Gold Futures - Bullish Bias Is Upon Us

 

Above is a 4hour chart of gold futures from mid June to the present. As you can see there has been a very accurate cycle pulsating through this market on a short term basis. All of these lows  marked with arrows are the same distance apart making this cycle worth paying attention to.

 

Just the other day we had a low due and sure enough away goes the market to the upside. Judging from the size of this move up there appears to be strength as this market has made a higher swing high compared to its previous swing high.

 

The next cyclical low is due August 12th. If gold is making a higher low at that time, that would be a sign of strength. Keep in mind that August is a very bullish month for gold on a seasonal basis so I'd I have to say a bullish bias is beginning to take hold of this market.

PLUG - Short Term Cyclical Low

Above is a 60 minute chart of PLUG which is an alternative energy stock.  As you can see over the past 3 months this stock has been forming higher lows in a very cyclical manner. Approximately every 3/1/2 weeks PLUG has put in a short term bottom and has rallied.

The last cyclical low was due  on August 1st around 11:00am eastern time and this is precisely when PLUG put in its bottom and now appears to be moving higher. PLUG has also held a significant support level at 5.25.

If this cyclical low is similar to previous lows we should see a rally to at least 6.25. Of course a move below 5.13 would negate the bullish setup. As always, we'll see what happens!

HomeBuilders - The Weakness Continues

 

Above is a weekly chart of the homebuilders ETF symbol XHB. The blue line is the S&P500. As you can see both markets have been moving higher TOGETHER for the past few years until now. If you look closely at the chart you will notice that the S&P has made a new swing high while the homebuilders have made a lower high. This is a bearish negative divergence and is a sign that we should see further weakness (in my opinion) in the homebuilders over the next couple of months.

 

Gold Stocks - The Odds Favor The Bulls

 



I know it's been awhile since I've posted on this blog and that's primarily because I am more of a trader than blogger. If any of my readers are still with me I'd like to share a trade I see setting up in the gold market particularly the gold stocks.

Above is a weekly chart of GDXJ which is the Junior Gold Miners ETF. As you can see we have an inverted head and shoulders bottom which has just been confirmed today with a rally through the neckline. For those of you not familiar with this pattern an inverted H&S formation is a bullish setup.

What I like about this setup is that both shoulders are symmetrical in terms of distance away from the head portion of the pattern. Notice the huge increase in volume that has taken place over the past few months which in my opinion is pent up energy that is about to be released.

On a seasonal basis gold and gold stocks usually begin their seasonal rally around July/August which helps add  further confirmation that this inverted H&S pattern may have validity.

If the pattern plays out I'm looking for a rally up to the 62.50 area which is quite a distance away from where we are trading now. As always there are no certainties in trading and this is not a recommendation to get long. I am simply sharing my view of the market for what it's worth.  GDXJ closed today at 45.03 which is up 5.41% from yesterday's close.

Stochastics - 2 Ways To Make It More Reliable

The stochastics indicator is a popular oscillator that many technicians like to use when trading the markets but like with most indicators they have a poor track record. If used correctly, the stochastics indicator can actually be profitable by simply focusing on trading with the trend and trading at support and resistance.

Above we have a 60 min chart of QCOM with the stochastics oscillator in the lower panel using the standard default setting of 14 bars. The first thing I like to do when analyzing a chart is to determine the trend. Trading in the direction of the trend  puts the odds tremendously in your favor as the moves tend to be much larger in price and time than counter trend trades. There are many ways to determine the trend but I like to keep things simple and just look at the swing points and ask the question, is the market making higher highs and higher lows or lower highs and lower lows?  If the swings are moving higher then the trend is up and I will look to take buy signals only using the stochastics indicator.

The next piece of information that I look for is where is the support and resistance. If the trend is up as it is in the above chart example, I will look to buy when the stochastics are oversold and price is also testing a support area. Taking buy signals in the oscillator that also coincides with a support level can increase the likelihood of that buy signal working.

There are two forms of support that I look for on a chart. One is a test of a previous swing low and the other is when the market breaks out above resistance and now comes back to test that resistance area which should now act as support. Both examples of support can be seen in the above chart.

So there you have it, two simple ways to increase your odds of capturing a profitable trade using the stochastics indicator. Trade with the trend and trade when the stochastics are overbought/oversold and support/resistance is also being tested.