Gold to $7000 Before It’s All Over??

One of my favorite presentations at the MTA Symposium last week was MacNeil Curry’s. He is the current Rates and FX Strategist for Bank of America Merrill Lynch and was also one of my sponsors for the CMT program years ago. At the conference, he made some pretty big calls for Gold prices that are making headlines.

He was basically saying that trends like these don’t typically end quietly. While last year’s move in Silver ended with a parabolic move, Gold still hasn’t seen that sort of action. Until we do, this orderly advance should continue.

 

Here are a few things Curry had to say about Gold:

– The volatility has been nowhere near extreme enough to convince him the precious metal’s long-term uptrend was nearing the end

– From an Elliott Wave perspective, we have seen a nice, solid, orderly advance

– Any long-term commodity advance tends to end with, “a massive speculative blow-off.”

– “They don’t end quietly”. He projects gold will ascend to levels somewhere between $3,000 to $5,000 and potentially $7,000 per ounce before the rally, now in its 11th year, comes to a close.

– Gold can go parabolic completely on its own. He doesn’t think you need a world ending scenario for that.

– Gold prices would need to double in less than a year to show the kind of extreme momentum that would signal the end to the long-term cyclical uptrend. “Until we see price action take some kind of massive speculative blow-off, where prices effectively double in a year or less, I have to maintain a long-term bullish bias.”

– Gold’s price could double in a shorter time frame, and that he was watching momentum most closely for indication of the kind of speculative fluctuations that would signal an end to the secular bull trend.

 

Related Posts:

The Art of the Gold Chart (April 13, 2012)

About that Inverse Head and Shoulders Pattern in Gold (March 21, 2012)

Source:

Gold May Touch $7,000 Per Ounce Before End of Uptrend (EconomicTimes)

Tags: $GLD $DGP $SLV $SI_F $GC_F

We’re Coming to Harvard May 8th

I’m pretty pumped up to go to Boston in a couple of weeks. The boys and I will be speaking to Harvard students about the markets, trading and how we use social media in our business. The event is open to students, faculty, and investment professionals free of charge. See you there.

Here are the details:

Its a big leap from learning about markets in the classroom to taking risk.

On May 8th at 4PM ET, StockTwits will host a symposium entitled The StockTwits Symposium at Harvard: Trading in the Wild.

If you are a student or faculty at a college in the greater Boston area, please join us for a very special evening of market education from a group of experienced investors and traders.

The program is geared towards students who want to learn about trading in the real world. We will cover value investing, market psychology, technical analysis & social finance.

This is a free event and space will be limited so reserve Your Spot HERE.

Speakers include:

Josh Brown – Author of Backstage Wall Street and the Reformed Broker Blog.  Advisor at Fusion Analytics.

Todd Sullivan – General Partner at Rand Strategic Partners and author of ValuePlays.

JC Parets – Chartered Market Technician. Author of AllStarCharts. Private money manager.

Dr. Phil Pearlman – Executive Editor, StockTwits. Psychologist. Author of The StockTwits Edge and Phil Pearlman Blog.

The symposium will take place on the Harvard campus at:

1737 Cambridge Street

Room k050

Cambridge, MA 02138

 

Look Out Below US Dollar

SFO Magazine: US Dollar Flirts With Dangerous Levels

Friday, April 27, 2012
By J.C. Parets

The U.S. Dollar is flirting with some pretty dangerous levels.

We already know the Dollar Index has been in a decline for 10 years. So with that in mind, we are in the camp that the dollar rolls over again and makes fresh lows. I haven’t seen any evidence of the bear market coming to an end. At least not yet.

Since 2008, the U.S. Dollar Index has been in a volatile 20-point range. With highs near 90 and lows towards 70, but the past year has seen a much tighter consolidation. The current uptrend line from last summer’s low is being tested for the fifth time. This is usually the one that cracks. Because remember that the more times that levels are tested, the higher the likelihood that it breaks.

