave price pattern to the upside and therefore I think we need to correct that move in the SLOT support zone as drawn above … that implies that one way or another, price is going to get at least to $103.82.
I state that minimum target because if the current move lower finds support at the 1.272x extension target and “solidifies” its characteristics as an ABC move, that to me would be only the first leg of a bigger corrective pattern – i.e., price would bounce from that 1.272x level but that move higher would fail in SLOT resistance before making another move lower into the SLOT support zone.
If price breaks below the 1.272x target level at $112.87, then I would look for price to find support at the 1.618x level (or $96.41) … that type of move would be inside the SLOT support zone and in theory be enough of a correction to have completed IWM’s monthly corrective price pattern.
Even if price were to get to that 1.618x level, that does not guarantee a move back to re-challenge all-time highs, but it does imply a bigger, and a more swing-tradeable bounce for traders to enjoy.
Russell 2000 Small Cap ETF (IWM) – Daily Chart
The daily chart saw price break below its March 8th pivot low this past Friday … everything on the daily chart to me looks weak, and I think the weekly chart is driving the bus here now in the IWM. That means that the daily fib supports shown above will not hold as support and that we are going to break below the December 2018 pivot low. I would expect the S&P 500 and NASDQ 100 Indexes to follow suit as well.
The fear of missing out is likely soon to be replaced by investors’ fear of capital losses … we should be in for a fun 2nd Q 2019.
My buddy Francisco mentioned to me today that bonds look like they are ready to move higher … that immediately made sense to me as I knew that bonds had broken out of the downward broadening price pattern at the end of 2018, and from all that I have recently been watching, US equities have run out of juice in the bounce from the late December lows.
I’m not going to put on any swing trades here in bonds yet, but when the bond ETF (TLT) gets back above the 195-min 20-ema and the 20-ema’s signal line (i.e., price gets back into a bullish position), I will just watch it a bit closer and probably look to trade it long intra-day or for a max of 2 or 3-days at a time. Here are the charts …
20-Year Plus US Treasuries Bond ETF (TLT) – Weekly Chart
Like I mentioned above, the TLT price broke out of its downward broadening price pattern in late-2018. Will that be a fake break-out? Maybe, but I think the strength shown by the Relative Strength indicator tells us to expect further strength in TLT in the weeks ahead.
20-Year Plus US Treasuries Bond ETF (TLT) – Daily Chart
So the pullback here in early 2019 has all the looks of a ABC sideways consolidation … price poked below the A-pivot low and therefore it technically has created a complete ABC price pattern. Is price finished with the C-Wave?
20-Year Plus US Treasuries Bond ETF (TLT) – 65 Minute Chart
The 65-min chart is not the best one to rely on for assessing then end to a weekly price pattern … however, all reversals have to begin somewhere. Price broke above the 65-min ATR resistance level today, so traders looking for evidence of the near-term top in equities should take heed.
Again, I think there is a good chance that bonds do well going forward here for the next several months … I do not believe that a new all-time high in bonds is in the offing, but I think that we can at least get a second leg higher out of the broadening price pattern.
So thanks again, Francisco for the heads-up … let’s see if we can make some money in bonds here over the next little while.
It is pretty clear that the bounce off of the Dec lows is a 3-wave structure. From our price structure rules, what do we know about where wave 3’s terminate? They typically terminate at around the 1.272x extension target drawn off of wave 2 … that would make our target zone around 7016.50 for the NQ contract.
What about a time window? Typically wave 3’s will be equal to 50% -61.8% of the time taken to complete wave 2’s … that would make our window from 10pm last night up until 2am tonight.
The high made today in the NQ was made 9:34am and it was at 7038.75 … so we have made what looks like a complete 3 wave structure at around the typical price target in the time window that would normally occur – what about the actual look of the final 3rd wave? That typically will also form a smaller 3-wave price structure.
So it appears to me that price has completed a smaller 3-wave price structure in the final bigger wave 3 … there is nothing else that I would normally expect to see when looking for a logical place for resistance to hold.
The Fed has folded and therefore I think my bigger thesis for 2019 (weaker US$ and higher gold prices) has a good shot at being pretty bang on.
Trade-Weighted US$ – Weekly Chart
The Fed doesn’t see any inflation, but if the US$ loses 6%+ inflation is sure to be more of a story later in 2019.
Trade-Weighted US$ – Daily Chart
It looks like the bounce into resistance is complete and that the US$ will restart its move lower here now that the Fed has cowed to equity bulltards.
