Commodity ETF

The Semiconductor HOLDRs SMH ETF today confirmed an MACD Histogram buy signal.  In previous posts I have been looking for yet another move in the broad market higher as a bounce from the bottom of the recent swing trading range.

The other indices have as of yet not confirmed an MACD Histogram buy signal but the SMH was able to get the job done today by a few pennies by closing above yesterday’s swing high of 26.52.  I mentioned before about how the SMH can sometimes be a good leading mover slightly ahead of the rest of the market and can sometimes be used as a guidepost for other markets to follow.

If we look closer at the most recent 3 candlestick closings on the SMH it is not necessarily something to get all excited about.  My point is that despite the confirmed MACD histogram buy signal today I am not seeing clear and present evidence that the SMH wants to zoom higher to the top of the swing trading range near the 28.5 level.

We need to see a strong bullish candlestick that pushes the SMH strongly higher soon or it may create more doubt about the sustainability of the SMH to move substantially higher again into the top range of the swing trading range.

Generally speaking, after a stock or index touches the bottom of a swing trading range I like to see somewhat quick reaction back topside with confirmed signs of strength.  If instead the stock or index LINGERS around too long near the bottom of the swing trading range with dojis, shootings stars or other semi bearish candlesticks then it instills doubt about the ability of the market to move back topside.

The bearish case will start to become more keen if the SMH breaks down the remaining two days of this week.  Why?  Because I do not like to see price hang around this level too long, hugging the bottom  of the long term swing trading range.

I would be remiss if I did not also mention the HORRIBLE topside volume of the last 3 trading days.  The volume comparison between the last 3 up days and the big drop that preceded it is astonishing.

So again, the SMH needs to get up off its lazy butt and get MOVING higher SOON and with conviction into the end of this week, otherwise the risk starts to grow quickly for a downside possible break through long range swing trading support.  If that were to occur it would likely be a very large and fast move given the significance of this long swing trading range support.

The title of this post is “SMH confirms MACD Histogram Buy Signal”.  The problem is that sometimes buy signals fail especially when they are not being strongly confirmed with volume conviction which appears to be the case now.

Today’s and yesterday’s price action also showed topping tails in many indices which is showing supply coming into the market in that range.

So the bottom line is that the market needs to head higher with conviction into the end of this week and preferably a close above 1100.14 on the sp500 for a more bullish scenario to unfold.

But if on the other hand we retrace down again into the end of this week and do so on increasing volume relative to the last 3 days, then it is going to put the market at significant risk of a break down through the large swing trading range. . .

The SPDR Gold Trust (ETF) closed today above its previous major spike peak high of the 12/2/2009 and 12/3/2009 period.  This is significant.  Volume was seriously lacking the GLD ETF today however, but still we must give it credit for a solid close near the top of the range.

The GLD ETF has now positioned itself to enter once again a zone of minimal previous price resistance.  This is very important because previous price resistance can be like quicksand, hindering ease of movement in price.

So higher moves in the GLD ETF from here going forward have the at least the potential to be fast and furious.  The gold market seems to be feeding off of paper equity market weakness like a vulture feeding off of a wildebeest carcass in the African Desert.

Gold is trading with the Relative Strength Index well above the mid 50 range and in bullish territory.  A move into the powerzone above 70 could lead to possibly explosive topside moves.

The gold price seems to be ‘the trade’ right here and now.  It has a huge almost one year cup and handle pattern, the handle of which seems to be finishing now.  It does not have a messy sloppy extended trading range like the stock market does.  So why still the obsession with the stock market?  You probably already know the answer.  Because of the still astonishingly huge number of stake holders with a vested interest in pumping the market up.  Needless to say it is not working too well.  The stock market is in a wide swinging trading range with no real trend.

Gold seems to be sensing this and is basically saying right now “Lets get the heck out of Dodge”.

From a super long term basis the Dow to Gold Ratio also seems to be speaking loudly.  The long term Dow to Gold Ratio Chart puts the ratio at about 8.4 right now.

If we assume that the gold price will blast higher to 2000 during the next 6 to 12 months and that the Dow Jones Industrials would stay at 10,300 then it would put the ratio at about 5.00 which is right at the bottom channel line of the 100 year Dow to Gold Ratio Chart.

Chart source: Sharelynx.com

If the DJIA were to decline from here it would change the movement of the ratio of course but this chart is definitely one to keep in mind assuming gold can get to 2000.  This long term chart suggests that the 2000 range of the gold price is an ideal major pausing point for the gold price.  Perhaps it would lead to that 50% correction in the gold price I referred to in a much earlier post.