MOMENTUM

The Relative Strength Index (RSI) is my momentum indicator of choice. When prices make new highs, we also want to see RSI confirm that with new highs of its own. Unfortunately for the U.S. dollar, the new highs in January were not confirmed by RSI. These lower highs in momentum are a sign of weakness. And with the dollar testing this trendline, we’re watching 78 as the last line of defense for the bulls. After the break is confirmed, we’re looking at a 76 target and then 73. In the currency world, these are huge moves.

CONSEQUENCES

As a result of a weaker dollar, I would expect assets priced in U.S. dollars to do well. If the denominator in a fraction weakens, the numerator is going to appear that much more attractive. The metals and energy space particularly stand out in that sort of environment. Precious metals are certainly in line to benefit as well from the potential dollar rollover.

If the U.S. dollar were to turn right around and get back above 81, then I would have to reevaluate our short-term bearish position. But with the long-term downtrend still intact, and a short-term trendline break on the horizon, it’s hard for me not to give the dollar bears the benefit of the doubt.

 

Source:

Dollar Flirts With Dangerous Levels (SFO Magazine)

Tags: $DX_F $UUP $SPY $GDX $XLB $XLE $USDX $UDN

Where Did All The Bulls Go?

The greatest trick the Bull Market ever pulled was convincing the world it didn’t exist. 

Here we are three years into this bull market in stocks and the bulls are non-existent. Literally. With the S&P500 just 2% away from new 52-week highs, this week’s sentiment survey shows the least amount of bulls since September of last year.

 

Do you remember what happened after September of last year? Stocks exploded higher for the next six months = 30% for the S&P500 & 40% for the Russell2000.Will that happen again? I guess we’ll see. But I do know this much: there’s a much higher likelihood that a new rally can get going with the current lack of bulls as opposed to an environment where everyone is already bullish.

Here are the latest survey results:

 

And like we’ve been saying, I think the catalyst will have to be the rotation into more offensive sectors. Bank of America/Merrill Technician Mary Ann Bartels told Bloomberg this morning:

“Stocks driven by the economy, including materials, energy and industrial shares, have fallen out of favor, pointing to a potential “deeper pullback” for the U.S. equity market, she said.

“The market is still staying away from commodity-sensitive cyclicals,” Bartels said. “As long as that continues, that means the market is more likely to go down.”

I couldn’t agree more. We discussed this earlier in the week and I think it’s something important to watch. A good friend of mine recently called me a “Rotationista“. I hadn’t heard that before, but I’ll take that as a compliment I suppose. I do want to see rotation into some of these areas: Energy, Materials, and Industrials. And it feels like everyone hates these sectors. So just like the sentiment surveys, we’ll put our contrarian hats on and look at this lack of confidence as a good thing.

What do you guys think?

 

Sources:

AAII Investor Sentiment Survey (4/25/12 AAII)

Bullish Sentiment Drops to Lowest Levels Since September (Bespoke)

Bartels Sees S&P at Risk for 10% Drop (Bloomberg)

Tags: $SPY $XLI $XLB $XLE

Where To Be: Stocks or T-Bonds?

For me, this is a really important chart at a critical juncture. We’re looking at Stocks vs Bonds: Where would we rather be?

For simplicity purposes, let’s use $SPY vs $TLT (S&P500 SPDR vs iShares 20+ Year Treasury Bond Fund). You can substitute $SPY for $DIA (Dow Jones Industrial Average ETF) or substitute $TLT for $IEF (iShares 7-10 Year Treasury Bond Fund) and they’re telling the same story. So here you go:

After battling with 6 months of resistance (in blue), the Stocks to Bonds ratio broke out to new highs in early March. That was a ton of resistance that was finally cleared. But since topping out later that month, the ratio is back currently retesting that broken resistance. The laws of polarity tell us that this level should become support on any retests. And here we are, so let’s see. But to add to the potential support, we also have an uptrend line connecting all of the lows since early October. Both of these together force me to give stocks the benefit of the doubt:

Now let’s look at momentum. Go back to late 2010/early 2011 when $SPY:$TLT was making higher highs in price, but the Relative Strength Index (RSI) was rolling over. This bearish divergence came well in advance of the big decline in price. But then the opposite occurred last Fall. With prices making fresh lows into October, RSI was putting in a higher low. This bullish divergence came just before the major rally that we’ve seen ever since.

