Aug

27

Investing Systems Research Lab Blog for Week of August 29th, 2011

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The market traded in a narrowing-range inside last weeks green rectangle. I expect a more of the same this week, with a bias to the upside.

Here’s the daily chart.

Below is the Weekly SPX showing this weeks likely range. I think we might trade toward the upper-end of the green rectangle.

If the market can stage a rally and move above 1225, it wouldn’t be out of the question if eventually it tested the rising trendline from underneath. Perhaps by Halloween.

Technically speaking the market actually looks good for a rally over the next couple weeks, but fundamentally speaking, there’s plenty of shoes that could drop at any time, and plenty of Black Swans that could crap on that idea.

If Friday’s strength can carry over and the market gains a little momentum to the upside, it’s time to “git while the gittins good” I think. I’m trying to be optimistic.

It goes without saying however, that you have to have a well placed stop under every open position at all times. If and when 1100 gives way to the downside, we don’t want to be holding ANYTHING and suggest being in ALL CASH in a TRADING ACCOUNT. Then we can step back and reevaluate, possibly look to grab panic lows near 1000.

With that said, it’s a market of stocks. This week I actually found quite a few charts that look constructive, if the market cooperates.

It’s entirely possible we have seen the near-term lows in many stocks, at least for the next couple weeks, perhaps longer.

If that’s the case, here are some swing-trade setups I am watching. Notes on the charts.

While these are some good ideas, never lose sight of the fact that the market can fall apart at any time, at a moments notice. As you see on the charts, we like to buy strength and wait for a stock to trade up and PROVE it can go up, rather than guessing if it will.

Over the years I have posted hundreds of setups that never hit the entry range and got filled, so keep that in mind. It almost always keeps us out of a bad trade.

We added a Strategy Room Video to the Research Lab that describes a powerful technique using the 15-minute chart to find the optimum Buy Entry. Be sure to check it out. It should work well in conjunction with the charts above.

Just for fun I saved a screenshot of the Live Grid each day last week at the open.

Check em out and notice the stocks that showed up over and over.

PANL was a notable pick that started the week at 30.23 and ended at 51.70, wow.

Be sure to join us each Monday, Wednesday and Friday – right before the open – in the Research Lab Live Broadcast.

We will take the picks from the Live Grid and mark up the charts in real-time to identify potential trade setups. We will take your questions and give our opinion on a wide range of stocks and topics.

If you missed last weeks Wednesday night show, here’s the replay:

http://www.markettoolbox.tv/

Cheers!

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Aug

20

Investing Systems Research Lab Blog for Week of August 22nd, 2011

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“Testing the lower end of the range”

Several times last week I mentioned that it would be constructive for the market to “back and fill” and “do some work” near the prior lows. It’s tough to enjoy, but it’s like working out or exercising so that you will be healthier in the future.

The market started last week near the upper end of the range and I was actually hoping that it didn’t extend more to the upside. That would have just set it up for a more painful pullback. Since we are near the lower end of the trading range it is entirely possible that we can start to build a base over the next couple weeks and stabilize a bit.

Here’s a daily chart of the S&P that shows the wide range we are in now, along with the next downside target should 1100 get breached.

The green box on top shows the current range between the low around 1100 and the major resistance it will find around 1220. Make no mistake, a 120 point S&P “range” is huge and tough to gauge, but we have to take what the market gives us on the chart.

The lower green box shows the range we can expect should the weakness continue. I have always liked setting up expectation “zones” on the charts to get an idea of likely trading ranges going forward. The zones you see here are exactly 5-days wide, so this time next week we will be able to see how it played out.

Personally I’m inclined to think that while we may get a “tail” that dips under the prior lows, perhaps a little below 1100, we will end up in the upper box by the end of next week. Although I would imagine it will be in the lower-half of the upper box.

I would be very surprised to see the market rally all the way back up to the upper end, but that’s not out of the question for early September.

