GDX and GDXJ

GDX traded higher yesterday and appeared ready to make a flag, but there were three problems.
The first was that it made a pennant not a flag. This leaves open the possibility of a drop from here or a quick rise and then a drop.
The second problem was with HUI. As mentioned in the previous post, HUI never went lower on Thursday like GDX did. This makes the two day pattern on HUI into a bearish flag with the same implications as problem one.
The third problem is with GDXJ. GDXJ is an ETF like GDX, but the stocks that are in it are junior or more speculative gold miners. The stocks that make up GDX are older, established mines. This makes GDXJ even more volatile than GDX. GDXJ made a new low for this move yesterday, closing below the lows from last Wednesday and Thursday.
Here are the charts:

The major support and resistance lines are the same in the chart above as they were in Friday's post.
The last bar appears to have formed a flag, but this was after hours trading and occurred nowhere else.
Note how the blue resistance line repelled it yesterday morning.

The chart for GDXJ is similar, but weaker. See how there was no messing around yesterday as it dropped to new lows for the move. I will still use GDX and HUI for all analysis, but I wanted to show how different charts of essentially the same market can differ and introduce uncertainty.
GDXJ is well traded with strong volume so it is definitely a worthy trading ETF.
Happy Trading.

I still have not bought gdx - 3/27/12

In the last four days GDX made a new bottom followed by a five wave flagpole that broke out of a month long downtrend channel. After breaking out it formed a two day, three wave, flag that rested on the downtrend channel break out. The description sounds almost perfect, but I didn't buy and GDX is lower this morning. Why did I not buy what appears to be a perfect set up?
I will describe what happened with the charts. The top chart is a four week long, ten minute bar, candlestick chart of GDX. And the lower chart is the last eight days of the top chart.

The chart above shows the channel, the break out, and the two day flag. This chart ends on 3/27/12.

This chart is the same as the end of the first chart. First we have the double bottom which occurred on 3/22/12. The second bottom was $0.03 above the first. It would have been nice to buy there and make a few percent, but I mistook the weak flag that formed for a triangle and thought it would go down the next day. After the second bottom, the five waves up are labeled 1 -5 and the two waves down are labelled A, B, & "C?"  Most of my buys are single day flags, but I do buy multiple day flags when the set up is right and this looked right.
The first hint of a problem came just before the point labeled B which is at the end of a one day bearish flag. In the last few seconds of trading that day I saw at least 10 blocks of 20,000 or more shares sell. Normally, those that bought in at the bottom would not sell all of their shares just after a channel break out, but the big players were definitely selling. That told me to watch out.
The next day, 3/27/12, GDX formed a very nice flag resting right on support, but the gold bugs index ($HUI) spent most of the last ten minutes of the day below support, only managing to peak above it at the close. This was another warning.
The end of a two day flag usually rises off the support and ends up forming a white candlestick on the daily chart, but this flag formed a black, bearish engulfing candlestick the day after a hanging man candle stick. That's double bearish and another warning.
The last half hour of trading in the general market was marked by a series of new lows for the day, forming bearish shooting star candles on the charts. If the general market goes down, it can easily pull gold stocks down. Another warning.
Finally, only two of the ten big sellers bought back at the end of the day on 3/27/12. If it was truly a bullish flag, I would expect them all to buy back in. That was enough for me and I decided to wait for confirmation. GDX is plunging today so I'm still waiting.
Happy trading.

Why I did not buy Friday's "Flag" in GDX

If you look at the action in GDX on Friday, without the perspective of the days preceding it, it looks like a perfect flag buy signal. Yet I did not buy and did not send out a buy alert to my subscribers. In fact, I told them not to buy. Why is that? Here is Friday's chart:




There is a nice strong flag pole followed by a nearly perfect looking flag. The volume was right and everything looked good, but only from the perspective of that single day. The top of the flag was bumping up near the resistance of a previous breakdown, but even that doesn't normally stop me from buying a flag.
Here is a little wider view of what happened:




The first chart is contained within the oval on the second chart. Notice how the beginning of Friday's "flag" was actually a breakdown from the original flag pole outlined in the green lines. This was good because my definition of a buyable flag requires a channel break down from the flag pole. The next thing it did on Friday was climb back into the flag pole channel and go to a new high for the move. The new high negated the flag pole channel break that occurred earlier so now prices were still in the flagpole and stayed there for most of the rest of the day.
The new high also caused me to adjust the flag pole bottom downward to include Friday morning's low. So now you see that the flag pole channel had not been broken on Friday, so a flag could not form.
Today is a different story. The new flag pole channel, outlined in red, was decisively broken this morning and gives me hope that a flag could form here. A buy today is unlikely because the bottom of the flag pole should be tested before a flag forms and that will take some time. A two day flag is entirely possible for today and tomorrow, giving the possibility of a buy for tomorrow afternoon.
Another possibility for tomorrow is a drop to new lows. This would not be a flag, but would open up other buying opportunities. Stay tuned.
Happy trading.

Still waiting

This morning gold was holding steady before the market open until the jobs report was released at 8:30 and gold plunged. It stayed down until after the market open, bringing GDX down to the support of a low from 15 days ago. The support held as gold reversed and shot up higher than yesterday. GDX also went higher than yesterday on the reversal, creating what is, so far, a bullish engulfing pattern.
There has still not been a full day flag on this move up from the bottom, but if it keeps going up it will soon encounter the 50 day moving average which could trigger a flag, either above or below the average, depending on the buying strength. I will continue to wait for a full day flag for a safer entry point.

QQQ barely hit a new high this morning with its MACD still negative. I still think thee is a good chance of getting a little more consolidation here before any solid move up and a new buy signal. Remember the Federal Reserve meeting is on Tuesday, and that may set the direction of the markets afterward.

QQQ

Sell QQQ if it closes below 64.00 today. It is quite possible that this is merely a flag forming in the trend, but we don't know until it happens. I think everyone is nervous about the fed meeting on Tuesday, next week, so the price may just chop up and down in this area for a week. For now, a close below 64.00 is a MACD sell signal. If it goes to a new high after the fed meeting, we could get a buy signal. Alternatively, it could head down to near 61.50 to bounce off the 50 day moving average or down to 59.20 to the support of the old high.

GDX update 2

Yesterday, I said that the formation of a pennant would likely lead to a bottom test soon. That bottom test is happening this morning. GDX has gone lower than its low from two days ago and is above that low at the moment. It has now formed a three day flag, but it may not be done yet.

The top between A and 1 was yesterday morning and should be labeled B. This is the wave count as I see it this morning. A triangle at 3 - C would indicate one final wave down to a bottom later today or possibly Monday morning. Gold has gone down some today, but has yet to test its bottom from two days ago. A buy appears to be possible soon.
Happy trading.