Gold Miner EFT (GDX) – Weekly Chart
Gold and gold miners are headed higher, I believe, in 2019. Is the move an ABC or a 3-wave structure? It doesn’t matter as both target levels are much higher than the current price.
Gold Miner EFT (GDX) – Daily Chart #1
The mover higher out of the September 2018 low looks like it made a perfect end to the 2nd wave with today’s price action – we stabbed the 1.618x extension target perfectly with the end to what looks like a quick emotional move higher.
So if that was the end or the beginning of the end to wave-2, then traders should be looking for a pullback into SLOT support around the $19.90 – $20.40 levels. Then we push higher to make an end to the first move for our journey higher.
Gold Miner EFT (GDX) – Daily Chart #2
The TC2000 chart for GDX shows the extreme DI+ reading with today’s push.
Bottom Line – Nothing that I have seen so far in 2019 makes believe that GLD and GDX/NUGT are not going to be good swing trades. Monitoring the wave structure should allow traders opportunities to increase/decrease weightings as we go forward. Don’t get too cute, and make sure you maintain a healthy core weighting.
The emotion into the December 26th low and the large/strong 3 wave structure formed during the bounce from that December low confirms in my eyes the following price structure of the correction from the October 2018 high …
With the push today above the January 18th high (wave 2 high), it looks like we are completing a 3 wave structure into the down sloping line drawn off of the prior highs right around the 50% retracement level drawn using the Oct highs and the December lows as the anchors.
If that read is correct, we should be heading down into SLOT support on the next move. That would be a corrective wave, and will be followed by another push higher, possibly right into the 61.8% resistance level around 7000 on the NQ.
The above chart gives a better look at the 3-wave structure of the bounce from December … could we have made the high for this first bounce on the very day that the Fed gave the market everything it was crying about? It sure looks like it to me.
As mentioned in earlier blog posts, my son Paul is putting in some serious effort in trying to learn more about trading, and I am doing my bit to try and help him.
Paul is trying to learn about trading intra-day currently, and has decided that natural gas is the instrument that he wants to learn with – I think that is fine in a way because he is specifically looking at the 3x leveraged ETFs DGAZ and UGAZ so that he can sim-trade an instrument that has plenty of intra-day volatility that will allow him lots of set-ups to look for/trade.
Paul probably doesn’t realize that natural gas futures have been nicknamed the “widowmaker” for how many people/traders it has brought to financial ruin, but so be it as Paul is only trading sim, and he seems to have a good handle on the basics that I am trying to instill into his psyche.
One of the things I can’t seem to drive into his head is trading around the weekly inventory report. My basic message is that he should know when the report comes out (nat gas is weekly on Thursday at 10:30am eastern) and for him to stay clear of trading/holding positions into and right after the report comes out.
Paul is having a hard time taking that advice in … I think he believes that he can trade the results of the report vs the actual consensus expectations going into the report. I don’t know how to say it more simply … even knowing the natural gas inventory report before hand will not give any trader an “edge” in trading the price action right after the report. That is not just with natural gas, it applies I believe to almost all markets, and to almost all possible market reports. It just doesn’t make sense to worry about the results of any natural gas inventory report … what Paul and all traders should worry about is the price action after any report, and to try and pick set-ups based on the fundamentals you are working on for any and all entry points.
For instance, this week’s natural gas inventory produced a withdrawl of -163 bcf vs an expectations range of a withdrawl of -85 to -166bcf. Nat gas is still well below the average 5-yr storage levels and is in fact near the average minimum of the range seen over the past 5 years. So what should a trader “expect” to occur to price when you get a report that is on the bullish side of expectations, and overall inventory levels remain bullish for nat gas? According to plain logic … Paul and other traders should jump long nat gas futures (or UGAZ for ETF traders) and count your money as it flows into your trading account. Here is the 5-min chart in UGAZ from this past Thursday .
3x-Leveraged Bullish Nat Gas ETF (UGAZ) – 5 Minute Chart – January 24, 2019
First thing to note on trading once the inventory report was released at 10:30am eastern … that 5min candle had a range of $1.29 ($45.80 – $44.51) which is almost triple the normal 14-period average true range in UGAZ right at that point in time. Paul knows enough to not try and trade during any large range/emotional candle, so I don’t know why he has a fixation to want to try and trade nat gas right after the inventory report!!
