Long Term Trading

Yesterday we touched a very important long term up trend line.  The up trend line that has been in force since the March 6, 2009 low.  This long term up trend line has now been touched 3 times including yesterday. 

The line represents the bullish trend.  Despite all the sideways price action over the last several months the fact remains that we are still trading above this key longer term up trend line.

I usually like to see a strong reaction up from a trend line to show that there is real demand in the market.  We already had a  strong bounce up off of this trend line after July 1st, 2010.  Whether we get another one during the next week or two remains to be seen.

A pretty simple chart but important to watch closely because if the bears are not able to bust below this up trend line with conviction during the next two weeks then it is going to significantly weaken the longer term bearish scenario. . .

I just pulled up two weekly charts one on top of the other.  Apple Inc. and the Powershares QQQ Trust.  If I look at these two weekly charts with a simple up trend line without looking at any indicators at all it appears to me that both of them look toppy.

It looks like Apple Inc. has made long distribution top and the QQQ Powershares looks like a head and shoulders topping pattern.  Both of them are near their long term weekly up trend lines.  But these long term weekly up trend lines have not been broken yet.

It seems unlikely that the up trend lines will be broken before the end of August.  September however should reveal the ‘final answer’ in my opinion.

As much as I remain open minded about bullish possibilities or bearish ones, just looking at these two long term weekly charts makes me think a bearish resolution is the most likely outcome.

The answer lies in whether or not the sideways trading in AAPL is distribution or accumulation.  I think there is more evidence that it is distribution.  The May 6 and May 7, 2010 super high volume sell off was an enormous sign of weakness and could be interpreted as being preliminary supply.  It changed the trading dynamics of the chart in terms of volume.

The May 7, 2010 spike low of 225.21 on Apple Inc. was on 60 million shares.  Experience tells me that usually wide open high volume swing lows like that are eventually retested.  So even though Apple Inc. has been trading sideways in this long trading range for a while, I have to presume we will see weakness again and a downward test of the May 7, 2010  225.21 swing low.

If we trade down again into the rest of this week on Apple Inc. then it may put the stock near recent support.  A break under there could set a real decline in motion.

The weekly MACD is still on a sell signal despite the fact that we have been trading sideways.  There is no weekly MACD histogram buy signal and more downward momentum (although maybe still slow for now) is to be presumed.  Since that is the case it does appear we will eventually get a break of support likely in September.

High volume swing points like the one that occurred on May 7, 2010 are like magnets and I think price gets pulled down into that range eventually.

If that is the case then the QQQ Powershares do not stand much of a chance of holding support either since AAPL is such a large percentage of the QQQ index.

Seasonally we are also right now at the word possible time frame for paper equities.  So the seasonal weakness plus the current weekly bearish trend also seems to support a break down in AAPL soon. . .

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.

The more I think about the most probable trading setups, the more I think that position trading is probably the most potentially profitable way to go because it allows you to participate in trends and ‘ride the bull’ so to speak instead of constantly pulling your hair out worrying about every little price tick.

Position trading is also probably the most gratifying because it allows you to take a somewhat more relaxed approach to trading and trust the trends.

I prefer to use a more flexible definition of position trading.  Perhaps most would say holding a position from 3 months to 1 year is a position type trade.  My view is that it could range from a couple weeks to a year.

But who cares about definitions.  It is more important to know when to position trade and when not to.  For me it all depends on the individual stock or index in question.  There has to be a compelling reason based on the chart as to why it would be best served as a position trade.

Viking Systems Inc. falls into the category of what I consider to be an outstanding position trade.  Viking Systems happens to be on the OTC BB exchange which puts it in the category of ‘highly speculative’.  I have traded many stocks that were on this exchange before and I can tell you that for the most part I barely cared that they were trading on the OTC BB exchange. 

More important for me is whether or not the stock has merits in terms of its price chart structure, volume relationships and other factors.

