Jan 052014
 

The weekly chart of Gold with its Elliott Wave labelling is shown below.

Gold is moving within a large complex 4th wave  and the final 'Y' leg of the 4th wave may have just started.

Besides the June low of 1181, a couple of important Fibonacci support clusters are placed around 1180's. Also, on the day when Gold hit a low of 1186, a survey of futures traders who were bullish on Gold was a mere 5% - an extreme and market lows tend to occur around such sentiment extremes.

Therefore, the odds that Gold has seen an important low at the level of 1181 is quite high. Hence a short term trader may look to go long on Gold with a stop below $1180. Partial longs at current price and pullbacks around 1217-1210 to be used as further entry points. The wave Y is very likely to end close to the August high of Gold, roughly around 1425-30 and that will be the price objective of this trade set up.

Silver:

The technical structure of Silver is similar to that of Gold. Silver is moving within a large complex 4th wave  and the final 'Y' leg of the 4th wave may have just started.

Silver is unlikely to drop below the low of $18.6 seen last week. Hence traders may go long with a stop below 18.6 with a price objective of $25.2. Use decline to $19.7 and $19.5 as entry points with a small entry at current price of $20.2.

PS: There are legitimate alternate Wave Counts for both Gold and Silver but the alternates also point to a short term rally. Mr Market will tell us if we need readjust our wave counts. As of now even the least bullish case, points to a rally of $1350-60 for Gold.

Legal Disclaimer: This post gives an idea of how a trader chooses low risk entry points for trading and hence what you see in this post is for educational purpose only. This is no solicitation to buy, sell or hold any securities. I’m not a registered investment advisor and I strongly urge you to consult one if you are going to act on the above idea. If you decide to take action on the above idea, you are agreeing that you take full responsibility for the profit or loss that you may sustain based on such decisions and agreeing to indemnify the author of the same. You may have seen me on TV suggesting successful trade ideas but remember trading is inherently risky and past performance is no guarantee of future outcome.

PS: This was a premium digital content and has been unlocked now.

 

 Posted by at 11:41 pm
Feb 022012
 

The Baltic Dry Index has been dropping continuously for the last 31 sessions. The index just broke through the 2008 low and this is worst reading on this index for the last two and a half decades.

Baltic Dry Index

If you are wondering why should this be of any significance - the index is a very important measure of the health of global economy. You could either believe the commentators who are saying that we are seeing rally in equity markets because Europe is "close to being solved" (when Maths 101 tells us its impossible) or pay attention to the warning signal from this index and stay cautious and try to be safe.

Sep 162011
 

Silver saw a steep drop from $50 to $32 in the month of May and the rise post that has been in a corrective fashion.

Silver - rising wedge

The above chart of silver shows a rising wedge pattern with a typical throw-over to the upside. Yesterday's close was well below the bottom of the rising wedge and this should usher in a sharp down move for the industrial metal probably before the end of this month. Looking at the chart from an Elliott wave perspective, silver is probably in its powerful 3rd wave or C wave which has the characteristics of wave 3. At $26.7 the first leg of the decline from 50 would be equal to the move from 44.27 (and hence A=C), the August peak, which seems like the minimum drop that is likely for silver. Also the $26 zone is the previous 4th for Silver.

Naturally, some of us would be thinking, "what happens to gold now?"

Gold Daily Chart - Potential for a double top

Here too, it is obvious that Gold is running into troubled waters. A fake print above 1913 high, momentum disagreeing with the new high in price are all tell-tale signs of exhaustion. A close below 1763 or an intraday drop below 1705 would complete a double top for gold and should draw prices at the very least to 1480.

Given the fact that the Dollar Index too had a breakout to the upside just a few days ago,  you might want to pay considerable attention to these signals in the precious metals space.

Aug 102011
 

The up move in Gold is starting to look similar to what silver was in April. Yesterday's intraday high of 1782 and a much lower close is the first warning sign. This does not necessarily mean that Gold will start crumbling right away. In fact an erratic rise, like the two scenarios shown on the chart below would give traders an ideal shorting opportunity and would be a classic parabolic end.

Gold - Daily Charts

In Technical terms: This is an extended wave 5. Almost always when the extended moves ends, it will be followed by a VERY HARD drop.

The sentiment picture: Talk to anyone around you, they will tell you must be insane not to own gold. I've been seeing facebook status from wannabe analysts and public stating heads or tails Gold wins. That is your sentiment picture screaming that the boat is about to capsize.

So, it is absolutely essential to understand that this not the time to create new long positions in Gold. If you are already long, be ready to fold.

May 062011
 

Just one day  prior to the anniversary of Dow's 1000 point crash, the Ghosts of the 'flash crash' came back to haunt risk assets with greater ferocity. Crude got walloped by 10%, Gold got slammed by over $50 and Silver was decimated by another 12% on top of its recent sharp drop!!

The force behind this move is the Dollar Index, which until now had refused to head higher despite being heavily oversold on multiple counts.

