A Weekly and Daily Look at Fresh Highs in Silver

Sep 3, 2009: 10:30 PM CST

With all the attention on Gold’s recent breakout, I haven’t seen as much attention focused on the index breakout to fresh 2009 highs in silver!  Let’s take a quick look at something interesting in Silver’s (index) weekly chart, as well as the daily structure.

Silver Weekly:

As we’ll see on the daily chart, the Silver Index here broke to a marginal new 2009 high.  However, we see a significant potential overhead resistance zone coming in from prior price support in 2008 as well as the 61.8% Fibonacci price retracement level at $16.42 of the 2008 highs to the 2008 lows.

Silver is also slightly above the upper Bollinger Band on the weekly frame.  I’d prefer price to close above these levels before becoming ultra-bullish on silver here.

It’s possible we’re in the midst of forming a “Three Push” pattern, complete with triple-swing negative momentum divergence, which would be locked in place should price make any sort of down move from this level.

Let’s drop quickly to the daily frame for a closer view of 2009 so far.

We see price formed a “Measured Move” or “Bull Flag” from the February highs to the April lows – the green arrow highlights the price break and buy signal trigger long.

Silver’s daily triangle price pattern has not been as pronounced as gold’s, but price certainly broke the upper trendline this week in a very impulsive move that took price to a new high by 5 cents in the index.

The momentum oscillator is reading the same level as it did on the prior test of the $16.20 level.

If bears are going to make a stand, it’s here at the weekly resistance areas, and without that, there will be little that remains (chart-wise) to contain a bullish breakout in both silver and gold (note gold has overhead resistance at the $1,000 index level).

Let’s keep our perspectives wide to see what happens from here!

Corey Rosenbloom, CMT
Afraid to Trade.com

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A 60 Minute Internal Look at GLD Breakaway Gap

Sep 3, 2009: 12:43 PM CST

I wanted to step further inside the GLD break and highlight the initial break, apex test, and then breakaway gap as this served as an excellent example to showcase these concepts.

I’ve been highlighting the Gold and GLD triangle for a few weeks now, expecting an imminent breakout soon.

Remember that price has a tendency to move in fractal patterns (or “patterns inside patterns”) and this shows a great concept of that point.  Reference back to the earlier “Gold Breakout” post I wrote earlier this morning to see different perspectives of the larger triangle.

GLD has a longstanding tendency to be ‘choppy’ or ‘gappy’ as a result of gold’s early-morning activity moving before the ETF opens and has time to catch up to the overnight and morning activity.  This means you shouldn’t apply standard “gap fade” tactics to GLD.

Price initially broke out of the smaller triangle on August 28th before gapping back down and supporting on the higher trendline.

The “Apex” is the point where the two converging trendlines meet, and if price breaks out ahead of the apex (it often does), then sometimes price will pullback and “test” or challenge the apex level which often gives the best opportunity to enter a trade.

The stop-loss would be tight – just on the other side of the lower line (about the $92.50 area) and then entry would be any price above the upper trendline at $93.00.

In this case, a small doji-like (or spinning top) candle formed just prior to the actual apex, which gave another decent confirmation of the high probability, low risk entry there.

Aggressive traders could have entered at this spot, though more conservative traders might have been better waiting for official confirmation – in the form of a sudden impulse like a gap… which occurred yesterday (September 2nd) on a higher than normal volume surge off the open.

The lesson learned is that with breakaway moves, you often don’t get a generous entry point in a momentum or break-out move.  It’s uncomfortable to enter at morning price highs after a gap – but you have to plan ahead and know expectations in advance in the event that gaps from consolidation occur.

Volume has surged along with price, which confirms the higher prices and shifts the odds to favor continuation.

Be sure to study the chart for additional insights and trading lessons you can use the next time a similar pattern occurs.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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A Look Inside Gold and GLD Daily Triangle Break

Sep 3, 2009: 11:55 AM CST

There’s been a flurry of activity in regards to the recent internal triangle breakout of gold from its lengthy triangle consolidation pattern.  Let’s take a quick look at this pattern and what might be in store.

First, the standard daily chart of $GOLD Index (from Wednesday’s closing price):

The index broke the internal triangle that has been the dominant pattern, though there are two levels to watch to see if buyers can overcome prior price resistance both at the $990 and critically important $1,000 level.

A break above $1,025 clears any overhead resistance and lays bare a pathway to the $1,100 level if not beyond, particularly if the “inverse head and shoulders” pattern is dominant above the triangle here.

One theme is the contraction in the 3/10 Momentum Oscillator, which just highlights the absolute price compression (“value area”) that formed since 2009 began.

Next, a zoomed in view of just the index price since mid-2007:

There is an internal triangle and an external triangle.

The Internal Triangle is that which is shown on the prior chart, which began at the 2009 lows and highs and compressed until present.  The internal triangle is broken to the upside.

The External Triangle began with the 2008 highs to the 2008  lows – it is NOT broken yet but a momentum move might force a break of the external triangle, which would be a very significant chart (technical) development that will likely splash headlines across the world… creating a possible buying frenzy that marks range expansion moves, particularly over key boundaries.

You can see the intense compression in the momentum oscillator here.

Pulling the perspective back tempers the excitement level, and shows that the bulls still have room to prove themselves – namely from prior price highs.

Finally, a daily view at GLD, the popular ETF most people use to trade gold:

Wednesday’s action brought a volume surge in GLD (27 million shares) which is common with price breaks from consolidation.  Those with short positions are forced to cover as their stop-losses are hit, and those who are already long might be adding to positions, while those on the sidelines aggressively jumped in to chase momentum as price broke the $95 level on a gap.

