Fog Warning For Cloud Peak Energy (CLD)

Posted by barkand on January 24, 2012 under Commodities | Be the First to Comment

Coal miner Cloud Peak Energy (CLD) presents us with a glass-half-full or glass-half-empty situation. Some optimists out there might feel that CLD is in the process of basing, as price volatility quiets down. But we do not see it that way.

We see a stock where the bulls have been steadily losing their enthusiasm. Starting with the lows formed along with the overall market in early October, there have been four attempts at rallying the troops. And each one ends with less progress made in terms of prices. To take a more bullish view, we would want to at least see better volume on the up thrusts. But in fact volume picked up only after the fourth and most feeble rally attempt.

In each of the last two trading days, prices reached $19.75 early in the day. But the bulls quickly retreated. Clearly, they are not in control here. Indeed, CLD has been underperforming the Market Vectors coal ETF (KOL) for the last month and we expect that trend to continue.

Molycorp (MCP) And Gold Moving Together

Posted by barkand on January 18, 2012 under Commodities, Correlation | Be the First to Comment

We last wrote about Molycorp (MCP) just before it reported earnings in November (see Dirty Harry And Molycorp). We visit again today after spotting both bullish and bearish fundamental analysis recently on the Seeking Alpha website. And, besides, MCP is an interesting stock to trade.

We noticed that for the last 5 months the direction of MCP shares has closely tracked the direction of gold. Maybe the market does not care about Molycorp’s individual fundamentals.

We noticed also that Molycorp is not a gold miner. We even reviewed the company’s most recent earnings conference call and the word “gold” never came up. They do extract many rare and sometimes unpronouncable things from the Earth. You might think that cerium, neodymium, and dysprosium would be somewhat uncorrelated with gold. Molycorp’s rare minerals have purely industrial uses, while gold’s value is influenced by industrial, monetary, and some would say religious aspects. Nevertheless, the market is moving both of them together.

Gold At A Crossroads

Posted by barkand on October 23, 2011 under Commodities, Price trends, RSI, Support / Resistance | Be the First to Comment

In specific situations, we like to include a 4-period RSI with our charts. The current weekly chart of gold fits the conditions.

Notice how RSI(4) dipped below 30 last month. It hasn’t done that since January 2010, or 20 months ago. What we are looking for is whether RSI(4) will make a second thrust below 30 or if it will cross convincingly above 50.

A cross above 50 would be a signal that the trend remains intact. However, another break below 30 would turn us bearish in the short-to-intermediate term.

And look where we are on the chart. A $100 drop in gold would put us back at the bottom of the price channel and also at our modified lower Bollinger band. A break of that support would almost certainly push RSI(4) well below 30. Those three signals, together, would be a big negative for the direction of gold prices.

Of course, gold could simply turn higher from here. But if it does reach the mid-$1500 area we will be watching intently.

More Consolidation Ahead For Gold

Posted by barkand on October 13, 2011 under Classic chart patterns, Commodities | Be the First to Comment

Today we have a quick note on everybody’s favorite commodity / currency / religion.

After getting whacked a few weeks ago, gold has been slowly creeping higher. We see alot of resistance ahead. Consider:

1. GLD is currently sitting at the 20-day moving average, which should at least act as a speed bump. Gold itself hit the 20-day average yesterday and pulled back.
2. GLD is nearing the first Fib line of resistance at 166 and change (next one is at 169).
3. The quasi-window from 166-167 should also be resistance. Of course, the spot market for gold does not have these price gaps. But looking at the U.S.-traded ETF helps to see areas of fast-moving prices.

The current chart pattern, along with diminishing volume, has us on alert for a bear flag which could potentially take GLD down to 135. We are not looking for things to get that bad. In fact, we would not be surprised if gold eventually goes much, much higher. But we do expect more “backing and filling” to frustrate the bulls before that happens.

Silver-Gold Ratio Still Favors Gold

Posted by barkand on August 10, 2011 under Commodities, Relative strength | Be the First to Comment

When the price of silver reached its orgasmic peak at $48.70 at the end of April, it required only31.5 ounces of silver to buy one ounce of gold. Based on current prices, you would now need 45 ounces of silver to pay for an ounce of gold.

The chart below plots the ratio of silver to gold. When the line is rising, it means silver is performing better; a falling line means gold is outperforming silver. Notice how the ratio has politely confined itself within its Bollinger bands since the Financial Crisis of 2008. At various times it has either hugged one of the bands for a period of months or has used the bands as a reversal point. Even the 20-week moving average has functioned well as a support or resistance point. With the 20-week average turning down and the lower band currently falling, we expect the ratio to at least go and kiss the lower band or even slide along it for some time.

Head-and-shoulders fans might even observe that the ratio recently broke a neckline formed by the lows in January and June.

When silver started its run last autumn, the ratio of gold to silver was roughly 62-to-1 and we feel it is possible that we will return to that ratio. It does not mean gold has to increase in value (which it has) or that silver must fall (which it has). It does mean that gold is the better horse to have in this race and a strategy of being long gold and short silver is preferred.

How Does Copper Know?

Posted by barkand on July 21, 2011 under Commodities, Correlation | Be the First to Comment

If you read the popular books on intermarket analysis, or just search the internet for about 2 minutes, you will find that copper is highly correlated with just about everything at one time or another.

Since the start of the financial crisis, copper has been highly correlated with the U.S. stock market. We can remember reading one article which implied that the stock market was causing the price changes in copper. But that clearly is not the case. As you can see on the chart below, the copper market tends to change direction before the equity market. We have marked three bottoms in the markets which most clearly illustrates this phenomenon.

This relationship probably will not last forever. But for now, we can expect the stock market to remain healthy with copper prices near new highs.