ChartsEdge map for 7/8; and some comments on equities - and natural gas, gold, and the yen

Market Map for Jul 08

Posted: July 8th, 2009
Author: Mike Korell
Filed under: One-Day Market Map Comments to ChartsEdge »


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Thanks once again, Mike and ChartsEdge!

Folks - it remains great to have these intraday and weekly cycle forecasts, to use for reference to cycle timing (not necessarily absolute or relative levels). Their intention to is to depict timing. We've never recommended using them on a "set it and forget it" basis. Recently Mike had issued a warning that it looked like the weekly forecast was going to be off by a couple of days and that Monday could have been the low. Well, then it turned out that equities went lower yesterday. Today's map suggests lower again today. Frankly that looks rather consistent with the weekly forecast after all.

I doubt that anyone is using ChartsEdge as their only tool, it's just a very good adjunct. We use several other methods of course, incorporating Elliott Wave with technical indicators, other cycles timing, and Fibonacci projections and retracement levels. The Elliott Wave count suggests we would be in a third wave of either a larger wave 3 down or a wave C down. And then of course, many are looking at a "head and shoulders" pattern ... I've seen a question whether too many eyes on it - I've asked the same thing! Perhaps - especially, my sense is, that too many eyes may be on the standard target for a H&S and looking to "buy the dip" if and when equities get to that target level. I suspect that today's market movements should help us determine how this is going to play out, because if and when we continue dropping under the H&S neckline, either the decline will be orderly, or it will become disorderly and look like part of a larger decline.

What about natural gas? It seems many are very interested in it, which shouldn't be a surprise and I'm delighted that this relatively new topic for this blogspot has already sparked some comments and questions. Right now there seem to be questions whether UNG "has to get to $12." The real question should be, "what if it goes under $12?" Because the measured move from a triangle really is expected to get to the target level, but the momentum of the thrust (in this case down) can cause price to go a little beyond it.

The real and best answer is, try not to focus so much on the absolute level at this point - it's theoretically possible price may not get absolutely there to the penny, or it's even more possible to overshoot $12 to the downside somewhat. If you are looking to buy to cover a short, then $12 is reasonable or just do the same thing that you should do if looking to initiate a buy long on UNG: look for a reversal pattern. I've posted a few comments on reversal patterns at my "No Bull No Bear No Bias" trading education blogspot (see links at right), and most traders have some familiarity with some types of reversal patterns. Here are the essential elements of any reversal pattern: Look for a move up at least two bars from the low, on good volume, followed by a pullback on light volume, then a resumption upward that moves above the high of the prior bar. This works on any time frame of course, with the point that normally if you are trading on daily bar charts you would want to see it on the daily bars. Swing traders can initiate from seeing this on hourly bars (or if really aggressive, on 15-minute bars). As always, you have to know your time frame and trading style.

I'll try to keep an eye on UNG intraday and will post about it - I cannot promise to post about it in real time, so either sometime today or after hours, if something significant does indeed materialize today. I'll also be tweeting on Twitter as usual, so if I see something significant intraday I'll tweet on it too.

Also remember - since UNG is an ETF, and doesn't track the underlying exactly, you cannot expect natural gas and futures pricing to exhibit the same pattern at the same pattern and comparable price as UNG. It does look like the underlying has some more downside to go, before getting a solid low. I'm going to continue using $NATGAS to chart natural gas itself, and I'm going to continue that with the daily, weekly and monthly bar charts (not intraday).

And another reader commented that "they don't call natural gas (trading) a widow maker for nothing." It's a good point - natural gas has been a difficult and volatile chart for a long time, you can see that on the monthly chart. If you must trade it, okay. If you don't have to - if you're just a normal person thinking UNG is a nice ETF to add to whatever else you're doing - that's okay with me too, just be aware that it's a different beast from equities, bonds, or even some other commodities. So don't allocate more than the usual small percent (2% or 5% depending on your formulas) of your portfolio to any one investment or trading vehicle, use good stop loss and other trading skills.

So having said all that, we'll keep a close eye on natural gas during this critical time, especially since I have the sense that a lot of people got whipsawed during that head-fake false breakout during the triangle. And remember - if and when UNG does turn around from the thrust down it's made, the first target is only back to the apex of the triangle - about $14 or $14.50, which looks like it's back to the 50-day moving average. It is too soon to say that it will move quickly any higher than that - so, let's be careful and manage our expectations too ... let's follow this one day at a time, so to speak.

In other news - looks like Amgen may pull out something positive for the biotech sector - I'm glad to see, since $BTK was nestling into moving average support yesterday and I was still having hopes that it may yet carve out a more positive path than what we're seeing for equities in general. Never any guarantees of course, but it's nice to see a good pop in AMGN. I do not chart that stock separately so I have no idea where this takes that company's stock down the road, but perhaps the biotech sector can remain relatively positive.

For those following gold - it looks like gold may test the 913 level, and for now that's a critical level to watch for support. Below that it may test the 850 area; so let's keep an eye there.

The yen has continued to show strength and may be ready to move above the consolidation range - if it can clear $106 on the $XJY chart (almost same amount in the FXY etf) then it may go ahead to test that $111.49 pivot and show whether it's headed to new all-time highs. It will be interesting if it's the yen, rather than the dollar, that is the counterpart to equities weakness in this time frame.

As always - careful out there, and happy market navigating!