A couple of announcements before we begin tonight's post:
- The October Update can be seen here - http://www.youtube.com/watch?v=rBehW-HMJbg.
- The "Stop/Limit Orders and Setting Targets" post I discussed last evening will be the main focus of this Friday's "Mental Take" article at the Davian Letter.
- If you didn't catch my man The Chart Addict from iBC last night on StockTwits.tv, go watch the On-Demand video RIGHT NOW.
- I will be outlining my Virtual Option Strategy tomorrow evening, so stay tuned.
- I have yet another college entrance exam on Saturday, so I may be "out of the office" so to speak on Saturday.
I'll start off by saying that there's a ton of potential for further upside if the dollar continues to decline. As we've seen since the March bottom, when the dollar sucks and commodities rock and roll, the overall market indices tend to increase. To outline this, let's first look at the performance of the /DX (Dollar Index) over the past two years:
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/DX 2 Year, Daily
Although this chart looks like a technical mess, it outlines the entirety of the U.S. Dollar Index during the beginning stages of the Financial Crisis. The double top (outlined by the two yellow boxes) developed during the two market index bottoms. The double top brought on an enormous wave of volume accumulation and price upside to the Basic Materials and Energy sectors. The rest is March 6, 2009 history.
Today, we experienced a infinitesimal move to the upside, as the /DX attempts to double bottom. Although this is a valid possibility, I personally feel that there isn't enough Dollar Lovers out there to push the equities markets down for the sake of saving our currency. If worst comes to worst, I truly feel the /DX will consolidate between the 76.00-77.00 range until touching upon the descending trend line resistance and taking a nose dive. All of this depends on how much volume the /DX can grasp over the course of the "Back Nine."
With this /DX introduction setting the stage, let's move into looking at my two favorite industries in times of commodity explosions - Oil (via OIH) and Gold (via GLD):
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OIH 2 Year, Weekly
As stated on multiple occasions for months now, OIH needed volume accumulation SO badly in order to break 119.21. The volume accumulation into this week so far has been astronomical, increasing each day at a rate of approximately 1.1M shares a day. If the volume persists and the price action out of OIH continues, 125 will be reached with ease.
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GLD 2 Year, Weekly
GLD has been making headlines all week as the price of Gold has made all time highs of close to 1050 an ounce. GLD has been known to take a breather and consolidate after major runs like this, but the two week bull flag that looked like a potential breakdown was the fake-break that lead me to put Gold aside. At these levels, you're chasing GLD and not paying attention to your charts - sure, the price of Gold has a ton of upside with the dollar self-destructing, but do you REALLY want to get in now? Not one bit. Be patient and wait for your high-and-tight consolidation week and get in then. Any low volume distribution seen from now until next Wednesday on the daily charts should be taken to heart as conviction that GLD has a high probability of further upside.
As of now, my main concentrations are what I like to call the aftermath commodities (commodities that like to follow up the overall action in Gold and Oil). Although I've talked about this concept before, I'll remind you that Steel is an aftermath metal (meaning it follows up the action in Gold), while Coal is an aftermath energy resource (meaning that it follows up the action in Oil). After scrounging over 61 charts of Micro/Small cap tickers out of the Basic Materials and Energy sectors, the tickers charted and outlined below are my favorite. Some of the tickers are in the Oil and Gold industries, while others are in "aftermath" industries:
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PKD 3 Month, Daily
Ascending triangle price pattern, overall volume decline with volume accumulation picking up over the last two days - looking for 5.71 price resistance to either be broken OR touched with 5d/10d SMA Momentum Cross.
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ALY 6 Month, Daily
Ascending triangle price pattern with volume accumulation picking up over the last week - looking for 4.70 price resistance to either be broken OR touched with 5d/10d SMA Momentum Cross.
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ICO 6 Month, Daily
Ascending triangle price pattern, overall volume decline with volume accumulation picking up over the last two days - looking for 4.49 price resistance to either be broken OR touched with 5d/10d SMA Momentum Cross.
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USU 6 Month, Daily
Symmetrical triangle price pattern with center price level at 4.85 - looking for a low volume distribution pullback off of this price level, waiting for either the 50d SMA to be touched OR the 5d/10d SMA Momentum Cross to develop.
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IVAN 3 Month, Daily
Descending triangle price pattern with today's daily candle being supported by the 5d/10d/20d SMAs - Speculative ticker to WATCH develop, not ready for trading yet.
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CPSL 6 Month, Daily
Symmetrical triangle price pattern with low overall volume and a lack of volume accumulation over the past three days - looking to consolidate around the ascending trend line and between the 50d SMA and the 100d SMA, needs volume to make a move.
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GTE 6 Month, Daily
Ascending triangle price pattern with a fake break off of the open on Friday - overall volume has been in decline since the end of June, looking for tomorrow to be a red day on low volume distribution to solidify the completion of the 5d/10d SMA Momentum Cross.
Watch for tomorrow to be another day of consolidation before the International Trade statistics at 8:30am ET on Friday. Commodities, specifically metals and oil, are obvious resources that are heavily traded amongst the U.S. and the foreign countries the U.S. trades with. If we happen to see more of a bullish forecast for International Trade come Friday, I think we'll see even more strength in the Basic Materials and Energy sector. With these guidelines, tomorrow would be an ideal day for buying if you believe in a bullish International Trade statistic.
Good luck to all tomorrow and don't chase tickers that are too far ahead of themselves!!
The volume accumulation into this week so far has been astronomical, increasing each day at a rate of approximately 1.1M shares a day. Yes Right.