Tuesday, June 17, 2014

TWTR update and GDXJ status

Ok, First I actually want to look at the GDXJ, which was up about 20% last week on what I believe was mostly short covering.  How on earth could I know that?  The charts tell the story.  Below is the hourly GDXJ which you can see the key points in the circles I highlighted....

The first one came around Memorial Day, (surprise surprise, low volume...)  the GDXJ broke below support at 34, this was an obvious cue for the bears to jump in short as it clearly is acting very weak.  However, what followed was it refusing to go lower than where it broke to, and after a little consolidation, MA's crossed over, MACD moved above the zero line and the bears upper hand was lost.  What started as a modest rally began to feed on itself rapidly and the GDXJ shot up to 40 where it stopped cold after testing twice.  Now we have a consolidation appearing, so the rally has stopped moving higher.  Where it goes from here is up for grabs, there is nothing to say it doesn't break above 40 and were off to the races, but it would be unusual to happen in June for starters.  Also, by nature a short covering rally as I have said before has a shelf life.  There is a set amount of shorts in any given asset.  If they all decide to get out of that position, they must buy and then the transaction is closed and over.  There is never a limit to the amount of people who could create demand to buy in long.   So unless people decide that an asset which was 34 last week and is now near 40, that this is a good time to jump in long inevitably the buying will stop and things will begin to slide.  Now, support on the GDXJ is like a step ladder each point lower, we can see initially within the consolidation that our first support is at 38.  If that fails, and I think it will we will find support near the lines drawn on the chart at 37, 36, 35-34, and finally our recent low at about 33.  I don't believe we will go all that far down though.  If I had to guess I think we slide to 36 before we find some buying come in.  As I always do, I am probably jumping the gun on this.  We could easily have a few more weeks of consolidation before things take a long slow slide that lasts the whole month of July, and then begin to find our footing in Aug in time for the customary fall rally.  That's what would be logical, but we will see.  I'd rather be way early than too late any day.

Next, our TWTR trade is doing nicely.  Jumped into that into that one at 34 and its now 38.  All seems well so far, we are reaching some resistance at this 38-40 level, but I've seen nothing that makes me want to get out of this yet. We can watch the hourly chart to get better exit and re-entry points if you like but I am posting below the daily chart, which indicates that this move may be just getting warmed up, so as Jesse Livermore would say, (I'm paraphrasing)  Don't be too eager to sell whats working.  Simply means, too many people hold onto their losers way longer than they should and justify why with ridiculous reasons.  You bought it because you thought it would go up, it didn't, you were wrong, don't take it personally, just get out.  Likewise, people begin to show a couple hundred dollars in profit on something and they sell it, in the face of a frenzy and feel thrilled to death over the $200 they made, enough so they forgot about all those stocks with thousands in losses they're still holding in their portfolio.  Don't do that.  If it works, at least let it run till it stops going up and begins to consolidate.  You can buy it back if it breaks higher.

-Jonathan M Mergott

Monday, June 9, 2014

Watch Twitter for a break above 35 soon

I've been jumping in and out of TWTR which looks to have made a major bottom after a sharp capitulation at the beginning of May.  Currently, TWTR is down about 50% from where it was at Christmas, after soaring to 75 from the 40 region shortly after its debut on Wall St.  Regardless of any of the Bull/Bear arguments you can make, from a TRADING standpoint, this looks like a low risk/ high reward situation, which is exactly what we are always looking for.  Below is a cup and handle formation being made on the 30 min chart .

We can see a series of higher lows, MA's crossing over, MACD crossing over and staying above the zero line.  These are all conditions that have changed in  TWTR over the last few weeks.  They are conditions typical of a bull move.  From this we are getting the indication things are going to begin to move higher.  From here now, we must look at the most important indicator of all; Price.  If price manages to get above the 35 level its been capped at, what that says is that people who were sellers of TWTR at 35 now believe it is a good price to buy it at, and we can be pretty certain a rally is underway.  That is what support and resistance are, they aren't just lines on a chart with some chicken bones and voodoo.  It's psychology visualized.  If people have been buying a stock repeatedly at 28 every time it hits it,  you will see multiple bottoms on a chart that are forming support at 28.  People think its a good deal at that price.  If a few days later, price falls below 28, what its saying is no one is willing to step up at that price anymore.  Something changed, doesn't matter what for these purposes.  It just means if your long, get out.  It could always be a false break and things rally right back.  If that's the case, it only takes a second to buy it back.  So you missed out on a little bit of profit, but you had peace of mind, and that's far more important.