It’s common to see gaps expand out of consolidation moves, which force people to jump on board for fear of being left behind.

The day is halfway over (I captured this chart at 12:30 EST on Thursday afternoon) and volume is already running at a higher than normal pace as seen from the prior volume bars.

Scalp targets would certainly be prior price highs, though aggressive traders might find swing or even position trades irresistible here.  That’s fine, but don’t let your bullish sentiment run ahead of you.

Watch how price responds to prior price highs (is volume picking up as they are challenged or are there internal divergences and less volume at these highs?) and look for any non-confirmations on the way up.

Otherwise, this could be the move the bulls have been saying was “imminent.”

Looking at it from all angles, any downward move from here would trigger massive stop-losses (as people are basically clamoring over themselves to get long GLD) and deeply frustrate the bulls, so be aware of that possibility should it occur.  Always have your “If/Then” possibilities ready!

Corey Rosenbloom, CMT
Afraid to Trade.com

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The End of DXO – Double Leveraged Long Crude Oil

Sep 2, 2009: 3:56 PM CST

I can’t say I’m entirely surprised by the announcement today (via Yahoo Finance) that Deutsche Bank will end the Double-Leveraged Crude Oil ETN under symbol DXO.  The full story is tantalizingly entitled, “ETN Shutdown Won’t Be the Last.“  Be sure to read the full story by Don Dion (from TheStreet.com).

For a little nostalgia, let’s take a final look on the blog at the chart of DXO:

There’s no point in doing standard or classic technical analysis on this chart, but note that the fund – in price – closely resembled that of Crude Oil as expected, only the percentage moves were enhanced or “juiced.”

Today’s action would have been a nice sell signal on any given day, in that price broke trendline support and the 50 day EMA.

It’s too bad – DXO was tracing out a very ideal Elliott Wave pattern, complete with nice fractal divisions of waves, putting us currently in a sell-signal potential corrective phase down.

The same chart – with the exception of DXO’s 7% plunge today – is applicable to crude oil.

Here are a few key quotes from Don’s article:

“Since ETFs and ETNs are designed to track an underlying index, issuers create new shares as more investors pour into the fund. The creation process helps to keep these funds in line with their underlying values. By halting creation and essentially turning the ETFs and ETNs into closed-end funds, issuers can doom funds to trade at extreme premiums and discounts to their underlying value.”

“Because of its unique structure, DXO has been threatened from more than one proposed regulatory action. Since DXO tracks futures contracts, it first faces limitations from the CFTC. DXO is a leveraged fund, making it part of a second group of exchange-traded products that have come under fire.”

“DXO’s methodology seems to have been in the wrong place at the wrong time. In yesterday’s announcement, however, Deutsche Bank was careful to note that no other ETNs would be affected by the announcement.”

“While these strategies can be dangerous in the hands of the wrong investor, they are useful tools for hedging when employed properly.”

For a round-up of prior blog posts and market calls I’ve written on DXO, see the following list below or use the blog’s search function:

“If You Really Want to Trade Crude Oil Aggressively, Trade DXO and DTO”

“Volume Surging in USO and DXO Oil Funds”

“Double Long Crude Oil DXO” (Chris Perruna.com)

“FAZ 3x Financial Bear Fund Crushed (with discussion on DXO)”

Finally, a closing quote from the above “Bear Fund Crushed” post:

“The same logic applies to those thinking DXO – double-long crude oil – is going to regain its mid-2008 price highs of $28 any time soon.  DXO currently trades around $2.00.  Using linear logic (again, only for simplicity), for DXO to move from $2.00 back to $28.00 would be a 1400% move which would imply a 700% rise in Crude Oil.

To drive the point home, if you think DXO is going to get back soon to $28.00, then Crude Oil – which trades at $50.00, is going to have to move up 700% which would take price to $350 per barrel.  Do you think that’s going to happen anytime soon?

Don’t fall victim to this “trader’s trap” in these leveraged funds!”

Corey Rosenbloom, CMT
Afraid to Trade.com

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Hewison Video Update and Projection for NASDAQ

Sep 2, 2009: 11:46 AM CST

Just in time to highlight a potential market inflection point, Adam Hewison released a six-minute video update on the past and current structure of the NASDAQ Index entitled “NASDAQ Trade Triangle Update.

In the brief video, as usual, Adam highlights key Fibonacci retracement levels and comments – as I have been doing – on the negative MACD Divergence (standard settings) that has formed into a key Fibonacci level.

Here is a screen capture of Adam’s Fibonacci grid:

Here is a video screen capture of the current MACD (standard settings) divergence:

Clicking on either image will open the video page for you.

In introducing the video, Adam writes, “Today we are going to be examining the NASDAQ Index. This market, which made its peak in 2000 at the height of the dot com bubble, remains in a secular bear market.

After making a low in March of 2001, this market has had multi-year recovery which has rallied it very close to a 50% Fibonacci retracement level. After a nearly 50% recovery, this market now appears to be faltering.

The months of September and October are now with us and both of these months tend to be treacherous for the equity markets. We would not be surprised to see more of a two-way trading market before it eventually falls on its own weight and resumes a downward path. This is what we expect to happen, however, we are going to rely on our Trade Triangle technology to give us the perfect timing for that event.

In today’s video I will show you graphically what I expect to happen to the NASDAQ Index.”

Thank you to Adam and staff for making these quick updates available to us!

You may also subscribe to Market Club for instant updates, screening tools, proprietary ‘trade triangles,’ news, education, and more.

Corey Rosenbloom, CMT Continue Reading…

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