So what is momentum telling us now? I see nothing but bullish characteristics. The overbought conditions in RSI for March are normal in uptrends. Furthermore, as prices are currently testing potential support, RSI is down to the lowest levels possible while still being in Bullish mode. So when I said ‘critical juncture’ before, I really meant it for both price and momentum.

Now, for risk management purposes, I would definitely have to reevaluate that position if the early March lows in this ratio are taken out to the downside. This would tell me that the former resistance did NOT become support and that the uptrend from October is now broken. I would NOT want to be long this ratio in that particular scenario.

But for now, until proven wrong, I would stick with stocks here over US Treasury Bonds.

 

Also See:

Energy Needs to Step Up Here (April 23, 2012)

My Technical Books, Blogs and Tools

You want the truth? Being a technician is awesome. I wouldn’t have it any other way. But with my strategies of choice come the questions. Some I’ve answered already but a few keep coming up: “What Books do you recommend on the subject of technical analysis?”, “What blogs or websites do you read?”, and “What charting tools do you use?”. So let’s address that today:

 

What books do I recommend?:

John Murphy: Technical Analysis of the Financial Markets – Straight and to the point

Edwards & Magee: Technical Analysis of Stock Trends – The bible on the subject

Martin Pring: Investment Psychology Explained – one of my favorite reads of all time

Steve Nison: Japanese Candlestick Charting Techniques – This is the go-to for everything candlesticks

John Murphy: Intermarket Analysis – Read this one after you have a little bit better understanding on technical analysis. Also one of my favorites.

Jeff Hirsch: Stock Traders Almanac (every year) – You gotta know this stuff. To ignore these seasonal tendencies is just silly.

Brian Shannon: Technical Analysis Using Multiple Timeframes – This is the first book on TA that I voluntarily read after passing CMT Level 3. Awesome book that really trains you to think in different time periods.

Robert Prechter: Elliott Wave Principle – 99% of people who dismiss Elliott Wave don’t even understand it. You could be ignorant like the crowd or you can learn and judge for yourself.

Constance Brown: Technical Analysis for the Trading Professional – helps you to think outside the box. This business is about being creative with your analysis and staying one step ahead of the crowd.

***

What I’m reading now? 

Andrew Lo: The Evolution of Technical Analysis – Financial Prediction from Babylonian Tablets to Bloomberg Terminals

Robert Shiller: Finance and the Good Society

***

What are my favorite blogs?

Abnormal Returns – Tadas reads everything. He breaks down for you what is important and what you should read. Incredible tool. Also check out his new book.

Afraid to Trade – Corey is a Great technician and I love his Intermarket work.

Alphatrends – I’ve been watching Brian Shannon’s videos since 2006. He’s a friend, a favorite author and one hell of a technician. Go buy his book too!

AshrafLaidi – For everything technical in the currency markets – this is your guy

Barrons Streetwise – If you’re not reading Michael Santoli on Saturday mornings, I don’t know what you’re doing

Bespoke Investment Group – These are the best, up-to-date and relevant charts on the web. Not reading this site should be a crime.

The Big Picture – Because Barry started this all and he’s been blogging since before blogs existed. Daily read no matter what your strategy.

Calculated Risk – My go-to for Employment, GDP, Retail and Real Estate charts

ChessNwine –  He’s my chart guy at ibankcoin

Dragonfly Capital – Just pure awesomeness. One of my favorite Stocktwits follows

Derald Muniz – Recently added to my list of daily reads and has become very valuable to me

dshort – Great charts. Must read

High Chart Patterns – Excellent Technical Analysis, more short term stuff

Joe Fahmy – A friend and just all around good technician and risk manager

Kimble Charting Solutions – Technical analysis of all asset classes. Great Intermarket work

Market Anthropology – Keeps you in check by comparing current action with older charts

Peter L Brandt – One of the best on the web. Subscribe & follow @PeterLBrant – Do this right now

SMB Capital – Notes from inside a NYC prop trading shop

StockCharts Blogs – Great network of blogging technicians. All Asset Classes.