VKNG seems to have most of the elements I typically look for in a potentially outstanding position trade.  The technical analysis of Viking Systems Inc is outstanding right now and there is a fundamental picture that looks quite favorable as well going into October 3rd to 7th, 2010.  Admittedly I only skimmed the surface of the fundamental story, but I like what I see.  I recommend traders do some further good due diligence on this company.

Viking Systems is in the medical device sector and has a product they will showcase at the American College of Surgeons 96th Clinical Congress on October 3 to 7th, 2010.  There they will showcase their Viking 3D HD system, a tool for surgeons to do minimally invasive surgery in 3D instead of 2D.  According to Viking Systems they are the “only known supplier of stand alone, cost effective 3D vision systems” and “5% market conversion represents 100 million in sales”.

This is a very high priced product somewhere in the range of $80,000 to $90,000 a piece.  It would seem also that the market for this type of product is quite large as well given the huge improvements over 2D HD visualization in laparoscopic surgery.

You can read the company’s recent presentation yourself keeping in mind that obviously it is biased favorably towards the company.

The Technical Analysis of VKNG

The technical analysis of VKNG looks pretty damn good to me as a potential position trade into early October 2010, maybe even beyond that.  What happens typically is that you will see a stock trade INTO a key presentation date and then sell off on the news.  This presentation in early October is basically a big marketing push to a lot of surgeons who likely have very deep pockets.

So I suspect there will be a lot of excitement going into the event and then a ‘sell on the news’ situation quickly thereafter.  The company is in the final phases of development of this product and as far as I know has not started the assembly line so to speak to get this product sold.  From what I have read that should happen by the end of this year.

These low float type stocks tend to trade in a somewhat bi polar fashion.  They will trade all quiet and flat for a while and then burst in excited peaks and collapses.  So even if this type of stock is in a long term uptrend it can appear as though it keeps topping out because of the vertical peaks it creates.

The most amazing fact about VKNG is that in October of 2009 it traded from .005 (half a penny) to $1 in just 14 trading days.  This is by far the most powerful amazing run I have ever seen since I bought my first stock in 1994. 

If you had bought $1000 worth of the stock at .005 and sold at $1, that $1000 would have been worth $200,000 near the peak.  Amazing.

Since that time the stock has had a mini crash, but it has developed a new long term base 3/4 of a year long at a higher level.

So we had a tremendous sign of strength at first and then a nice long saucer bottom base building formation.  Within this saucer there have been a few big volume spikes which I interpret as accumulation.

Today we had a nice big demand high volume candlestick which followed a different one that occurred about 5 days ago.  This stock is being accumulated now in my opinion.  It wants to move to a stage 2 advance after a stage 1 bottoming formation.

The other key fact about VKNG is that it has volume at the swing trading highs of November 17 and 18, 2009.  This is very important because it means that this level will be retested, and in my opinion likely eventually exceeded.

Even if it is not exceeded, a move from .30 cents to $1 is not a bad move at all.

Today we closed above the .28 range which was key resistance. I expect .28 to turn into good support now.  The next very key resistance is .38 . If .38 is broken then VKNG can move quite quickly to .70 because there is a large tradable void there with minimal resistance.

The weekly chart is showing an MACD buy signal.

There was some selling that came in end of day today but I consider it more significant that VKNG was able to break and close above .28 today.

To a certain degree this stock is somewhat ‘immune’ to the broad market pattern.  VKNG has a mind of its own and I expect that trend to continue going forward.

I am giving VKNG a confidence level of 1 per my perception of the chart (on a rating scale of 1 being highest and 10 being lowest).  A confidence rating of 1 represents my highest level of confidence at the time of this writing.  For me to remain confident in VKNG it must maintain prices at or above .28 in the days and weeks ahead.

At some point I will do another follow up on VKNG to see how things are evolving.

That is not my forecast.  I believe it is the forecast of David Bensimon with Polar Pacific Capital.  Apparently he has made some great calls on the market, gold and other commodities such as crude oil.