So the stage is set a couple weeks before September.  Signs seem to point to a massive blow off type run in the gold price.  And remember this important fact… In many commodity bull market type runs, 90% of the move occurs in the last 10% of the time.  So if we are in the last 10% of the first major leg up in gold (before the 50% major mid term correction), then the upcoming price advance could be quite the sight to behold . . .

Finally if you look at a simple table of gold market returns versus Dow Jones Industrial Average Returns it should be pretty clear who is winning this battle.  And yet mass public ownership let alone investment fund ownership of gold as a total percent of paper assets is still at record lows ? Why?

The table shows annual closing values and percent return for the year for the Gold Price versus the Dow.  Gold has won 9 times out of 10 (I speculated on the closing values for 2010 however). 

The interesting thing about the annual returns for the gold price is that we have not seen as of yet a massive one year annual return of something like 70 to 100%.  Commodity markets are fully capable of delivering that type of return if the environment is right and keeping in mind my previous comment about the 90% of returns in 10% of the time behavior. . .

The long term iShares Silver Trust (ETF) monthly price chart of the silver ETF is showing that it is compressing into a 9 month symmetrical triangle that also appears to be the right shoulder of a much larger head and shoulders bottoming pattern.

If the iShares Silver Trust (ETF) can get a move going to 18.60 and higher during the month of September 2010 it could suggest that this metal has entered a breakout mode from a very large head and shoulders bottoming pattern and also a breakout from a 9 month symmetrical triangle.

The 9 month symmetrical triangle in silver is about as compressed as it can get.  Any more compression risks weakening the eventual resolution.  So it would appear that September is the month of decision out of this pattern.

I suspect that the gold price will blast higher in August 2010 and drag silver higher as well.  Strict discipline still tells us that the breakout could move in either direction, but the weekly confirmed MACD histogram buy signal in the gold price is hinting to me that the break will be topside.

This breakout has the potential to be quite spectacular as silver has 9 full months of energy built up to feed from.

The doji reversal hammer pointed out with the red arrow in the chart was a very key monthly turning point for silver.  It was a defining month for this metal and showed real demand and returned silver to further accumulation.

The action during the last two months has clearly been very narrow range and pretty much put everyone to sleep.  Usually when markets are done doing that they burst into high volatility states and end up surprising the majority. 

The SPDR Gold Trust (ETF) appears to be close to a weekly confirmed MACD histogram buy signal.  The GLD ETF needs to get a weekly close tomorrow above 118.42.  Currently it is trading at 118.56.

A confirmed weekly buy signal on the MACD histogram tomorrow would in our view be very significant as we are just 2 weeks away from the seasonally very powerful month of September for the gold market.

The weekly chart also shows a weekly reversal hammer of 2 weeks ago in which the trading low of that week tested the neckline of the previous head and shoulders bottoming formation.

The SPDR Gold Trust (ETF) also shows that it was able to crawl back above topside above the longer term up trendline.  This recent move appears to be creating a handle of yet another cup and handle formation which the gold market has been quite famous for time and time again.

One could also argue that the recent 8 to 9 month consolidation resembles that of an ascending triangle formation but is also a cup and handle pattern contained within it.

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The Market Vectors Gold Miners ETF monthly long term candlestick chart looks very constructive right now.  The GDX has pretty much been left for dead for almost a year now.  The argument has been that because the mining stock index has not broken out to new all time highs, that we should assume it is not confirming the upside move in the gold price and that gold should break down going forward.

I prefer to judge the chart of the Market Vectors Gold Miners ETF on a stand alone basis.  We can clearly see that the GDX has formed a massive almost 3 year long head and shoulders bottoming formation that has a long term upside measured target of about 85.

The symmetry of the long term GDX candlestick chart shows that the left shoulder runs about 9 months long and the current right shoulder is also about 9 months long.  Head and shoulders patterns usually tend to symmetry in terms of time.  This could mean that the GDX is headed for a massive upside breakout from this pattern above the 53 neckline in the months ahead.

Many have waited for this gold mining ETF to break down but if we make an objective read on it over the course of the last 9 months it cannot be said that any break down has occurred at all.  On the contrary the GDX has simply built more sideways cause for the next big move.  This ETF has basically put everyone to sleep at precisely the time they should start to focus on the GDX closely.

I cannot say whether or not this mining ETF is going to get a massive breakout in September.  But the bullish seasonal time frame for gold and mining shares during September give extra weight to a breakout scenario soon.

For a breakout to be valid we need to see a massive monthly candlestick breakout bar on massive volume.  Because the chart here is so long term, the monthly price breakout will of course appear to be happening in slow motion on the daily and weekly charts.

If the Market Vectors Gold Miners ETF gets a monthly price breakout going it could potentially start a feeding frenzy in the junior and big cap gold mining sector and finally start to kick start the mining shares again.

