BWEN (Broadwind, Inc), has been in the process of forming a multi-month base, and recently broke out to the upside on good volume. This is looking like a strong stock!
On the fundamentals side, Congress recently renewed the ARRA 30% cash grant for renewable energy projects for one more year, so that should provide good support for wind turbine manufacturers like BWEN.
As you may know, I’ve been bearish precious metals for some time. Recently, I shorted silver as it spiked to $29/oz, and took a quick profit. I mentioned that silver could make further new highs, but any additional upside was to be shorted. I maintain that stance, and believe that metals are hanging on the edge.
First take a look at the Gold chart above. For the past 2 years, gold has been a perfect, no-lose investment, capping a 10-year streak of straight gains. However, if you look carefully at the wave structure, it’s apparent that the uptrend is nearly complete, and signs of exhaustion are showing. Gold is still making new highs, but recently it has been carving out an Ending Diagonal, which will reverse violently. I expect one more test to 1430-1445 before a trend change.
Another factor that makes me believe metals will soon drop substantially is the fact that silver recently consolidated in a triangle (see chart above), and has now broken out to the upside. Triangles often precede the final thrust in an uptrend before the trend reverses (you can see many examples of this phenomenon that I have highlighted on this blog). Furthermore, volume has been down-trending as silver makes new highs, and MACD divergence is ominous. If silver reaches $31.66, I will be buying a Put for a sharp decline.
If you believe that metals are a one-way train because they are “real money”, and because the Fed is printing trillions of dollars, consider this: money is backed by debt, so the money supply can only multiply and expand if people borrow the money that the fed is supplying to the system. Out of the three major sources of borrowing (government, consumers, businesses), two are slowing down, or will be forced to slow down in the near future. No new debt = slow money supply growth = slow inflation. Food for thought.
This fall, I’ve been monitoring BIDU as it entered a parabolic thrust. Since my last post, it has not made much additional upside progress; rather, it has formed a very nice distribution base. This week, it finally succumbed to the overhead pressure, and looks to be in great shape to continue holding as a medium-term short trade.
Notice that for the first time in the entire 2-year uptrend, the stock never made a lower high and lower low. The fact that this has happened this week indicates that the stock is now technically in a downtrend. Also, note that it broke back into a rising channel. I see support @ $95 as it tests the lower part of the channel. I’d like to see it consolidate at this level for a few weeks, and then break down in the next portion of it’s decline.
SPX may be near completing a 2-year uptrend. I remain bearish, especially as the market nears the 1250-1300 zone.
Notice in the daily chart above that the market made a strong 5-wave move from Oct 2007 to Mar 2009. Following this, we’ve seen an equally impressive 21-month rally that has taken SPX from 666 to 1245, an 86% rally. However, this rally appears to have subdivided into zig-zag 5-3-5 formation, and it is nearing strong trendline resistance.
Note that Wave-C is relatively muted compared to Wave-A. This makes sense to me given the fact that the looming trendlines are providing good selling pressure. Also, given the strength of Wave-A, one would expect Wave-C to be slightly more modest.
The daily chart above shows Wave-C of the rally from the Mar 2009 low. Notice that it unfolded in in a clear 5-wave pattern. Each corrective wave lasted about 3-4 weeks, similar to the corrective waves in Wave-A. The fifth wave coupled with MACD divergence tells me that the market is about to turn over.
I have been proven wrong so many times over the past 21 months. At this point, I see no reason for the market to form a major top near this level, but on the other hand, this kind of sentiment seems prevalent right now. The top occurs when no one is expecting it as a possibility.
As you know, I went short SLV via some Nov puts yesterday. This proved to be very timely, as silver did collapse from being up 4-5% to being down 3-4%! I took a very nice profit this morning, since I don’t want to risk SLV forming a base up here, leaving my Nov puts high and dry. However, longer term, SLV could be near a top.
Notice on the daily chart above that SLV had a MASSIVE reversal bar on record volume (by far)! However, given how obvious this reversal is, it may have one more rally to go (see wave count). This would once again squeeze the early bears, and reset bullish sentiment.
If we did get one more high, I would short it again. And even now I remain bearish silver medium-term. But because I had short term Nov puts, I decided to take my nice profits. I am still short via less-leveraged instruments.
I’ve been waiting and watching for SLV’s typical blowoff move unfold. Today I took a short bet with it, buying Nov 27 Puts. This is obviously a short term play, but when parabolas reverse, the counter-move is usually very fast.
During a climax top, a stock leader that has risen for many months will suddenly take off and run up much faster than it has in any week since the start of its original move. On a weekly chart, the spread from the absolute low to the absolute high of the week in almost all examples will be wider than any price spread in any week so far.
- William O’Neil in The Successful Investor, pg. 80
Notice in the SLV weekly chart above that after rally for months on end, SLV has now blasted higher in a parabolic fashion. It is making it’s fastest gains of the entire move in the past two weeks.
On the daily chart, notice a few interesting features. First, about 5 days ago, SLV gapped way up and then rallied hard for three days. Then today, it gapped up once again. In O’neil’s book, chart after chart from the Nasdaq bubble shows this exact pattern, which indicates extreme bullishness that should reverse very soon.
I prematurely posted about BIDU going parabolic a month ago. The rally continues, but keeping an eye on the bigger picture makes me think that the rally will soon run out of steam.
The monthly chart above shows how extreme the rally has been. Notice that after 17-18 months of strong rallying, BIDU has now blasted off in a classic blow-off formation.
