We warned last weekend about a possible over extension of many of the commodities, including precious metals which would lead to a possible reversal. Normally, we take profits when a signal is given, but when presented a number of pieces of evidence that a top is near, coupled with good gains, we may exit a position, set very tight stops or scale out prior to an official signal.

If you check out the current watch list you'll see a number of signals generated, as expected. For illustration purposes we'll examine the pattern generated by GLD:




 This week GLD exhibited a bearish dark cloud cover pattern whose definition is the following:

Market goes up with an uptrend. Then we see a strong white candlestick followed by a gap suggesting that bulls retain the control. However, the rally does not continue. Market suddenly closes at or near the lows of the day so the second day body moving well into the prior day’s real body. Longs are shaken somehow and short sellers now have a benchmark to place a stop, which is at the new high of the second day.



Notice GLD declines and hugged the top of the cloud in late april, only to soar once again. The current reversal if it pans out should bring GLD back down to around the 85 level, and possibly closer to 80. The Elliotwave set up see's a much lower level, so we'll pay extra attention if GLD does breach the lower band of the cloud.



SLV has been in a much more bearish disposition, but nevertheless rallied through the cloud since April. Being much more volatile, we could see the first test of resistance just under the 14 level. A break below that sees another downside target just below 12. Again Elliotwave sees this as a much more severe declien potential taking it all the way back to last Octobers low. If SLV breaks below the cloud then we have to give this scenario serious consideration, but we'll be in cash anyway so it will be a wait and see.

On Wednesday we saw a major pullback in the metals. Silver has a 1 dollar intraday reversal which often signifies a trend change. The following day we saw the markets reverse as often they do near tops when buyers attempt to take advantage of lower prices, only to see the gains wiped out the next day. This occurred in almost a textbook fashion.



GDX was also a strong dark cloud cover signal. We're out, but expect the signal to be a full blown sell later this week. There is quite a way down to reach support, with the first zone around 36 followed by a lower boundry just below 30. If the Elliotwave scenario plays out we might see even lower levels.

Once more, almost all of the sell-if signals are medium to high reliability. (silver and DBA is a little weaker). So the chances are high that these signals (with the exception of DBA) may solidify into full blown sell signals this week. The metals are always quick on the decline, so an option is to sell full or partial positions to capture any gains.

The Elliotwave analysis shows this a very possible C wave down, the one they have been expecting. Their target price for gold is 680, and silver around 8.38, around the area of last Octobers low.

We entered DBA last week on official buy signal. Price action was positive for a while but drifted lower to issue a possible sell signal.



Notice how the action stalled right at the lower boundry of the cloud. The cloud wall is thick and offers signficiant resistance. So what we would hope to see is the prices consolodate and stay near current levels so that we enter the cloud, and therefore are at a more neutral stance.  DBA hasn't had the massive gains as some of the other ETF's and we do not believe any pullback will be as sharp as some of the other commodities. So patience is key, and if the signal evolves into a sell signal we will exit for the time being. It was also a good idea to enter with a 1/2 a position first in order to watch how the signal evolves, especially when some of the other markets are toppy.

Oil is also poised to take a breather, along with the general stock market. Although, we may see a situation where gold and commodities preclue a general stock market decline. Remember according to elliotwave we are not in the wave C yet (the big one) down.  So general market prices may drift higher this summer.

Recall several weeks ago we got multiple sell signals, which were all shrugged off. Many have reappeared in concert again this week. If these signals are confirmed then we should see the official medium term top of the metals and commodities.

FAZ is one ETF we are tracking and has progressivly sunk week after week. This week we got another buy-if signal.



This pattern is a bullish doji-star. Explanation is as follows:

Explanation:

Usually a star that follows a long black candlestick in a downtrend indicates a change in the market environment. Bears were in control during the downtrend but now a change is implied by the appearance of a star that shows that the bulls and the bears are in equilibrium. The downward energy is dissipating. Things are not favorable for continuation of a bear market.

This is a highly speculative ETF that would be under the 'special situations' of our portfolio. Should this signal be confirmed there is a good chance for profit. However if the market rallies again then we may see this signal rejected. However an excellent speculative play should we enter the Wave C delcline on the Elliotwave count.

This is going to be an important week - and we'll have more data as the week unfolds and determines if the signals triggered are confirmed.