If there is one simple truth about the recession of 2008, it is that supply has been further constrained. 

I still have seen no sign of a mass public love affair with gold mining stocks. Where is the hysteria? It doesn’t exist.

I think the GDX is going to play catch up to the gold price soon and break out topside and alight a fire under many junior and micro cap mining stocks.  A breakout above the neckline in this index could start to cause very heavy upside speculation across the board.

The junior mining ETF is the Market Vectors Junior Gold Miners ETF symbol GDXJ.

In a previous post on the Semiconductor HOLDRs ETF I indicated that it looked like it was about to break down in an A B C style decline.  It has already broken the uptrend since July 1, 2010 and today is breaking down again on what appears will be a very heavy volume day maybe greater than 20 million shares.

My theory was that the Semiconductor HOLDRs ETF would drag down the rest of the market below its lower rising wedge supporting line.  So far that has not happened but the sp500 is sitting once again right on the bottom supporting line of the recent channel that began July 1, 2010.

The SMH looks like it wants to test the 26.95 level which also represents the very important swing reversal low of 7/30/2010.

I wish I could say whether or not the SMH is going to blast below the 7/30/2010 swing low today on very heavy volume.  The problem is that the pattern lately has been early weakness and then a reversal by end of day.  Plus we have the FED meeting as a possible catalyst and/or turning point.

It is very clearly seen that the SMH is right now almost dead center in the middle of this long trading range since end of April 2010.  We recently failed to break out topside from the the top part of the trading range in the form of a small double top.  Since then we broken down on heavy volume and then rallied on light volume and are now breaking down on heavy volume again.

If I put my Astro hat on, it tells me to expect unprecedented volatility the next 2 days.  The way the chart looks and the way the Volatility Index is setup right now tells me a huge downside move could come out of nowhere.

You know what?  I think I just convinced myself that we are about to trade down in a big way.  This is my sense from looking at the SMH chart right now and the sp500 chart side by side.  I don’t think the bulls are going to be able to get enough of a reversal today.  I think we are going back down to the bottom side of the trading range on the SMH.  That is how the volume pattern looks right now.

The setup looks a little bit similar to the way the May 6, 2010 flash crash began.

The SMH has tested the topside of its trading range 4 times and the bottom side also 4 times.  If it cannot break through topside then it will turn around and try to take out the bottom side of the range, just like a tiger in a cage.

A while back I did a very bearish sounding post on the spot gold price.  My main points for making the longer term bearish case were based on a weekly bearish divergence, a break of the long term uptrendline and at least the potential of a monthly MACD bearish cross down the road.

Looking at the SPDR Gold Trust (ETF) right now I can clearly see that gold last week created a weekly hammer candlestick reversal that also tested the neckline of the previous head and shoulders bottoming formation at 113.08.  This week the price of gold has rocketed back up inside the up trendline space. 

As of now there is no weekly MACD histogram buy signal, but there will be one next week if the GLD can close above this weeks high.

It could be that once again the gold price has evaded a bearish divergence and may want to push higher in true bull market fashion again.  We could still get a trendline break later in the months ahead.  But this is now starting to look unlikely given that we are about to approach the super strong seasonal month for gold which is September.

I have to respect this reversal in gold and now be open minded to a weekly MACD histogram buy signal and also a chance that we could be forming a handle of another cup and handle formation.

It has not exactly fully evaded the weekly bearish divergence, but it may be on a mission to do so during the next 4 to 8 weeks and should be watched closely to see if it can maintain strong composure above the 117 level ( on the SPDR Gold Trust (ETF) )

If we manage to get to all time highs again then I suspect the gold price will move faster than it ever has before.

I am quite shocked at the price resilience of the gold price.  The long term strength of this market is quite an amazing sight to behold.  Perhaps the only thing more shocking than gold’s super strength is the dollars super weakness and overly large retracement.  The US Dollar index is retracing so deeply from its recent super spike that it makes one question all the talk about the dollar being in a new bull market.  It looks really weak now.

If the UUP ETF (US Dollar Index ETF) gets an August MONTHLY close below 23.68 it will confirm a MONTHLY MACD HISTOGRAM SELL SIGNAL !!!

And you know what the means right ? Inflation nation… and gold stock mega run…

The gold price is still in a precarious position right now and looks like it is set for more weakness in the weeks (and maybe months) ahead.  There continues to be this bearish weekly divergence between MACD and weekly price.

If we continue to break down we will then also be at risk of breaking an important uptrend line in the gold price in force since September 2008, a significant period of time.

If we break this uptrendline we are likely to also eventually create a monthly MACD sell signal which would have strong bearish implications for the rest of this year.  We currently have a bearish ‘triple M’ on the monthly MACD histogram.  It is as of now still unconfirmed and we will need August monthly closing price as confirmation that the monthly trend is in a new down mode.

