COT Report

Posted by admin on Jun 30th, 2009 | no comments

Here are the latest Blees COT ratings released on 6/26/09 for some key markets. Remember “100? is the most extreme bullish position on the part of commercial traders (aka the “smart money”) for the last eighteen months. “0? is the most extreme bearish position:

S&P 500 Index: 41
S&P E-mini: 52
Dow Industrials: 0
Nasdaq 100: 54
Nasdaq 100 Mini: 14
Gold: 31
Silver: 63
Crude Oil: 34
Copper: 77
Corn: 76
Soybeans: 18
Sugar: 46
Wheat: 60
Cattle: 78
Hogs: 97
U.S. Dollar: 95
Cocoa: 71
Natural Gas: 73

Comment- with such a low COT score, conditions aren’t favorable for gold to rise. Notice how close to 100 the dollar is. (bullish). Oil has a low score, while gas is higher (during the ‘off’ season). The COT scores aren’t a perfect indicator, but they can be used as a ‘tool’ to help us confirm major turning points.

For example, remember last falls action. Late November (I just picked a random week) here is what the gold/silver COT numbers were:

Gold: 99
Silver: 90

What we’d like to see is gold/silver get drawn down and these COT numbers go up – that will at least signify that we are getting closer to a buying period.

Weekend update – Part 1

Posted by admin on Jun 27th, 2009 | no comments

PART I – METALS

We have been wavering with gold and silver. Currently, the decline is still in line with the Elliotwave forecast, i.e. a stairstep decline towards their targets of $680 and $8.38 respectivly. There is a chance for a very short term pop in the near future, and this has been confirmed by a buy signal this week on GLD, buy alerts on GDX. GDX has a rather convincing piercing line which is generally considered a reliable reversal signal.

GDX briefly pierced the cloud but came up convincingly (nice how the clouds behave right?). So we have a situation where the metals and metal equities could stage some sort of rally from here – but, and the empahsis is but, there is more risk with this trade than before. So although we have multiple buy signals, we may wait a little longer before deciding to enter a small position. (i.e. the 950 level in gold needs to be breached at the very least). We may post intraweek depending on how we see things.

SLV and SLW are still in a wait mode – and any pop we see may be too brief for us to want to even time it. SLV is back in neutral territory.

SLV still has short term support down until the $12 area.

OIL/NATURAL GAS

Oil is stil a wait and see mode since it enjoyed a pretty good run up and we expect it to hold or decline for the near term. We moved over to a full position in UNG because we believe the downside in natural gas is limited, but has a much further upside potential.

The price of UNG, our proxy for natural gas has leveled off – and so has volume. We know seasonally we are entering a weak period.

UNG issued a SELL-IF signal this week, however we are going to stick with our position. This are times when investing demands a little flexibility. For example DXO wasn’t a straight up trade, but since Oil declined to 40 we knew that the downside was limited because in most cases, oil below $65 was unprofitable for oil companies.

The same thing goes for gas. While the prices may decline somewhat going into July, the downside potential is limited. At the same time, fundementally the situation is changing much in the same way it changed for oil. Lower prices will mean less exploration, less drilling.  For a good overview of the current natural gas situaiton, listen to the energy section of this weeks financial sense newshour : http://www.netcastdaily.com/broadcast/fsn2009-0627-1.mp3

So patience is key and we’ll see how things evolve in the fall.

AGs

No news here. MOO posted a sell-if signal. DBA is still in a wait mode. We’ll be doing an indepth report on the ags in a future issue.

MISC

FAZ posted a sell-if signal. We expect it to flop around for a while until there becomes a decisive break to the upside. As the summer progresses we will be acessing the situation as it devleops and add more short positions to the general market.

