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

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