We are issuing a general alert of possible trend change. We have exited several of our positions in anticipation of a general trend reversal expected, and that seems to have arrived. While we in general do not like to reverse position based on lack of signals and or stop loss triggers, we have tightened some stop losses on key markets (i.e. gold, silver, oil) because the data we receive anticipated this event.

We fully expect a number of our positions to register sell warnings by the end of this week. Looking at the short term indicators we see there are already multiple sell signals that should predicate a weekly sell signal evolving.

Again you can continue holding positions until an official signal is triggered, or a stop loss results, but based on our data it would be prudent to either exit positions or tighten up stops to preserve gains. As you can see by this weekends summary many of our positions have resulted in rather large gains this spring. If you made money, you can do no wrong in sitting on the sidelines and watching this pattern evolve.

From an Elliotwave perspective both gold and silver have fufilled their patterns and are now technically (unless we get a major reversal) in a new wave done that may be severe. Oil sailed past it's 65 dollar target and we expect it to go south for a while.

We will monitor the situation closely but when the odds are not in your favor - better be safe.

Have a good night. We'll be reviewing everything in depth this weekend.

As a side note the DBA buy signal is in place still. We took a 1/2 position in it. If we get a sell warning we will exit either by a stop loss trigger via smartstops or until the candlestick signal is confirmed.

Another week - and other rally. Gold, oil and the hard assets we follow have particularly been strong.
However it is a time to be nimble and be aware of several scenarios that may be unfolding. First is that an imminent steep reversal is in the works, and soon. (see chart below for our explanation). Another idea is that after a brief reversal, we see a summer rally bringing us up to the Elliot wave price target before a more serious reversal ensues. There are of course multiple other scenarios but the bottom line is - confusion is the order of the day. Who do you believe? Well for us - it's the indicators.

Before we go on, lets just review the current weekly chart of the S&P:



Looking at this cloud chart, we can see the overall weekly price action has stalled. So it's possible we are in a phase where an imminent move up or down is possible. The elliotwave target is shown which is 1100. This would bring the prices up through the cloud (neutral) and to the top of the cloud by summers end. Notice how the cloud is thickening. If the prices reverse look for the bottom edge of the cloud to be support. Anything below that could signal a big downturn.

The S&P currently is still in a BUY and HOLD mode, and has been that way since 3/20.

Our system posted HOLD . The previous BUY recommendation that was confirmed was made on 03.20.2009 (70) days ago, when the index value was 758.8 . Since then SP500 has gained 21.12% . 

GOLD/SILVER




GLD is over the cloud once again and is approaching the previous high is 98.99. The commentators are all over the place, saying a major reversal OR a major breakout is imminent. Some bulls argue that 3rd times a charm theory that says the 3rd attempt to break 1000 will be the the one that succeeds. We'll know soon enough. Even the Elliotwavers concede that 1017 in gold will be the critical test. If gold fails then our chart above shows 825-850 as a major resistance zone . Elliotwave lists 680 as the worst case scenario (last octobers low).

SLV


SLV has lagged a bit to get through the cloud but has done so inconvincing fashion. Possible short term targets from 16-18. Elliotwave shows the 8.45 area (last Octobers low) as the target should a major reversal take place.




Our current watch list:

The only new signal is DBA which confirmed a buy signal this week. Because of a potential market reversal, we will accumulate over stages.