Inflation / Deflation debate

As a side note – this is something we are monitoring and always checking on. Both sides make a compelling case, but to be the true judge one must ask what is actually occurring versus what is anticipated to occur. On one side we have money supply expansion, which is inflationary – provided it winds up in the general economy. Thus far it has not. On the other end is the massive credit and debt bubble implosion which is ongoing. Right now, personally we feel the forces of deflation are in control and not resolved. On a credit based economy, we personally have seen one line of credit cut entirely (American Express cancelled all business lines of credit accounts) and another credit card with limits reduced. This is affecting literally millions of people. With government regulation imminent and adding more restrictions to credit, the days of easy credit are over. We used to get multiple credit card offers per week, and now they have virtually dissapeared. The post office locally is cutting staff because of a massive decay in their volume.) The Obama administration is making a list of 50 citites that might need to contract in order to survive , such as what is happening in Flint, MI where it is anticipated 40% of the city needs to be torn down to ’survive’).

So we have a situation where there is increased homelessness and foreclosures and houses are being destroyed, just like in the 30’s where farmers were told not to grow food to keep prices up while people went hungry. So right now,what we see is a contraction of the economy, downsizing, huge debt, much higher savings rates, tighter credit. In other words, the fuel for inflation is currently simmering but not yet on fire.

Here is an excerpt from Van Tharp earlier this month:

Once again, we are in credit contraction mode, so it is not the inflationary bear market I once thought we were going to get six or seven years ago.  But I suspect that we’ll be in one by the end of 2009.  Gold is certainly suggesting that.

We’ll now look at the two-month and six-month changes during the last six months to see what our readings have been.  The CRB is finally bottoming.

Wow, look at the one month change in the CRB/CCI.  It was huge, almost taking the index to the June 2008 highs.  Now our reading is now showing that inflation is coming back, probably with a vengeance.  And we all know that the U.S government is printing money at a record pace.

So to sum up, there are seeds of inflation – but not yet manifesting itself. We have a lot of people predicting inflation, possibly hyperinflation. But since the above post we have seen a leveling off of gold, oil and all the commodities.

SUMMARY:

GLD is a buy again, GDX a buy alert. One may take a small 1/2 or 1/3 position in each. But given the signal and the context of the market, we will keep and eye on the price action throughout the week to see if the current mini-rally has any follow through potential. There is a chance for a brief spike up to $1080.

We’ll monitor and let you know.

Final pop?

Posted by admin on Jun 24th, 2009 | no comments

Giving the context of the recent decline in metals, we are observing the potential of a short term reversal pattern that may be developing. This *may* be a short term opportunity for a quick gain in metals and the broader stock market before the pattern completes, which might even rescind the bearish Elliotwave scenario. We are going to see what they have to say today and on Friday. Then we will examine the situation this weekend and determine the next course of action.

One possibility is to initiate 1/2 positions in GDX, SLW, GLD, SLV if they flash buy-if signals, then stay with them until a reversal occurs. This is a short term opportunity.

Further along – we will look at some short positions in the general markets as part of our special situations position.

A few divergences…

Posted by admin on Jun 22nd, 2009 | no comments

We recently discussed the current sell off in the metals, and that our charts show a little more downside possible. Going through some commentary this weekend we have come up with items such as this:

“Precious metals have declined this week, as indicated in the previous Premium Update. The sector has been falling for 3 consecutive weeks, since the beginning of June, and that alone suggests that at least a breather is to be expected. Still, there are many factors that suggest that a bottom has already been put this week.”

“Gold broke down and went into decline, as predicted in the last update posted early this month. At that time our maximum downside target was the strong support in the $880 area, but now there are strong signs that the decline has either run its course, or is close to having done so, and that a breakout to new highs may be close at hand.”

“We are believed to be at a good entry point for silver here as the overall pattern is strongly bullish, and the predicted reaction of the past few weeks, which has served to unwind the earlier overbought condition, is now thought to have run its course.”

These gentlemen are respected technicians, and after all they called the top a few weeks ago (just like we did). So mark a notch that we have some indicators that a bottom is at hand or close.

However the divergence is within the Elliotwave camps:

“So far, silver has been unable to mount any serious bounce from within the $13.65-$14.25 support range. Regardless, the main trend continues to be down and prices should eventually work lower. The next potential target surrounds the $13.00 level, which is where, next week, prices would intersect the up-sloping trendline drawn off the October 2008, April 2009 and May 2009 lows. As you know from our discussions, there is much greater bearish potential. Only a very unexpected rise above $15.58 basis spot, would force us to reassess the bearish case.”