Dollar Index - Daily Chart

If you look the charts of UUP, the bullish dollar index fund, the 1.5% rise for this currency basket has come with a massive buildup in volumes. Also a gap up in UUP after a congestion holds the probability that the gains could stick and could even be a reversal.  A follow through in Friday' session for the USD would bode well for those rare Dollar Bulls. One thing that is quite clear, if this is not the reversal for the green-back, whenever it occurs, what we saw in yesterday's session is a mere curtain-raiser of things to come for risk assets.

Looking at the charts of Gold and Crude, there is more evidence that this is probably a turn of high significance for the intermediate to long term.

Gold: The weekly charts of Gold will end up being a bearish outside week (unless it recovers $40 in today's session) and this high probability reversal has occured at a very important time ratio as shown in the chart.

Gold - Bearish reversal

Crude: A bearish outside week in crude and  Price/Time have squared at the high.

Crude - weekly charts

Apr 272011
 

Silver's sharp decline after hitting a multi-decade high warrants close attention.

Silver- Daily Charts

The daily chart of silver above marks the "long-legged doji" which is a key warning of sign of an impending reversal. Moreover this pattern (a) has occurred after a prolonged and parabolic rise in silver (b) has seen follow through selling on very heavy volumes and (c) has faced resistance at the 1980 highs. These are mouth-watering signs for much lower prices for silver.

However I will probe this set up with a very small short trade - the Dollar Index has shown no signs of reversal and is merely consolidating near the lows. Unless the green-back turns up this might turn out to be just a fleeting drop in an up-trend.

Apr 132011
 

Brent Crude had formed an 'inside day' and it has now exceeded the range of this inside day, dropped hard to the downside. So, there is a high degree of probability that there is an intermediate term reversal in crude.

Brent - Daily Charts

Reversal in Crude?

 Commodities  Comments Off
Apr 122011
 

The daily charts of Nymex Crude registered a very important price action which could potentially mark a trend reversal. In technical parlance this is called a bearish outside day or a bearish engulfing candle.

Momentum readings have also diverged negatively with this occurrence and the number of contracts that accompanied this sell-off also ticked up (a nice to have). Now why should you pay attention to this? Besides the fact that the 2008 reversal was also a bearish outside day, I'm sure you would have heard and seen reports of $200+ crude over the last few weeks flying thick and fast. Essentially, it is a very crowded trade.

Now if crude does come down, do not be mislead into thinking that a falling crude may be the new impetus for stocks. If this is indeed a reversal for Crude, stocks are also likely to start a new downtrend or resume the previous down draft depending on which markets you are focussing on. Here is an interesting snippet regarding crude from one of my past interviews:

httpv://www.youtube.com/watch?v=hJuWU1GEYD0

As a reality check, let me also add that I do not see such a reversal in Brent Crude. It would have been another nice to have and would have added more weight to the reversal.

Mar 102011
 

Copper, which is often considered a proxy for the global growth, dropped through some important support levels.

Copper Futures - Daily Chart

The intermediate term trendline from June lows, which was holding up this market, gave way along with expanding volumes. The move from June lows to the November highs is a clear 5 wave pattern and the 5th wave is also related to the 1st wave by a Fibonacci ratio - a normal ending wave relationship. Also noticeable on the charts is the volume expansion as the red metal declined from its February highs.

The blue dotted line shown on the charts could be considered as a Head and Shoulders top and the breach of 424 price level would become the breach of the neckline that completes this pattern.

Considering all the above evidences, it does look like the metallic professor is saying the winds of change are here for the global economy. Expect the S&P 500 to drop below 1294 swing low in the immediate future which in turn is likely to result in a larger decline.

Mar 082011
 

The Dollar index has been on a steady decline since mid-February and is currently one of the least loved asset.  While price has drifted lower, the momentum readings have not matched the price lows.

Dollar Index - Daily Charts

If we went back to the 7th Feb blog post on the Dollar Index (from where there was a small bounce), the Index is trading SLIGTHLY below that medium term trendline. All these line up well for a bear trap. If the currency basket closes above 77.25, I will be brave to venture a long here.

It is also time to have a look at the charts of crude given the amount coverage it has been getting over the last few weeks.

Crude - Daily Charts

While there are no visible signs of exhaustion or reversal here, there are some early warning signs. The volume for these contracts has been dropping over the last few days. If we have a higher close for one or two sessions and then a mild/sharp sell off day, one of my synthetic indicators is likely to flash a sell signal at least for the short-term. The most important signal, I see here is that there is hardly anyone who is NOT BULLISH or does not expect $150-$200 crude. In fact, one famous author of a commodities book, who had been bearish on many commodities including crude is expecting $200 crude now!!!!  Let me warn you here. I'm not trying to say it is time to short crude here. In fact,It is suicidal to out guess the market.  A good trade practice is to be prepared around important pressure points, wait for the reversal and if we have one, evaluate the risk-reward and then pull trigger.

 Posted by at 6:21 am