Here is an hourly chart of TWTR zoomed out to show the more long term picture.  We can see major resistance doesn't show up till about 40, which is 6 points higher than where we are now.  We can see more resistance at 44, 48 and 50, and there is nothing to say it couldn't get there, but even the conservative target looks pretty nice.  We can see we recently found support at 32 at the lows of the "cup".  We can use that as our stop.  Follow the rules, wait for the 10 day EMA to cross the 20.  Look to MACD for confirmation.  Be sure it is trending higher and above the zero line.  Don't be too eager to sell!!  If we hit 40 and things are still going well, STAY!  Wait to see it stop going up first, then look to the MA's for signals.  We might get to 48, and you could short change yourself 8 points.  If this is going to move, it will likely make it's strike in the next few days so watch carefully. 

-Jonathan M Mergott

Friday, June 6, 2014

Simple Trading method for the GDXJ

My apologies for not posting anything recently, there honestly hasn't been much to say but I wanted to make a couple points and at least update some charts.

As I have mentioned before, in terms of gold I use the GDXJ to analyze the entire picture.  I have a number of reasons why I do this.  A) Junior gold stocks are massively oversold and undervalued.  They should first begin to hold stronger than the metal itself when the move lower begins to exhaust itself.  B)  In any sustainable bull move in gold, the miners should outperform the metal and the juniors should outperform the seniors. C) They will also predict a changing trend and begin to move higher before the metal itself.  Point is, gold can move without the miners reacting and the seniors who have earnings and dividends can move without the juniors, but if the juniors begin to have a strong move higher, you can be guaranteed that the seniors, gold and silver will all do the same, so no use analyzing 10 different charts for all of them (In the interests of time as we watch for a change in trend.  By all means, when we begin to see buy signals, analyze the individual miners and the metals themselves when you are ready to buy.)

So whats the GDXJ saying?  Nothing too exciting.  I have taken this chart and used a very simple trading method based on 10 and 20 day exponential moving avgs.  When the 10 crosses above the 20, buy.  When it crosses back below, sell.  Here is the result of that for the last year or so.

If you saw the MA's cross lower in Sept of last year, you would have sold at about 47-48, only to see it go down about 40% in the next 3 months.  You then had an excellent opportunity at the beginning of this year to buy at about 30-32, only to see it go UP about 30% in 2 1/2 months.  The sell signal you got in April has kept you out since then and saved you about 10 points in losses.  You can also notice that at every buy or sell signal, MACD crosses above or below the zero line.  This is your confirmation.  Recently the GDXJ has been sliding slowly lower, but beginning to show signs of some value buying.  We don't have a buy signal yet, but we can see that a rally towards the 35 area would trigger one.  I believe we are at a bottom and within weeks of a major change in trend in gold and miners.  Watch this closely over this summer. Summer is never a good time period for gold, so don't expect it to be exciting, but we should see a final low within this month or next and begin to see some strength emerge around Aug, as we move toward the fall which is typically the strongest time period for gold.  This is one of those opportunities that comes along every couple of generations, where SERIOUS money can be made here, so its in your own interest to watch this like a hawk.  BUT, in the mean time we need to make some money somehow, so lets look elsewhere.

I utilized Twitter last week to make a call to buy Twitter stock. (If you missed it you can follow me here.) Since, I have jumped in and out again, but the overall picture looks nice so lets take a look at the chart.

Now, first of all I am a trader.  And in a lot of ways to do so successfully, you also need to be a traitor.  I have no allegiances.  My allegiance is to profit. You can leave the name of the stock off if you wanted to, it doesn't matter to me what it is, I'm just looking to see if it meets my standards for a trade.  Fundamentally, twitter is a shit company selling for 358 times earnings or something ridiculous like that.  It is not a good investment.  But all we are doing here in terms of trading is analyzing the money flows.  It's a lot like surfing actually.  You wait for a good wave that meets your standards, you position yourself, begin to paddle, and if its good, it will catch you and send you for a ride. If it doesn't, you don't keep paddling trying to make something happen when the wave is gone, you stop and go back for the next one.  When the ride begins to lose steam you get off and swim back to your start point and wait for the next one.  There is no difference here.  We can see money pouring into TWTR right now and it's beginning to look right.  So we will watch it, paddle out and get ready.  If the MA's cross, we are ready to ride the wave of money moving into TWTR.  If that nice wave proves to be a dud, and either the MA's cross lower or we move towards a new low, we don't waste time, we sell and go back to wait for another.  If it catches us, we ride it till the momentum stops.  We don't jump off a wave halfway cause we made a little money.  If it's working we ride it till that ceases to be the case.  When it stops going up we wait for our sell signals.

We can see on this that everything is in place for a trend change here.  We just need to see the rally break to a higher high than before, and have those MA's cross, which all should occur if it can get above the 34 mark.  So watch this, because this could easily rally 25%.  And that's a pretty decent chunk of change to make while we wait for gold to do something.

That's all for now.

-Jonathan M Mergott