Notice that last Monday, Tuesday and Wednesday were “narrow range days” up near the resistance, then Thursday we had the long-range day of the week. The most constructive scenario for this week would be a couple narrow-range days in the lower end of the top green box, then a “long-range” day or two rally.

Of course there are so many cross-currents and news-related items at this time that it’s difficult to get a real grip on anything. This is not the type on market environment that lends itself to easy prognostication, however I am inclined to think we are setting up for a significant bounce at some point in the next couple weeks. I do not think we are on the verge of a melt-down just yet, but if the market loses 1100 and starts moving into the lower box all bets are off.

No one can deny that the price action has been choppy with a lot of whip sawing during the day and from day to day. There are a lot of Bears out there and the prevailing sentiment is decisively negative and I am inclined to think that just “going short” at this juncture is a recipe for disaster. It can’t be that easy.

“I wish I had a silver dollar for every time the word “gold” was mentioned on CNBC last week”.

As you know, gold and silver have been our #1 investment theme going back years, so many you wouldn’t believe me unless you have been with us that long.

A couple week ago I did a review of the gold and silver charts and our thoughts from last year. Those of you that follow the shows know that we keep close tabs on gold and the basic strategy has been “buy near the 30-week moving average”.

As you can see from the weekly chart below, gold is extremely extended and due for a significant pullback.

Notice on the chart the 30-week moving average (blue line) provides the best entry point for GLD and the price action respects that moving average uncannily. It’s almost hard to see because it coincides almost exactly with the lower end of the channel.

Gold is significantly extended from the 30-week moving average at this time and it significantly extended from the rising channel. It is starting to look parabolic and I think we are close to a reversal.

There is a strange, somewhat new relationship developing between the price of gold and the overall market. When gold goes up the market goes down and visa-versa . So it wouldn’t be unrealistic to think that the price of gold is due for a pullback here and that might be the sign that the market is due for a rally.

But keep in mind that strength begets strength so you don’t want to assume gold is done with the current run until you see clear signs of reversal. At minimum I would expect the price of gold to come down at some point to test the top of the rising channel.

Anyone asking “when to buy gold” for the long-term, our answer has always been the same, a bounce off the 30-week moving average.

If you were not reading this blog last year where you see the green arrow, you missed the perfect entry and I wouldn’t suggest you chase it here.

As far as the gold and silver mining stocks, I’m sure you have noticed that almost every day the past couple weeks there are many of these names on the Grid.

The sector is really a mixed bag, but a handfull of the mining stocks are among the market leaders at this juncture, which is no big surprise. These stocks have some of the highest relative strength in the entire market.

EGO AUY AUQ GOLD RGLD GG NGD RIC

Keep a close eye on these to see how they react if gold pulls back. It wouldn’t be out of the question to see them continue to act strong if the market bounces. Keep in mind that the “average selling price” of the gold they mine should be a huge benefit for their earnings.

There might be some opportunities in the “lagging” mining stocks too, but it’s usually best to stick with the leaders. Notice that GDX and GDXJ, the mining ETF’s are not keeping up at all with these leading stocks.

Let’s a take a look at silver since it just “broke out” of a triangle.

It would not surprise me to see silver start to outperform gold in the near future. I actually read an article where one of the large “hedge funds” was selling physical gold to buy physical silver, as they think the relationship/ratio now favors silver. I tend to concur and think we will start to hear more of this theme as we move forward.

We have mentioned many times that “Mother Nature” really sets the gold/silver ratio in the long run at around 16-1, sixteen ounces of silver to one ounce of gold, dug out of the ground and in the earth’s crust.

That would put the fair price of silver around $112 now, and I think at this juncture the ratio is on the verge of trending back towards the norm. I am sure in the near future you will start to hear more about “short gold long silver” trades.

With all the market chaos it was next to impossible to find a bunch of good swing trade setups so I decided to include a few mining stocks we are watching closely.

As always, join us Monday morning at the market open for the Live Broadcast in the Research Lab.

Should be an exciting week.

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