One of the fundamentals I have tried to impress upon Paul is to compare price to the 20EMA and the 20EMA’s signal line, and to use that basic fundamental as a sign of whether price is in a bullish or bearish slant – and then look to trade in that direction if the chart indicators are in agreement with that read and your other time frames are in sync as well.
Without seeing ahead in what price was going to do, what should have Paul done coming out of the inventory report? The answer again for those who are a little slow is NOTHING!! Paul and all other traders should just be patient and wait for the first real set-up before trying to enter a trade.
Marked as Point #1 on the above chart is the first real sign from price as to whether or not price was bullish or bearish … I would say that based on price alone, the action coming out of the inventory report was bearish – price had made a large ranging candle move lower that broke the 5min ATR support level, and had dropped below its 20EMA and the 20EMA signal line. In addition, the 20EMA had broken below its signal line, and so based on price and its position to those price chart indicators, traders should have been looking for possible bearish trade entries.
As an aside, a bearish trade should not have been your first thought if you had known about the actual results of the natural gas inventory report’s data going into that report’s release. That is just another example of how knowing a report’s (or any economic report for that matter) data beforehand do not provide any trader with a repeatable edge in trading price going into or directly after the release of that report.
Back to the read of price on the above UGAZ chart … despite the bearish look to price action on the 5min chart, Paul understands that traders need to understand what price is doing on the bigger time frames so they don’t get faked out by focusing on too small of a time frame.
3x-Leveraged Bullish Nat Gas ETF (UGAZ) – 15 Minute Chart
I identified the 15min candle where the nat gas inventory report came out this past Thursday … again notice the large range candle surrounding that report’s release. Paul knows better than to enter a trade during these types of candles.
So Paul knows that price will often pullback to consolidate right at the 20EMA and that is exactly what the 15min chart did in this example … so despite the bearish look to the 5min chart coming out of the inventory report, traders/Paul could see that the bigger trend on the 15min chart was actually still bullish and now making a nice two candle consolidation right back at the 20EMA … the candles were smallish in size and were in fact, inside candles (identified with the small white dots above the candles), so Paul should have been pretty confident that price was likely finishing its pullback and he should be actually looking for evidence of a good BULLISH trade entry on the 5min chart instead of the first thought about price being bearish coming out of the inventory report.
3x-Leveraged Bullish Nat Gas ETF (UGAZ) – 5 Minute Chart
I put the 5min chart back up here so we can look again at price to see when the first real bullish setup occurred … identified as Point #2 is where price had actually bounced back above the 20EMA with bullish looking candles (close > open; hammer) and eventually the 20 EMA made its way back above its signal line.
Also note that the chart indicators – the DI+ made its way above the DI- indicator marking a bullish move … the 20EMA Rate of Change changed directions from a downward slope/direction (Bearish) to an upward sloping direction (Bullish).
So the first trade that made sense coming out of the inventory report was in fact a bullish trade … I guess Paul would have been right if he had blindly entered a long trade the second he saw that the report was on the bullish side of expectations – LOL!!!
Obviously I am being sarcastic here … I’m trying to drive into Paul’s head to only enter a trade when he can see hard evidence of price moving in a given direction. To me it that was not the second the inventory report was released with bullish results … it was when price made it back above its 20 EMA on the 5min chart. The actual entry point could be determined using the 1 and 2-min charts.
3x-Leveraged Bullish Nat Gas ETF (UGAZ) – 2 Minute Chart
I identified the first area on the 2min chart where price was clearly signalling a bullish posture/move … two bullish looking candles that broke above the ATR resistance level; price was back above the 20EMA and the 20EMA was in a bullish position relative to its signal line.
3x-Leveraged Bullish Nat Gas ETF (UGAZ) – 1 Minute Chart
The 1 min chart as also in a bullish position and had clearly shown/indicated that the earlier break above the 1min resistance ATR level had been accepted by price. All chart indicators were pointing for price to continue pushing higher. No one knows how far, but the 15min, the 5min and the 2min charts were telling traders that price wanted to go higher here in a high-probability setup.
That was the real lesson from Thursday and the release of the natural gas inventory report … it wasn’t “knowing” before hand what the results of the report would be, it would just be that the report was likely to cause some volatility in the market and traders should be prepared to enter the first set-up that presented itself.
Lots of spots to enter a trade were I’m sure evident before the set-up I noted above, but I’m trying to teach Paul to enter trades that have high probabilities of success. Making consistent money demands that type of mindset.
Cheers … and Paul, get back to studying the charts instead of spending time talking to your girlfriend down in Latin America!!