I am not quite sure of his method but it appears to involve the use of Fibonacci and time cycles and maybe Gann as well ?

It has been quite difficult to find mega bulls lately, ones making extremely bullish forecasts.  Perhaps David Bensimon is the exception to the rule.

First I would say that it is probably way too far a stretch to even be talking about anything higher than 1500 in the sp500.  Why not set a target of 1500 first since it is such a huge resistance level of decade importance, and then if it is successfully broken topside, then start to talk about 2000’s and higher.

It would appear to me at this time to be extremely unlikely that 1500 would get broken even if we did make another charge up there next year or thereafter.

The longer the forecast the more difficult it is.  He is also on record for saying that gold should move to 2200 to 2400 an ounce I believe by end of next year.

Anyway if you want to listen to some of his recent interviews you can here.

If I had to come up with a strong reason why he is right or why the market will go much higher into end of this year or next then it would have to do with just one simple long term price chart that shows the current correction was only a .382 retracement so far of the entire advance since the March 2009 lows.

Markets and stocks that only do 38% retracements after extremely strong advances should be presumed to have lots of internal strength and weak sellers.

Some of the strongest moves I have seen in individual stocks have occurred after they have completed 38% retracements and then moved higher.  Every stock, index and future must make a choice when it starts going into a correction from a strong advance.  The choice of retracement it makes is very telling about what it wants to do next.

Like a cheetah in the tall African grasses, I have been watching NBIX Neurocrine Biosciences, Inc for several weeks now.  This biotech stock first caught my eye as I was scanning through the sector lists in the category biotech stocks.  I was looking at each each stock in this sector one by one (there were at least 100 of them) and I came upon NBIX.

Biotech stocks have this tendency (especially the small ones) to be extremely volatile both up and down because typically they do not have substantial earnings and tend to trade based on milestones as it relates to the drug candidates they are advancing.  FDA approval or disapproval can mean the difference between a 100% up move or a 90% down move sometimes in just one day.

Having said that I still like the longer term chart of Neurocrine Biosciences, Inc NBIX because it seems to be telling an interesting story chart wise.  Every stock always has some kind of story to it in terms of what the chart is telling us.  Some stories are really boring and don’t seem to indicate anything.  Others are much more interesting and have well defined levels and indications that something big is about to happen.

Neurocrine Biosciences, Inc, on the monthly and weekly charts looks very constructive to me.

I like the fact that this stock since the May, 6, 2010 flash crash in the general market has trended sharply higher on very strong momentum while the rest of the market was dropping like a rock.

I also like the very strong volumes off of this base as a contrast to the very light volumes that defined the bear market lows in the stock during 2009.

Right now NBIX is perched right under a 2 year resistance level.  If it can get over 6.23 and stay above there it would be on new support at roughly the 6 level and then set the stage for a third attack at a 3 and half year down trend line near the 7.30 level.

If NBIX can then break and stay above 7.60 it would suggest a longer term breakout and a possible strong momentum run much higher into end 2010 and maybe 2011.

Until it breaks above 7.60 and is sustained above that level there is still risk it can fail and break back down along its long term down trending force.  Assuming a break of 7.60 or higher is achieved, then a stop right under that long term resistance line would make for a nice risk /reward setup.

My charts are saying that it will be able to break into the 7.60 and higher level in the months ahead but for now it is still in somewhat of a congestion zone.

You can see on the chart that before the year 2000 a similar dynamic was taking place and the successful break of long term resistance led to a huge upside move. Of course that was in part related to the dot com bubble era.

The PowerShares QQQ Trust Series 1 ETF monthly chart is quite an amazing sight to behold.  I just did a post about how the current market structure could be similar to that of the mid 1970’s time frame and could potentially evolve bullishly instead of bearishly.