Ticker Description Signal Week of Price Signal IntraW Prev. Close Change LOST/GAINED ADRE BLDRS EMERGING MKTS 50 IND.. BUY 3/27/2009 28.050 HOLD 34.360 36.000 4.77% 28.34% DEL DBA POWERSHARES DB AGRICULTURE.. SELL 4/9/2009 24.920 BUY 27.650 27.920 0.98% 12.04% DEL DBB POWERSHARES DB BASE METALS.. BUY 5/8/2009 14.600 HOLD 14.410 14.470 0.42% -0.89% DEL DBE POWERSHARES DB ENERGY FUND BUY 5/8/2009 20.170 HOLD 22.080 23.660 7.16% 17.30% DEL FAZ FINANCIAL BEAR 3X SHARES SELL 3/13/2009 104.07 WAIT 5.5600 4.70 -15.47% -95.48% DEL GDX MARKET VECTORS GOLD MINERS.. BUY 5/8/2009 33.650 HOLD 42.060 44.150 4.97% 31.20% DEL GLD STREETTRACKS GOLD TR BUY 4/24/2009 86.030 HOLD 94.100 96.160 2.19% 11.77% DEL HL HECLA MINING CO BUY 3/20/2009 1.5000 HOLD 3.3600 3.7100 10.42% 147.33% DEL IYM ISHARES DJ US BASIC MATERI.. BUY 3/20/2009 32.490 HOLD 43.870 45.949 4.74% 41.42% DEL MOO MARKET VECTORS AGRIBUSINES.. BUY 3/20/2009 27.580 HOLD 36.790 36.940 0.41% 33.94% DEL PHO POWERSHARES WATER RESOURCE BUY 3/27/2009 12.060 HOLD 13.730 14.310 4.22% 18.66% DEL SH PROSHARES TRUST SHORT S&P .. SELL 3/20/2009 81.810 WAIT 68.550 65.820 -3.98% -19.55% DEL SLV ISHARES SILVER TRUST BUY 4/24/2009 11.900 HOLD 14.500 15.470 6.69% 30.00% DEL SLW SILVER WHEATON CP BUY 5/8/2009 7.8500 HOLD 9.3400 10.5200 12.63% 34.01% DEL USO US OIL FUND ETF BUY 2/27/2009 24.910 HOLD 33.700 36.400 8.01% 46.13% DEL XLE SECTOR SPDR TRUST ENERGY BUY 3/20/2009 41.500 HOLD 48.610 51.680 6.32% 24.53% DEL

All the previous signals listed this week, the following are in a confirmed state:

DBB - Sell confirmed (base metals)
DBA - Buy confirmed (Agriculture)

All other signals are in a rejected state. Recommended course of action is to take a partial position in DBA and phase in buying as long as the signal remains in place.

DBB, should it be a confirmed sell if it cannot break out of it's opening price this week  - 14.470.

Gold and silver have performed very well since our signal was in place, and some of the equities, particularly HL had an excellent rally. Oil has also performed particularly well.

That being said we are being cautious at this time and are keeping the stops tight. We are just a hairs breath away from some important price targets, and with that - a potential period for a steep reversal. (according to Elliotwave)

Then we look at the seasonal charts - first for gold:



Pretty clear trend.

Now Silver:




Even clearer.

So with strong recent gains, seasonal weakness ahead, elliotwave structures almost complete and possible market reversal in the works - caution is definitly the key word. For the precious metals, new money is definitly a risk here.

With that being said, we will follow the signals carefully. Last week many of the indexes we followed flashed potential warning signals, many in concert with each other. Many of these have been firmly rejected, so the current market rally may still continue. Do not be fooled into buying at these levels though.

There are those who argue that we are at the cusp of a new breakout in gold. But again, there are too many odds that it will not be this time. We also have to think about a wave of deleveraging ahead of us. All it takes is for the market to change it's mood.

Another area we will be looking at in the future to add to our speculative positions are Uranium stocks. Uranium holds promise as long term we will be in an energy crisis and it the only electricity source that is carbon neutral and it proven. Uranium supplies are severly depleted and with the amount of new plants in the works (outside of US) there will be a squeeze at some point. Some of these stocks are trading for dirt cheap prices...and may be ripe for picking as a long term hold.

This weekend we'll review what new signals were generated and gather intelligence from our various sources to determine what the next step will be.

At the bottom is the current matrix of signals for the indexes and stocks we track. (We'll eventually have a dedicated page and better formatting). Again this week we have a bunch of potential sell signals. None of these signals are highly reliable but rather indicate that either we are either entering a reversal period (more likely) or a continuation period where prices take a pause and resume their upward track.

GLD and SLV continue their strong performance and continue to show a bullish bias. However we are entering a zone of caution for a number of reasons:

1 - Elliot wave shows a price top area of Gold for 967 and Silver in the 15-15.50 range before a reversal is expected.

2 - Market has been in an uptrend and is due for a reversal. The magnitude is still under investigation but several sources we monitor either call for a minor reversal, continuation of a summer rally before a major reversal.

3 - Precious metals are entering a seasonal weak period.

4 - Oil has rallied substantially and due for pullback.