The Stock Sage – Robert Sinn is a friend and great technician. Incorporates fundamentals nicely but we know where his heart is 😉

Stock Traders Almanac Blog – you need the book on your desk and you must read the blog. Period.

***

What is a Chartered Market Technician?

The best decision of my career. Go to MTA.org to find more information.

Here are some Frequently Asked Questions

If you are interested in learning technical analysis and don’t have your CMT – go do it right now. Stop thinking about it – just go.

***

What Tools Do I Use?

Stockcharts.com – great for annotating charts and with the subscription you get daily comments from John Murphy and Arthur Hill. Great deal

StockTwits and Chart.ly – Following some of the best on the stream (see here)

Tradestation Charting Software – I think it’s the best. I built my proprietary oscillators using their “Easy Language” (which is not easy at all by the way)

Google Alerts– I set up my news feed with some of the best technical analysts on the street: Louise Yamada, Carter Worth, Mary Ann Bartels, Jordan Kotick, Katie Stockton, Ralph Acampora, Robert Sluymer, Sam Stovall, MacNeil Curry, Jeff Degraaf, Chris Verrone, Greg Troccoli, Tom Demark, JC O’Hara, and John Roque.

***

And For Fun?

Most of my time is spend on studying price action and reading some of the technical analysis done by my colleagues. But the markets are my hobby. So to learn about other areas that I don’t know as well I read: Howard Lindzon (for the inside scoop on interesting start-ups and stock momentum names), TheReformedBroker (because it’s a daily must read for everyone in the business), Zerohedge (to keep me in check), Dealbreaker (for the gossip), Lydia at FaithMight (for the FX markets), Leigh Drogen (bc he’s a friend and just the man – see Estimize), TraderHabits (for trading stories and lessons), TechCrunch (bc I’m a tech geek and I love this stuff), Phil Pearlman (bc he’s Dr. Phil, so how can I not), The Basis Point (My pal Julian is the go-to guy for everything mortgage and housing), and Dilbert (bc it’s hilarious).

I just finished reading Josh’s new book Backstage Wall Street (it was awesome, go buy it now), Reminiscences of a Stock Operator (must read for anyone who trades), Barry Ritholtz’s Bailout Nation (for the truth on what happened a few years ago), Market Wizards (Interviews with Top Traders), Technically Speaking (Interviews with Technicians), Beautiful Pictures from the Gallery of Phinance (Elliott Wave), When Genius Failed (LTCM debacle), Liars Poker (Bond Traders being Bond Traders), and A Non-Random Walk Down Wall Street (BECAUSE MARKETS ARE NOT EFFICIENT).

***

So there you have it. Understand that there’s a lot more to it. These are just a few things that stand out. I’m sure I’ll add to the list over time and update it when necessary. But I hope this helps you understand what I’m looking at and how I’m thinking. There are no secrets here. This is literally what I read everyday and these books are what helped me turn into the technician that I am today.

If you have any suggestions that I didn’t list or think I may have missed, please let me know. Also, I’m more than willing to check out some books and blogs that I haven’t already read. So let me have it!

JC

 

Also See:

Why Charts? (TheReformedBroker June 28, 2011)

Are You A Technician? (Allstarcharts November 5, 2011)

What Does Technical Analysis Mean to You? (Allstarcharts April 6, 2012) 

 

Energy Needs To Step Up Here

If money is going to rotate into the Energy space, I think this would be a logical place for it to start. After breaking out of that consolidation in February, the Energy Sector SPDR ($XLE) has been selling off for almost two months both an absolute basis and relative to the rest of the S&P500.

Look at this chart of $XLE below. If we draw a trendline from the October highs and down through the January Consolidation, the extension of that resistance level takes us right here to potential support. This price also represents the 38.2% Fibonacci retracement from the October lows up to the February highs.