Ignoring bearish divergences is usually never a good idea.

It is true that the uptrend line since September 2008 is not yet violated however the weekly bearish divergence is unlikely to change its momentum at this time.  I also see bearish volume characteristics on the daily and weekly GLD ETF chart.

If you look at the peak that occurred during the mid 1970’s in the gold price you can see that it also made a new marginal high followed by a break down, then a slow drifting down and then new momentum to the downside.

The mid 1970’s also had a weekly class C bearish divergence just like the current weekly spot gold market does.  Even though a class C weekly bearish divergence formed in the mid 1970’s the gold market at that time took a long time before it really started to break down.  I suspect that will also be the case in the current time frame.  The gold price will likely drift only slightly lower for the rest of 2010 having the appearance of a slowly weakening trend instead of a real collapse.

If the long blue uptrendline in the current 2009 2010 time frame somehow manages to hold then I will have to re evaluate but for now I think the bearish stance on the gold market is the correct one.

The United States Natural Gas Fund LP or UNG is building a falling wedge formation which appears to be a small part of a very large overall process of a new major building uptrend.

I did a post here at Best Online Trades way back on June 3rd 2010 on the long term natural gas futures chart where I indicated that natural gas is probably in the early phases of a new bull market trend.

Since that time natural gas and the United States Natural Gas Fund LP UNG ETF has traded higher but it has been in a choppy form and has been reluctant to show significant ease of movement to the upside.  This is normal and probably is to be expected in the early part of an uptrend.  Given the total collapse that occurred in both natural gas and the UNG ETF between July 2008 and September 2009 (roughly an 80% crushing bear market decline) it is perfectly normal to see the UNG take its time to build a new foundation for an uptrend.

As stated earlier, the daily chart of UNG shows that it has been building a falling wedge of roughly one month in duration.  It recently broke through the 7.7 range of support but today was significant because price snapped right back up to the top range of support.

Not only that but today’s big wide price spread candle on big volume engulfed the last 4 narrow range day candlesticks, two of which were dojis.  This is a bullish sign and a signal that this wedge may be nearing completion.

Also significant is the 7/12/2010 candlestick print on the UNG ETF which was a record low volume day for this ETF since very early 2009.  A record low volume print like that would be very concerning to me if this ETF was trading higher after a tired uptrend.  But the exact opposite can be said in this case (The UNG is testing bear market lows and only slightly breaking under recent support).  So this low volume is telling me there exists selling exhaustion or weakness at the bottom of this falling wedge.

Also noted on the chart is the series of higher lows, another bullish sign for a potential new upside breakout trend in the UNG ETF.  Again, the early part of any uptrend is going to be choppy and cumbersome.

We are moving in an interesting seasonal time frame for natural gas futures as well.  According to both the 10 year and 17 year seasonal chart of natural gas futures we see that the full months of September and October are the two strongest months for this commodity.  So roughly 1.5 months from now we are in the strong seasonal time frame.

Chart source: Spectrum Commodities

I like this falling wedge pivot and will be looking to go long for a while on a breakout from the pattern.  I am thinking this could have potential at making it to the 10 to 11 range  by end of October if the seasonals kick in and the trend gains some strength.  That may be too optimistic but it is going to be interesting to see how the UNG reacts out of this pattern.

The daily histogram is also confirming a buy signal today. 

Usually after a big up day like today there is some type of retracement.  The action next week may reveal some better clues.  But right now I like the setup and the large pattern and the seasonals for the next 3 months.  This may be a better setup and either gold or the broad market or most everything else for that matter…

I have been reviewing the gold price charts recently up to the monthly scale charts and I am seeing enough evidence to suggest that gold is about to head downtown for quite a while.

There is a class C (as defined by Alexander Elder) bearish divergence (between price and MACD) on the WEEKLY scale that looks confirmed to me as of today.  Of course the week is not finished yet, but I am sticking my neck out and will say this is a confirmed bearish divergence right now.   The only way the gold price can avoid this class C bearish weekly divergence is by blasting high by the end of this week well above the 1200 range.

Class C bearish divergences are known to be some of the strongest signals in technical analysis according to Alexander Elder.  And this is not a daily bearish divergence, it is a weekly one.  So that means it should have price trend implications for several months.  The divergence formed over an almost 1 year time frame which gives it a good amount of significance.

If you just look at the price one can also clearly see that it has printed a 2B sell signal on the weekly chart which is another bearish sign and can lead to a swift cascade down in price.

The chart below shows the two red dotted lines that define the divergence and also note the blue uptrend line on this log scale chart that shows price close to breaking down through an almost 2 year uptrend.

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