My Technical Analysis

[Dismal Science]

I think technicals are about to go in the garbage if Europe doesn't solve this Spanish debt issue...

[Dismal Science]

Similar article to what you were pointing out:

NYSE New-High Dearth Clouds Outlook for Stocks: Chart of the Day

[solarcurve]

Originally Posted by Dismal Science

I think technicals are about to go in the garbage if Europe doesn't solve this Spanish debt issue...

can't be solved really. nobody knows what happens next, technical analysis just offers evidence to skew the probabilities one way or the other. All things considered, I believe the evidence suggests we will see a new high on the S&P 500 this month above Monday's high. It may seem hard to believe but we still have not broken the pattern of higher highs/higher lows on the SPY weekly chart and we're less than 2% from a 3 year high. With breadth this oversold and price action being what it is here, very hard for me to see the short term bear case.

This market will break, but odds are now is not the time. Just my opinion though. These breadth indicators only suggest short term bullishness, like the next 2-3 weeks. In a longer term view, now is not the time to be putting a lot of money in the market on the long side, but going long with spec money here is advisable.

[solarcurve]

We knew the reaction to Friday's jobs report was negative based on futures trading that morning, and though we had all weekend and today to think about it, ultimately the market ended up almost exactly where it closed trading on Good Friday morning. With SPY closing at it's lowest level since March 13th and also marking the first four day decline of the year, there is a lot of uncertainty out there. At least for me, my interpretation of market breadth remains unchanged. All short and intermediate term indicators suggest a bounce is imminent, and it most likely will involve more than just the handful of large/mega caps which have held up the market for much of the last month. Not to mention the many favorable historical studies which have been triggered after a large decline on a jobs report that did not meaningfully recover during that day.

SPY chart: http://content.screencast.com/users/...5a1626/spy.png

Putting everything aside and focusing purely on price, there are some concerns. The intraday high today around SPY 138.75 corresponds to the lower end of the recent three week long range - if this level cannot be recovered shortly, the expectation is for further price deterioration. Below us around SPY 137.25 is some horizontal support from late February/early March which, if tagged, could represent the short term bottom. I would be very surprised to see a conviction break of that level over the next few days, all things considered. If we can see price break and hold above today's high, then one has to think we are likely to re-enter the aforementioned range and start to fill these overhead gaps, both from today and from the gap lower on April 4th.

[solarcurve]

high probability that a significant long term low was made Tuesday in the mining sector. Charts and my thoughts below.

http://content.screencast.com/users/...4fc07/gdxj.png

http://content.screencast.com/users/...e239bf/sil.png

http://content.screencast.com/users/...401fac/slv.png

http://content.screencast.com/users/...a149f4/gld.png

http://content.screencast.com/users/...baa976/gdm.png

The extremely oversold nature of the market, combined with all of the above charts that show promising long term reversal patterns and that bullishness about the mining sector is at multi-year lows, lead me to believe that either the low was seen today or it will be very soon for this very oversold and out of favor sector. Even better - not many people are talking about this. Those who have been saying miners are cheap relative to gold have been singing that song for so long people have stopped paying attention, plus the magnitude and speed of this recent five day decline will keep attention elsewhere for the moment. Promising reversals on the chart, sector internals at multi-year oversold levels, market breadth at extremely oversold levels, plus it's hard to be bearish on metal fundamentals - there's a lot to love here. I'll likely have more to share on this tomorrow.

http://content.screencast.com/users/...5e5/gdxqqq.png

http://content.screencast.com/users/...40dad0/exk.png

The market had a fairly weak recovery but I don't think it's anything to be overly concerned with. Medium term breadth indicators remain severely oversold, implying that we are headed for a multi-week move higher - most likely targeting a new high for the year on SPY. The encouraging reversal yesterday in miners, combined with a multi-year low in sentiment as demonstrated by the bullish percent index posted yesterday and these very oversold market conditions, lead me to think this is a rare opportunity. The first chart above is a ratio between GDX and QQQ - as you can see, technology is valued more relative to gold miners than at any time over the last three years. By itself I wouldn't put much faith into it, but add it in to the mix of evidence and you could conclude that rotation out of some momentum tech names (PCLN, AAPL, VMW, FFIV) and into gold miners is likely in the coming months. The EXK chart is simply an interesting observation - the sideways consolidation from mid 2009 to late 2010 looks very similar to what's happening now, and as it did then the expectation is for a resolution higher.