Now look at the relative underperformance plotted below the price chart. During the recent 10% correction in Energy, the sector has also underperformed the S&P500 for this entire two month period. But that down trendline of relative underperformance is being tested right now as well.

So we need to see two things. First, we want to start seeing higher lows in relative strength for $XLE. Until we see that, there is no point in bothering with this space. And for confirmation of a new uptrend (and continuation of the longer-term bull trend), we would like to see prices trading back above that early April gap lower. For the last 3 weeks, Energy was consolidating nicely but broke down Monday morning. If this (false?) breakdown is what was necessary to shake out some weak hands and test that 38.2% Fibonacci retracement, this could be a nice entry point. But I prefer to see prices get back above and hold on to that key $70.50 level.

$XOM $CVX and $COP are going to be key the components to watch here. Some of these Energy names have massive market capitalizations and will have a big impact the major averages. The US Stock market Indexes have struggled to make new highs without Energy’s participation. I fully expect this resistance to continue until Energy steps its game up.

 

Tags: $SPY $IYE

Technical Analysis and Social Media

What a great week this was for Technical Analysis here in New York City. The Market Technicians Association annual symposium finished up last night with beers at Fraunces Tavern – the oldest building in New York. Very cool place. Legend has it that George Washington gave his farewell address to the officers of the Continental Army there in 1783. I wasn’t around so I couldn’t tell you. But the fact that the bar is old enough for this even to be possible is good enough for me.

On Thursday afternoon there was a panel discussion with the MTA Board of Directors called “Technical Analysis; Past, Present and Future“. They did a great job talking about the current state of the organization and what some of the plans are for the future. I know that just since I’ve been there, the number of members has almost doubled and the annual symposium has gotten better with more attendees each year. More importantly, I keep meeting so many CFA Charterholders studying to get their CMT designations. This is interesting to see.

Anyway, a big topic of conversation at last year’s event was, ‘Where is the next generation of technicians going to come from’? I love hearing how some of the more old school guys started charting. There are some really interesting stories about how they used to plot point & figure for their fathers as kids or worked at a bakery where the owner used to trade using charts. There are all kinds of cool stories, and the old timers are more than willing to share. But what about the new kids on the block? Where are we going to find them?

Well I think they found us. This is the age of social media – it can’t be denied. And currently there are 500-1000 annotated charts uploaded to Chart.ly on an average day. There is some excellent technical analysis being done and shared with the world using this platform. And it is really a very simple process:

Go to http://chart.ly/

You can set up an account with a unique user name or just connect using your Twitter, Facebook, or LinkedIn information. Up to you. Personally, I use my Twitter username and have LinkedIn and StockTwits all connected. Facebook doesn’t do anything for me so I just ignore it. But feel free to impress your former kindergarten classmates with your take on the Head & shoulders pattern in the S&P500.

Then simply annotate your charts like you always do and save it to your hard drive. Look how simple this process really is:

So guys, do you want to know where the next generation of technicians is going to come from? It’s the ones using the internet. Not the ones drawing lines with rulers on huge sheets of paper. That’s not going to happen anymore. The young generation that understands computers and the internet is already sharing their charts and putting together some excellent analysis. This goes for college students and guys in their 60s. Doesn’t matter. Social media welcomes all.

Some of my favorite follows are: @PeterLBrandt (Classical Chart Trader), @HarmonGreg (CMT & CFA Chartholder), @Alaidi (Currency Extraordinaire), and @1nvestor (P&F and more).

A lot of these guys have blogs as well so I advise you to check them out if you are interested in technical analysis. And if you want to start sharing your charts with the community, set up your StockTwits account and get going. If you have any questions about what to do or how to do it, feel free to reach out to me jc@allstarcharts.com or ping me on StockTwits or Twitter @allstarcharts.

Social Media and Technical Analysis have a beautiful relationship. The community continues to grow worldwide live and online. I can’t wait to see where we are 5 years from now, in 10 years, 20 years…..

 

Rallies After Massive Bear Markets

This is a great chart.