5 - Dollar oversold. Bearish sentiment of the dollar is also very high with stories of dollar replacement showing up again. May signal an intermediate low for the dollar (which may play into the gold selloff potential)

It is also interesting to note DBA (grains ETF) has flashed a buy warning.

FAZ is our purely speculative play and has flashed another buy alert. We'll be monitoring it closely for a reversal.

SH (the S&P) short fund has also signaled a potential buy.

Overall we recommend holding on to positions as shown, but be prepared to exit if we see a confirmation.


                                                       
                                    PREVIOUS          ENTYR  CURRENT                                  CHNG

ADRE	BLDRS EMERGING MKTS 50 IND..	BUY	3/27/2009	28.05	SELL-IF		32.56	34.36	5.53%	22.50%
DBA	POWERSHARES DB AGRICULTURE..	SELL	4/9/2009	24.92	BUY-IF		26.15	27.65	5.74%	10.96%
DBB	POWERSHARES DB BASE METALS..	BUY	5/8/2009	14.6	SELL-IF		14.1	14.41	2.20%	-1.30%
DBE	POWERSHARES DB ENERGY FUND	BUY	5/8/2009	20.17	SELL-IF		21.02	22.08	5.04%	9.47%
FAZ	FINANCIAL BEAR 3X SHARES	SELL	3/13/2009	104.07	BUY-IF		5.9	5.56	-5.76%	-94.66%
GDX	MARKET VECTORS GOLD MINERS..	BUY	5/8/2009	33.65	HOLD		37.65	42.06	11.71%	24.99%
GLD	STREETTRACKS GOLD TR	BUY	4/24/2009	86.03	HOLD		91.55	94.1	2.79%	9.38%
HL	HECLA MINING CO	BUY	3/20/2009	1.5	SELL-IF		2.98	3.36	12.75%	124.00%
IYM	ISHARES DJ US BASIC MATERI..	BUY	3/20/2009	32.49	HOLD		42	43.87	4.45%	35.03%
MOO	MARKET VECTORS AGRIBUSINES..	BUY	3/20/2009	27.58	HOLD		34.53	36.79	6.55%	33.39%
PHO	POWERSHARES WATER RESOURCE	BUY	3/27/2009	12.06	SELL-IF		13.56	13.73	1.25%	13.85%
SH	PROSHARES TRUST SHORT S&P ..	SELL	3/20/2009	81.81	BUY-IF		69	68.55	-0.65%	-16.21%
SLV	ISHARES SILVER TRUST	BUY	4/24/2009	11.9	HOLD		13.77	14.5	5.30%	21.85%
SLW	SILVER WHEATON CP	BUY	5/8/2009	7.85	SELL-IF		8.58	9.34	8.86%	18.98%
USO	US OIL FUND ETF	BUY	2/27/2009	24.91	SELL-IF		31.3	33.7	7.67%	35.29%
XLE	SECTOR SPDR TRUST ENERGY	BUY	3/20/2009	41.5	SELL-IF		48	48.61	1.27%	17.13%

All the signals posted earlier this week are non-confirmed. We will wait and see how it plays out this weekend.

In context, Gold and Silver are staging rallies which should take us a bit higher. Seasonally we will be entering a week period. Additionally the Elliotwave structure doesn't bode well for the precious metals in the medium term. Short term we should still see a rise of gold up to the $950 - $970 level, with Silver approaching near $15 before back tracking.

Volume levels are also decreasing on up days, increasing on down days. The large amount of sell warnings last week are perhaps shots across the bow. We do not know yet, if this is the big leg down we are waiting for. It could happen soon, or later in the summer.

Our candlestick pattern recognition system will be keeping a watchful eye as things develop.

As we adjust our master ETF market portfolio we have for the most part been on the sidelines the last few weeks, selling certain positions or keeping remaining positions on a tight leash. We have tweaked some of our internal working portfolios but didn't enter any new positions because we are waiting for a new SELL, WAIT - BUY signal to set up.

However last week issues plenty of signals that need to be reviewed. Our spreadsheet is almost finished and will contain comments that we aggregate from other sources to comlement the mechanical signals given by our cloudcatcher and candlestick analysis.

PRECIOUS METALS

Both GLD and SLV (our proxies) have edged slightly higher.