The more interesting phenomenon appears on the daily chart. Notice that BIDU has recently consolidated in a triangle formation, and triangles often precede the final move in a trend. Furthermore, there is MACD divergence forming. So I believe that when this up move finishes, BIDU will begin a multi-month downtrend.
A few weeks ago, I switched from long EUR/CHF to long USD/CHF. I still like this position, and today, the first sign of a trend reversal came out.
Notice on the daily chart above that USD/CHF has now clearly had the biggest rally of the entire downtrend. Coupled with clear MACD divergence, I think this indicates that the character of the downtrend has changed, and a new uptrend is potentially forming.
Today we arrived at two conclusions: 1) EUR/USD looks bearish. 2) we still like EUR/CHF bullish as discussed a few weeks ago. Thus, we wanted to trade both currency pairs. Of course, we quickly realized that EUR/USD short and EUR/CHF long is the same as trading USD/CHF long. So we did some analysis, and we’re now quite confident in trading USD/CHF long. We’ve switched our EUR/CHF long position to USD/CHF long position.
The chart above (EUR/CHF daily chart) identifies why we were happy to switch out of EUR/CHF long. Notice that the pair bounced of 1.28 as expected, with nice MACD divergence. However, it is testing strong resistance, and just broke an ascending trendline, so it may be under pressure for some time.
The next chart (above) shows why we think EUR/USD is bearish. According to the Elliot wave count, the declines from 1.60 have been impulsive (5-waves) and the rallies have been corrective (in three waves). Currently, it looks like EUR/USD is completing a 3-wave rally to correct the drop from 1.50 to 1.18.
Thus, since we generally like EUR/CHF long, and EUR/USD short, we want to go USD/CHF long:
The 15-yr monthly chart for USD/CHF (above) looks rather bullish. First, notice that a 5-wave decline is nearly complete, which indicates a strong counter-trend rally ahead (multi-year). Second, you can see that price is holding at a very strong, long-term trendline (we believe this line will hold, so if price closes below this line on two monthly candles, we will exit the position). Third, Wave-3 ended with a parabolic move. Then, the currency pair went on to retest the parabolic low twice, but so far has not broken it substantially. We think this is quite bullish. Fourth, notice the MACD divergence that could be potentially forming.
Zooming in on the USD/CHF chart (3y weekly chart above), you can see that Wave-5 has formed inside a channel that very closely resembles an ending diagonal, which indicates strong reversal ahead.
While the technicals appear strong for USD/CHF long, the COT data also supports this notion:
First, notice that the 78-week index for Commercial traders of USD are nearing the 100 percentile mark, meaning commercial traders are becoming very net long.
Swiss franc commercial traders are very close to the 0 percentile mark, indicating that they are very, very net short.
Overall, it is a bit frightening to go long USD/CHF when it’s in such a clear downtrend. However, the technicals indicate that it is nearing support, and the COT data shows that we’re taking on the same position as the smart money commercial traders.
Our trade plan is to exit at a loss if USD/CHF closes below the monthly trendline described above for two monthly candles. Our initial upside target is 1.05, and then 1.15.
UNG must be on investor’s most-hated list, because since the energy bubble peak in 2008, UNG has done nothing but drop. At some point, enough is enough, and I believe that point may be soon here. I’m going long here. 
The daily UNG chart above shows a very clear 5-wave decline, with MACD divergence on the recent drop. Time to take a gamble.
A few months ago, before NEP was halted, I went long based on trendline support. Today, I sold that long position for a small profit. I believe NEP could face continued headwinds for some time to come.
Check out the daily chart above: first, notice that NEP is running into the combination of three trendline resistance levels, around 6.60-7.00. Furthermore, I think it will take additional time to unwind the excesses that were generated in the parabolic run into Jan. 2010. NEP’s business is looking good, but supply and demand of shares always rules. I think enough people got shafted in the $8-12 zone that they will provide nice supply, holding the price lower.
I went long EUR/CHF near the end of August based on several factors that showed it was ready for a nice rally. Since then, market action has unfolded quite nicely, and I am happily sitting in my long position. My original exit conditions remain in play (2 monthly closes below 1.28.
You can see on the monthly chart above that EUR/CHF held at the strong support that I identified in the initial post. In fact, on a monthly basis, EUR/CHF essentially reversed August’s losses. This is a very bullish Piercing Line pattern, and it strengthens my confidence in being long. However, 1.36 should be major resistance, and I am awaiting price to break clearly above this level.
I think the stock market is topping out. Blogger sentiment is extremely bullish and stock market sentiment is relatively very bullish. In the midst of these sentiment extremes, BIDU is going parabolic. I think this stock is a good short bet, though it could have a bit more upward thrust before reversing.
You can see in the daily chart above that since consolidating after it’s split in May, 2010, BIDU has rallied in a parabolic trajectory. The fact that 5-waves can be traced out tells me that this rally is near an end. Furthermore, when sentiment is bullish and individual stocks are going parabolic, I believe it’s a safe bet to short.
Today I’m revisiting my thesis from a few months ago that the stock market is in a bearish formation. Though it has rallied quite strongly over the past month, I think this strength is nearly exhausted. This is confirmed by technicals as well as sentiment.
First, check out the SP500 E-mini chart above. I see a very clear 5-wave leading diagonal, followed by a very clear 3-wave upward correction. At a minimum, we need to see a drop below 1,000 to complete this pattern.
Meanwhile, sentiment is very bullish. I have seen many bloggers commenting about the Head and Shoulders formation above, but everyone keeps talking about them and nothing ever follows through. Also, bloggers are very bullish in general, and bullish sentiment is at multi-month highs!
Conditions look ripe for a decline!