If you look at the long term monthly chart of the the PowerShares QQQ Trust Series 1 ETF the argument could be made that it is forming a very large head and shoulders bottom formation and is in the process of forming the right shoulder.  If true then it could evolve into a breakout scenario above the neckline and lead to an eventual price move towards the 65 range.

Similar to the sp500, the PowerShares QQQ Trust Series 1 ETF has so far only done a .382 fibonacci retracement of the entire rally that began from March 2009.  This could imply internal strength in the market ( so far at least).  A break below the 41 level would invalidate this pattern and destroy the symmetry of it and show that the bullish mid 1970’s scenario is not workable.  But for now the structures and setup seems to have good potential.

The neckline that is shown in the chart above was also a very logical point for the recent correction to start as it was right at previous resistance.  So for 2 to 3 months we have corrected off that level and now if we head back up to the neckline we could get an explosive topside breakout.  This is going to be a very important chart to keep an eye on in the days/ weeks ahead.

I thought it interesting that the price breakdown from the 1930’s automatic rally began on almost the same date as our current break down in Mid April.  Also the first leg down was about –12%  and that matches our break down into May 6, 2010.

The second major leg was a –23% drop.  Note also the nice round beginning decade number of 1930 and 2010.  I am not sure what to make the the similarity in the dates of the breakdowns, perhaps there are some cycles that attach the 1930’s peak with the 2010 peak.

I think the most interesting thing about the price action that occurred after the automatic rally ended in 1930 was the the subsequent price drop was not really a crash it was just like a boulder tumbling down the mountain with a few small pauses but eventually getting to its final destination.

I really am not sure what is worse.  A quick sudden multi day drop or a drop that is spread out over 10 to 15 days.  The drop that is spread out over time would maybe seem less worse since it is less sudden and would seem like normal corrective action to those who do not look at price charts.

Note that after the market bottomed out in June July Time frame it bounced around but then proceeded to get hit bad again during the seasonally weak September time frame.

So we could be dealing with a market that is much lower than is even imaginable by the end of this year.  The tricky part is that it will seem to be happening in slow motion which will probably keep many people buying dips always thinking it is the final low.

If I am starting to sound somewhat repetitive, I am doing it on purpose.  Here at Best Online Trades I like to try to focus on the best risk reward scenarios at any given time.  Sometimes they are short term scenarios, other times longer term scenarios.

What has me very keen and interested right now is the precious metals sector.  And now even more so, the silver sector.  One of the most under rated and under covered sectors worldwide, the silver sector (which includes the silver price itself and the silver mining stocks) may be about to come more alive than any other sector in the market place.

The issue is though which is the best area of silver to participate in assuming a new strong bull leg is coming ?  My own personal take is that the AGQ ProShares Ultra Silver ETF is probably the best way to play the likely coming move in silver.  The AGQ is leveraged twice positively towards the silver price.  So if the silver price manages to make a 100% run in the next 1 to 1.5 years, then AGQ should perform close to 200%.

Now tell me where else in the next 12 to 18 months can you expect a 200% return? In the stock market ?  Bond Market ?  Real Estate?  Probably no, no and no again.

Individual silver mining stocks should get a good run going as well.  But since I have been watching the precious metals mining stocks since 2003 I can say that in general I have been usually disappointed in many or even most individual mining stocks performance relative to the metal itself or even ETFS.  There are just too many uncontrollable variables with the individual miners.  Why take all that extra risk when you have leveraged ETFs? I suppose it comes down to a question of greed since in some cases you will find individual mining stocks (juniors) go up by factors of 2, 5 or 10 of most other instruments.

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You really need to study this long term gold mining stock index chart.  It was sent to me by a buddy of mine and the chart was made by one of the regular blog posters over at www.jsmineset.com . 

It is a super long term gold mining stock index chart that goes all the way back to the 1920’s.  What absolutely blows my mind about this chart is that it shows that the GOLD MINING STOCK sector has still not really even had a breakout from the trading range that began in 1980 !!!

This is an amazing chart!

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