The good folks at ChartOfTheDay.com define a ‘massive’ bear market as a decline of greater than 50%. There are four of these bear market rallies plotted below: the 1932 Dow Rally, 1942 Dow Rally, 2002 Nasdaq Rally and of course the current rally in the Dow from the 2009 lows.

“The current Dow rally has followed a somewhat middle of the road path and has followed the post dot-com bust rally of the Nasdaq that began back in 2002 fairly closely — especially over the past year. If the current rally were to continue to follow the post-massive bear market rally pattern, the market would have to work its way higher during much of the remainder of 2012.”

 

Source:

Post-Massive Bear Market Rallies (ChartOfTheDay.com)

Tags: $DJIA $DIA $COMPQ $ND_F $QQQ

Is The Dividend Trade Too Crowded?

It’s Chartapalooza this week at Chelsea Piers here in New York. I’ll be spending most of Thursday and Friday at the Market Technicians Association’s Annual Symposium. If you couldn’t make it this year, I definitely recommend joining us in 2013.

Meanwhile, this chart of High Yielding Stocks compared to Lower Yielding Stocks caught my attention. The question here is whether or not this higher dividend paying trade is getting a bit crowded:

Sam Burns at Brown Brothers Harriman:

“These metrics suggest that the heavy investor interest in high-yielding stocks has stretched their relative valuations compared to historical norms,” Burns says. “This does not necessarily imply high-yield stocks will underperform soon, as valuations can remain extended for long periods, but may raise the risk of using dividend yield alone as a stock selection strategy.”

 

Source:

Are Dividend Stocks Getting Too Expensive? (WSJ)

Individual Investors Are Not Impressed

The latest sentiment polls are out and the Bull/Bear ratio dropped again,

From Dr. Ed Yadrini:

“The change in sentiment has been even more noticeable in the Bull Bear Ratio reported by the American Association of Individual Investors. It plunged to 0.68 during the week of April 11, down from a recent high of 2.86 during the week of January 11. You know what that means: Sentiment is bearish, which is bullish for stocks.”

 

Source:

Stock Market Sentiment (Dr. Ed’s Blog)

The ‘Instagram Top’ For Apple Stock

So I guess that’s what we’re calling it right?

Last Monday, Facebook announced that it would be acquiring Instagram for the humble sum of One Billion Dollars. That day Apple stock closed at a record high $636.23 and since then it’s been down hill. Five days in a row of losses resulting in about a 9% correction in price.

Funny that one of the apps that I use most on my iPhone was bought out by an app that I have never used. Facebook just isn’t my thing. I’m more of a Stocktwits kind of guy, so I always thought Instagram was cool. Anyway, America’s favorite stock is the topic of conversation, as usual:

Here is the daily chart showing the most recent uptrend that saw a 70% price appreciation in just 4 months. You think $AAPL deserves a little breather?

I drew what I think is the most important trendline using a green dotted line. The uptrend was broken over the last week, so it’s time for us to take a closer look. Now just because there is a change in trend, doesn’t mean that the trend has reversed. In fact, there isn’t any evidence yet that this will be more than a sideways correction.

The Relative Strength Index (RSI) has been showing some bearish divergences, very similar to what we’ve been seeing in the S&P500. With new highs in the S&P500 and $AAPL, RSI has been making lower highs. This is just a warning that momentum is slowing and some overbought levels need to be worked off.

I think this is what we’re seeing right now. So far Tuesday, $AAPL is bouncing off Monday’s lows, but it’s probably going to take some time before last week’s all-time highs are taking out. The most constructive action would be some kind of sideways consolidation. This would allow the moving averages to catch up, and price to catch its breadth a bit. We could even see further selling in $AAPL down to the $540s and still, not all would be lost. Anything more and we’d have to reevaluate this position.

I’m not in Apple stock right now and don’t really want to be. When in doubt, stay out. And that is OK by me. After some consolidation, I might be interested. I think the only thing that will make this name more attractive to me is time.

 

Tags: $FB $SPY $ES_F $SPX