Near Term Outlook Gold & Silver – Downside Potential Stronger
Wednesday’s trading was limited with intraday ranges also limited for most issues. After hours tech titans IBM and INTC reported earnings. Initially reaction took the stock prices lower, which included a very brief downdraft in the NDX and SPX futures only to be replaced by a as sudden updraft driving the stock prices higher and igniting buying in the NDX and SPX futures. It’s earnings season and there are times that a titan reporting better than expected earnings can ignite a broader reaction, albeit short in duration.
The equity markets are pushing hard against upside overbought readings, with volumes trailing off leaving the buying to what is likely day traders and shorts covering. If the past has anything to say about the future expectations would be for a sudden “out of the blue” downdraft to hit across the board to shake things up somewhat. It is those days that many of us “trade for”, days where signals are plentiful across the wide array of sectors.
What could trigger such an event? The reasons currently are as plentiful as the trading signals. Some that jump to the front are:
- Precious metals turn lower with gold dropping between $50 to $100
- Bonds turning lower with yields again turning sharply higher
- The U.S. dollar taking out some upside resistance
- U.S. equity markets selling off with the DJIA dropping 3% as today’s buyers become tomorrow’s sellers.
The current patterns in progress across the board are pointing to this type of “perfect storm” type of day. Where one sector follows another as the broader indexes drop in unison. I wouldn’t suspect that the end is upon us just yet. I continue to view downside as corrective within an ongoing uptrend. However, having said that the downside will begin to expand its range somewhat as the degree of the 4th wave declines increases to finish the series of sub-divisions previously discussed.
The opportunities for day trading should continue. Don’t forget about position sizing. The use of this remains critical in maintaining a positive P/L.
Gold and Silver
Gold (click chart to enlarge)
Wednesday’s selling may be ushering in the next leg down for gold. The monthly chart (below) has not changed in terms of downside support or upside resistance. I have continued to allow for a drop to stronger support at the 1155 to 1150 area. A break back below 1250 with follow through would substantially increase the odds. The stochastic oscillator has produced a buy signal that would put the odds on the potential for additional downside (not severe and likely to hold around the 1250 area) creating a more sideways range bound pattern.
Gold futures monthly
Gold futures daily
The daily chart is ambiguous in that today’s selling may have completed a smaller correction with a fresh attempt at 1303 resistance next up. A break below 1250 would not entirely negate a test of resistance near-term, but it would leave a more convincing pattern that a break down to support at 1155 is on the way. The stochastic momentum oscillator produced a sell signal on Wednesday and carries strong potential for downside momentum to continue.
Silver (click chart to enlarge)
Silver while most of the time mirroring gold carries a more convincing argument for additional lows below 18.42 seen at the end of June. The monthly chart has not changed with regards to support or resistance. Critical support at the 17.15 area remains in place and may provide enough of a barrier to complete the corrective phase off of the 2011 highs. Failure of this level would open the “flood”gates of potential for a complete price washout to the 8.25 area. The momentum oscillator does favor the 17.15 zone holding, as deep oversold readings would suggest.
Silver futures (monthly)
Silver futures (daily)
The daily chart reveals that Wednesday’s selling did leave a 3 way advance (countertrend) in place, which supports a drop to support at 17.15.
My intention remains not to sound like a broken record but the importance of accepting that the status quo is changing and carries much of the burden of price volatility seen recently so again I will say please don’t be fooled in to complacency. Now is the time to keep alert as the trading opportunities will be numerous and present themselves in both directions.
However, it remains a time when things can seem to change quickly coming as “surprises” to the markets when in fact the larger moves have been in the making for several years.
It is a time when the underlying reasons for the advances – the huge influx of money into the system by the global Central Banks – will eventually come full circle via the credit/debt – interest rate bubble bursting with such force that the markets will not be able to lean on the Central Banks good faith and credit to fix the problems. It is a matter of when not if.
While some position trading will be highly profitable – I am continuing to find ample opportunities in day trading. Depending on your objectives a combination of day and position trading could prove very rewarding as the current patterns unfold.
Diversified Trading System
I continue to recommend as the best trading platform available to a broader range of traders from novice to expert. The Diversified Trading System offers a cost effective product that allows a trader to enter into the “chaos” and trade more effectively.
Trade Manager from Indicator Warehouse automatically calculates the correct amount of contracts or shares based on your account size or market volatility. Automated stop-loss management and position sizing eliminates most of the problems most individual traders have. Day trading and position trading both require (actually demand) good risk management. Trade Manager does the job across the board and is an essential trading tool that ensures that you take the maximum profit from all your trades.
A newer member of the money management tools available from Indicator Warehouse is the Profit Finder – System Back Tester. When implemented it allows the user to:
- Immediately know the impact of parameter changes.
- Automatically reads all of your DTS entries and exits
- Calculates the profit/loss of each trade
- Performs a wide number of essential intelligence boosting calculations instantly
- Provides solid details about the effectiveness of your trading strategy/ methodology/ indicators
The last two points above are valuable tools to use. It will show you where some “tweaking” is needed to improve results through the back testing feature.
My point on money rotation and sector rotation is similar to that on parabolic moves that they happen with frequency within many time frames. As traders these types of moves can be a bonus for day trading or position trading so again don’t get caught up in the “what’s the catch.” Realizing a rotation is occurring within a stock you trade or a sector is a great source of stocks to plug into the Diversified Trading System. Allowing DTS to cleanly and beautifully capture the moves though any or all three DTS trading platforms. Our goal remains to assist traders to make greater profits during all types of markets. Sector and money rotation is another tool.
The Diversified Trading System used together with Trade Manager should continue to produce numerous trading signals in the DJIA, YM (mini), S&P 500, ES (mini), RUT, TF (Russell 2000 mini), AAPL, AMZN, GOOG, NFLX, and LNKD, GS, and Tesla Motors (TSLA).
Here is an updated list of the markets where I have found that DTS (all three birds) are producing numerous signals. Continue to bear in mind that there are days when trading opportunities are not as plentiful. These are days when not trading is likely more profitable than attempting to “force” a trade”:
- DJIA future (e-mini available) – highly recommended
- S&P-500 future (e-mini available) – highly recommended
- Russell 2000 future (e-mini available) – highly recommended
- NASDAQ 100 future (e-mini available) very highly recommended
- US$/Euro futures (e-mini available) – very highly recommended
- GS (Goldman Sachs) – good two way volume –
- AAPL (Apple Computer) – highly recommended
- GOOG (Google) – highly recommended
- LNKD (LinkedIn) – solid intraday range
- NFLX (Netflix) – solid intraday range
- TSLA (Tesla Motors) – highly recommended
- 30-yr Treasury Bond future – highly recommended
- 10-yr Treasury Note future – solid two way trade
- TLT (Treasury Bond Long ETF) – very active
- TBT (Treasury Bond Short ETF) – very active (moves inversely to TLT)
- Gold (futures and ETF – GLD) very active – not suitable for all traders
- Silver (futures and ETF – SLV) – very active – not suitable for all traders