NFTRH; Stock Market and Gold Sector incl. More CoT Discussion

Stock Market

SPX is back below the key short-term resistance line and the 50 day EMA and SMA.  We are back on watch for the EMA 20 (orange dotted) as we were last week when it was tested and held.  The bounce labors on, but the bulls sure are having issues.  What a grind.

Notably, 3 of the 4 vehicles I chose to be long were green today.  Not sure what that means, but some broader measures of the market were down less than the 3 headlining Amigos SPX, NDX and Dow.  Bottom Line:  The bounce has not failed yet but it is not inspiring confidence either and I for one did not expect my SPY short to be profitable.  It is there to hopefully be a winner a few weeks from now, not now.  We’ll see.

spx daily chart

Gold Sector

As for the gold sector, I have to own the fact that I have had cautious tones and a cautious attitude while the plucky gold miners continue to show strength.  I’ll continue to go with that because I know that if this is real, as I think it may well be, there is going to be plenty of time to bulk up positioning.  But I have never been one to ride momentum against a potential CoT turning point (see discussion below) and a well-hyped industry event like PDAC (Prospectors and Developers Association of Canada), which begins on Sunday.

So my tack continues to be one of holding the 2 (and sometimes 3) Amigos, PG.TO and KLDX and trading the sector in-week.  This has been working well but I want to clear the current risk situation before I become more of a trend rider, which is the preferred mode for me, anyway.  So I buy and sell individual items (from the list on the last page of NFTRH reports) that pull back or consolidate in-week for as long as the sector remains aloft in its current risk mode.  That includes GDX on occasion as well, as this is the vehicle I’d like to build a good position in eventually due to my general approval of its senior miner and royalty holdings.

As for its technicals, weekly GDX is at the channel top just like HUI.  The volume shows the thrust that goes well with our fundamental theme that has been improving by leaps and bounds over the last couple of months.  The volume shows conviction and along with the funda, is a reason I think this may be a launch as opposed to another ill-fated gold bug rally.

Take a look at the bottoming pattern that formed mid-2013 to mid-2014.  It had poor relative volume on its right side when it should have broken upward but failed.  Of course, all we needed to do was look at the ‘Ukraine/Russia’ and ‘Ebola’ headlines of the time to know that thing was a dud, a suck-in and should not have broken upward.

The current situation has volume and what’s more, it has real fundamentals, not the stuff that promoters pumped all through the bear market.  In 2014 MACD went positive but the lack of volume was a ‘tell’ that it would roll over.  MACD is currently going positive and the key here would be if GDX can show strength by using the EMA 55 (currently 16.75 and starting to turn up) as support.  That would also be around a 38% Fib retrace from current levels.

gdx weekly chart

The point is that yes, I for one remain in trading mode, but I am waiting for new information that would bring me out of that mode.  That could be a break up and out of the channel or preferably, if not more likely, a pullback that holds key support in a sign of strength, only Fibbing 38%.

Meanwhile, everything is status unchanged from recent analysis.

CoT Thoughts

As for the CoT, I wanted to clarify something based on a question that a subscriber asked about the implication in my work that the Commercial traders are the smart money.  First of all, “smart” and “dumb” are really just market lingo for who is positioned correctly at turning points and who is not.  But it is the trends we are interested in for longer periods than the points at which those trends might terminate.

A Large Speculator who is net long all through a rally has been right for the trend.  And a Commercial Hedger has been wrong, often on purpose, which is what hedging is.  So we should not emotionalize the process.  We want to be long with the speculators and against the Commercials after a turning point to bullish in the gold market and then go with the Commercials after an inflection point to a bearish trend.

If I have not confused you enough, let me see if I can finish the job.  The graphic shows a bearish trend in CoT Commercials (red arrow) = be bullish (right along with the Specs pressing the long side).  Bullish trend in CoT Commercials (green arrow) = be out of the market (or at least realize CoT has not completed its trend to a favorable setup).  Get bearish or bullish in the transition zones.  As the right side of the graph shows, gold has entered a potential transition zone to a bearish setup.

gold cot

Now, I am not a ‘gold trader’, whatever that is.  I am a gold holder and a miner trader and hopefully, investor for an extended period.  But the above is a general blue print on when to get bullish and/or bearish by the CoT’s signals.  This is one indicator and does not exist in a vacuum and as often noted, is not a timer to the week.  It is a risk vs. reward barometer.  At this time it is setting up for a turn to negative for gold.

Here we recall the long-term analysis in NFTRH 384 that I for one found very interesting.  As with the GDX chart analysis above, I am looking for signs of strength relative to what went on through the last few years of bear market activity.  i.e. I want to see if bull market rules replace bear market rules.