http://content.screencast.com/users/...1b8edf/iwm.png

The ~78.15 level on IWM is an extremely important support zone that must be watched in the coming days/weeks/months - it reminds me of the ~76.50 level that played such an important role last year (and was often discussed here). Needless to say a break of this level over the next few days would be very negative, but more likely I believe we will see continued price movement to the upside towards possible resistance around 81.40.

It's very likely that tomorrow we will find out whether the low has been seen in miners or if there is a little more downside still left. Finding the exact low to the day is very difficult (I have the first hand experience to prove it), but the evidence strongly suggests that a long term low either has been seen or will be seen very soon in GDX. My guess is that tomorrow will be an up day for the miners and since typically whenever strong reversals have held in the sector for at least two days, the trend has successfully reversed - in this case to the upside. If that doesn't happen and Tuesday's lows are taken out, then caution remains warranted but I will be on watch for another reversal given that long term conditions remain very depressed.

[solarcurve]

I'm long EXK CDE SSRI XG AUMN SLW from yesterday morning.

[solarcurve]

GLD hourly:

http://content.screencast.com/users/...0c1fc7/gld.png

SLV hourly:

http://content.screencast.com/users/...b83219/slv.png

Today's strong rally is the confirmation I was looking for to add credibility to the low made on Tuesday. Those who were able to get in on the ground floor of this move are likely to see large profits in the weeks ahead as the mining sector recovers from a multi-year low in bullish sentiment. There is still a lot of overhead resistance to overcome both on GDX and the metals themselves - my take on the hourly charts of SLV and GLD are shown above. The good news is I haven't seen this kind of buying pressure in gold or silver futures since the late February top, which also suggests the final low has been seen. The other bit of good news is that China's Shanghai Composite has actually been outperforming US markets during this recent decline, and appears to be leading the way higher in stark contrast to its lackluster performance during March. Lastly, April is seasonally very positive for the metals which also suggests this early April dip was a superior buying opportunity.

All in all, I am extremely optimistic about the prospects for miners and metals over the next few weeks. After today, short term momentum favors the upside and as more people begin to consider the final low has been made, buying pressure will only continue to accelerate in my view.

[EweTupper]

I've been buying into mining and raw materials over the last two months, too (CLF and VAW). Don't have your technical skills, so your post gives me some confidence in my decision.

[solarcurve]

miners and metals should be significantly higher than now by the end of May. could make a new marginal low over the next few days but it won't change anything. CLF should do quite well - hard to believe it's paying out a 3.60% dividend.



that's really all the evidence you need. whenever a sector is at a reading of 10 or lower, buy with both fists. washout prices won't last long. Just look at what happened from end of December (reading of 10) to late February in GDX.

[solarcurve]

http://content.screencast.com/users/...c3a58ca/dx.png

The sharp rally from Thursday was met with selling both Friday and today, though the weakness today was largely isolated to a handful of high priced momentum stocks which many believe have helped to hold up the major indexes in recent weeks, particularly the Nasdaq. My focus remains on the mining sector and by extension gold and silver, which reversed most of their Thursday gains on Friday and today basically traded sideways. Help may be coming to precious metals bulls if the US dollar index chart is any indication. The declining resistance trend line from the high made in mid January has been holding down price over the last week or so, with overnight action initially breaking above before strongly reversing during US trading hours. Since the low made nearly one year ago on May 4 2011, the US dollar index has rallied nearly 10 points into mid January 2012 and has since traded slightly lower, continuing to obey overhead resistance. The point is that any expectation of dollar strength has likely been fulfilled over the last year, and a resumption of the long term downtrend could be around the corner - many will be watching the low from April 3 at 78.80 as key support to maintain the intermediate term neutral trend. A break of that level turns the short and intermediate technical landscape to bearish, which would likely begin to re-fuel the longer term bear market in the dollar.