So what to do? Picking tops and bottoms are not an exact science. However you can observe conditions and make a judgement that the odds are more in your favor now, than lets say – a few weeks ago. This presents a conundrum since we have two squarely seperate camps.

Last week on FinancialSense (www.financialsense.com) they held a gold round table which also had divergent views. So given the conflict of information our set up will be like this:

- Follow and observe the candlestick signals on our watch list. If a BUY-IF is triggered, we may enter a position mid-week should the signal still be in a confirmed state (and maybe scale in by a third). If the price targets reach the levels that the Elliotwave folks see as rescinding the scenario, then we’ll continue adding.

So leave it to the indicators to tell you that a meaningful reversal has taken place. You wont be left at the station, but a cautious approach will limit risk should the optimistic scenarios play out.

GLD was the only metal related security that triggered a BUY-IF signal, albiet a weak one though. Price action this morning suggests a decline, so we’ll monitor it closely. Everything else we’ll have to wait the week to determine if the price actions sets up any buy alerts.

Weekly Update

Posted by admin on Jun 21st, 2009 | no comments

Over the past few weeks we made a good call on some key markets, most imporantly gold/silver/oil – in that we exited our positions right near the intermediate term top. We also took a 1/2 position in natural gas and plan to expand that position soon.

Lets take a quick look at the metals:

GLD pulled back as expected and has a current downside potential from 825-850 according to our cloud chart. The daily chart is a little higher, with 880-900 as the target. This is in line with most of the technicians we follow. We are getting a lot of cross currents as far as where gold is going. Some see the bottom coming in very soon, with an major rally imminent. Others see sideways action for a while, etc. More importantly the Elliotwave folks still see a much steeper drop, with spot gold going down to 680 (last Octobers low).

Who to believe?

We use our candlestick analysis to determine key reversal points. They are not always perfect and we need to look at the overall technical situation, along with how strong the pattern is in order to determine if we are going to wait or proceed with entering a position. Normally when a pattern is detected it will flash a buy signal or sell signal. We follow a weekly pattern and that pattern is confirmed only if the price is higher or lower at the end of the week. Sometimes it might take two weeks to confirm. We may take judgement and jump the gun, either by putting in close stops if we think a top is near, or entering  a position before confirmation. So it isn’t always mechanical, and nothing can always be – otherwise we could all make money by programming black boxes.

This week GLD flashed a buy-if signal which turns out to be a Bullish – Doji Star.

While a possible bullish situation, it also can be a continuation pattern. It is not classified as a particularly reliable pattern. So at this juncture – we wait in cash. We will closely monitor the price action over the coming days to see if gold holds through it’s various resistance levels. If we have a meaningful reversal than we may take baby steps in – or wait until the 990 level is breached. This is the level where Elliotwave would rescind, at least temporarily – the bearish scenario. There is much talk about gold taking out the 1000 level for good. If it does, it will quickly go to at least $1200. Either way if it makes a run for it, we’ll be in.

Lets look at Silver :

Silver broke throught the clouds but reversed and is now back into neutral territory. Our resistance zone is thick, so 12-13 is a likely area of support.. Again in line with most of the technicians. However once again the Elliot wavers see a much lower price (below which is in-line with the October lows. So we will keep this in mind if prices break.

However as we expected the SELL signal for SLV was confirmed (we got out well before confirmation) .

Goldstocks – Our proxy for gold stocks is GDX. Our chart shows this:

GDX flashed a sell signal as expected, and we were out when it hit 42.73 (so near the top). It’s gone down ever since and is approaching resistance just above 35, and has more support around 30. So if the bullish case were to be true, we should see a bullish reversal pattern occuring either near the top of the cloud, near the bottom or if the Elliotwavers are correct, a big drop below the cloud where price action could get ugly. So again with the equities, we are in a wait and see mode.

One of our favorite silver stocks, SLW also has an interesting chart.

Notice how it nicely hit the top of the cloud but couldn’t break through. So depending on how silver performs we’d look to see it hold near 7. And again the candlestick pattern called for a sell. We got out just over $10, since we expected the reversal and got it – but didn’t want to wait a whole week for confirmation.

Interestingly there are a lof of bullish articles on Jsmineset.com and 321gold.com. I checked back last year before the big drop in silver and saw things like ‘now is the time to buy the gold stocks’ type of articles. So bullish signals aside, we may enter but do so with utmost caution and keeping our stoplosses in place.

OIL and GAS

We entered a position in oil via the levereged oil position way back in Janaury when it was 2.88 and sold on 6/3 at 4.19. DXO has gone up a bit since then, but we got a good profit and the upside in oil, at least in the intermediate term is limited, while the downside is much higher.We also used DBE as a gasoline and oil proxy, purchased on 5/5 @ 20.63 and sold 6/17 @ 24.69.  Once we get a price reaction we may re-enter these ETF’s at a later point.

We also sold because we felt natural gas didn’t participate. And despite the bearish news, gas has been probing a bottom. Therefore we entered a 1/2 position in UNG which was officially a confirmed buy this week.

We use the cloudcharts, but we can come to the same conclusions many of the technicians are coming to. That gas is bottoming, and that the volume is now increasing. Notice how low the volume was going through the end of april, and is now showing signs up perking up. Also notice how far away from the significant resistance gas is. So while still in a bearish disposition, UNG has a ways to go before a reaction. Bearish news about supply glut have not pushed the prices down. So we will expand our energy commodity position to a full position, replacing oil with natural gas for the time being.

Agriculture

The grains have been wishy washy and we had a small loss selling with DBA (selling 26.67, bought at 27.94). We took a cautious approach by placing a half position and when the sell-signal was flashed we tightened the stop. DBA did evolve into a full blown sell and is currently at 26. So we will wait until a better setup.

In summary, the only thing we are currently bullish on is natural gas and potentially FAZ which flashed a buy signal today. We’ll talk more about FAZ later on, and discuss the other signals this week. Since we are mostly cash we can be patient and wait for things to evolve to put the odds in our favor before making any moves.

abbreviated update

Posted by admin on Jun 13th, 2009 | no comments

We updated our watch list and will be doing some additional reporting next week.

UNG has now gone into a buy state.

AXAS is a buy-if – previously buy-if’s needed to be bought prior to a buy signal in order to realize the full move.

DBA is also a sell now.

GLD is now officially a sell as expected.

Gas Alert

Posted by admin on Jun 11th, 2009 | no comments

One of the areas that have been of concern is natural gas and it’s unwillingness to have partaken in the current run that oil has. Much of this has been attributed to the lack of industrial demand thereby causing supply bottlenecks. However a few other fundemental factors are in place that would fuel a rise in gas over the course of the next several months.

We’ll be adding a few other items to our watch list, specifically UNG and AXAS. UNG would be the 2nd part of our energy ETF holding, since DBE is already a half position. We have our powder keg dry in our special situation section – so AXAS and perhaps more UNG may make a part of it.

UNG, if all goes well should be a confirmed buy by tommorow. AXAS is still in a waiting state.

Mid-Week update

Posted by admin on Jun 11th, 2009 | no comments

As we monitor our signals, the only signal with a confirmed sell at this point is DBA.

It’s opening price this week was 27.600 therefore if the price closes below this the signal will be a confirmed sell. All other buy or sell signals are in an unconfirmed state.

Oil continues to climb higher, and with that our DBE position. We expect the buying to come to and end, and how much higher oil goes is anybodys guess. But with nice gains in DBE we aren’t going to let them be caught in a sharp downdraft, which usually accompanies any commodity such as oil. An option is to keep the smartstop in place, but as the action accelerates you may want to put a trailing stop and keep it tight.

We’ll look at the signals on Friday. It will be an abbreviated post..with more to follow next week.

Welcome to StockToolworks

Posted by admin on Jun 10th, 2009 | no comments

We moved to a brand new site and hopefully the polished look should appeal to everyone.

Previous blog posts can be found here:

http://www.nettoolworks.com/finance