GLD - Current signal - HOLD
SLV - Current signal - HOLD
GDX - Current signal - HOLD

All precious metals are currently the strongest positions. These are also confirmed by bullish chart pattern developments.



         GLD is above the clouds with solid support between 840 and 810.
  




         Silver is in neutral territory right now with support near 12. Closing above the
         cloud will be a major milestone given how thick the cloud is.




        GDX is also well on it's way to repairing the damage. It just closed above the cloud
        since early last year.

Despite bullish looking chart patterns, we are still cautious because we are looking at a potential market reversal by some promenant technicians. As the Elliot Waver's say - we know when the reversal is nigh by listening to politicians and declaring that the worst is over. Take this quote this weekend :

• Obama budget chief: Economy almost bottomed out- AP

If you have positions in any minors it would be wise to keep maintaining your stops. Because we operate on a weekly pattern recognition basis your stops will protect you from sudden and violent losses. We use SmartStops.com whenever possible. We expect GDX to suffer more from any broad market reversal.


BASE METALS

For the sector we are currently using DBB which tracks copper, aluminum and zinc. The chart is simular to copper only. It did flash a sell warning alert this week.



The bearish kicking pattern is highly reliable. Given the context we are in a probable sell or close stop is recommended.




We still have a ways to go to repair damage, but clearly we bottom was made back in march (when our system triggered a buy signal). The good news is that as time continues the resistance levels will drop and we'll be in neutral territory later this year.

ENERGY

DBE is our energy index (oil, gas, etc) and it also has flashed a highly reliable signal, the bearish dark cloud cover pattern.




Frankly this one has been a tough one - since natural gas was having trouble for so long and continues to drag this one down. Once we exit we will most likely switch to crude exclusivly until natural gas stabilizes. On the other hand we did have a position in DXO - which is basically a double leveraged USO. USO also has signaled a sell alert. At this time we believe these alerts will turn into actual sell signals. So a good time to prepare to take profits, or tighten stops.



XLE is flashing a sell alert warning. Week signal but coinciding with the market and with a reaction in crude.


Natural Resources - Water

PHO has been in a buy mode since late march and had rallied very nicely. This week is flashed a sell alert warning, courtesy of the bearish engulfing pattern, which is of medium reliability.







What a nice bounch since March! Our system picked this up end of March. The good news is this reaction will be occuring as the cloud descends, setting us up for a more bullish set up later.

SPECULATIVE

FAZ issued a buy alert this week. It's too early to tell if this alert is the real deal as the signal is not strong, but should the market roll over this will be a screaming buy.

Summary - Just as many of these ETF's signaled buy alerts at the end of march, these are now flashing sell alerts. Because of the markets run up in the past 8 weeks along with other factors we believe we'll all see solid sell signal by the end of the week on many of these funds we've just reviewed (except gld and slv)

Therefore prudence is definitly your best friend, and more opportunities will come to those who are alert.
 

Just a sneak preview at our tweaked system. Our base portfolio will be a simple spreadsheet matrix which monitors some key markets along with ETF/Securities in our model portfolio. Our matrix will provide current buy sell indicators based on our proprietary analysis along with signals from other high power technical sources. These will provide additional insight into the context and the reliability of our signals.

For example, should a symbol flash a buy signal where the other feeds are flashing warnings or caution, then in context a smaller position or a wait and see attitude may be best employed to verify the signals authenticity.

There are no signal changes this week, and the sell signal for GLD is thus far been rejected. We are monitoring the market conditions and continue to update stops to prevent any downdraft along with monitoring short positions.

FAZ is one of those we are watching carefully is it is seeming to form a bottom and we expect a signal to be issued soon. Our system has been quite successfull in weeding out this very volatile fund to avoid whipsaws and false signals. Since the fund has lost most of it's value in a space of six week we can concur that as a speculative buy this bears watching.

Much more this weekend as we can evalute wether this weeks action triggers and sell signals. Many of the ETF's have been in buy mode since the rally has started and rung up big profits. We hope to have a premlinary matrix up by this weekend as well along with chart updates.

Nothing more to do other than watch....

We are currently adjusted some internal ETF's for better optimization of our trading system, along with a new chart that will indicate various indicators to better display the data.

While the markets have rallied substainially, they are due for a correction. GLD signaled a SELL warning last week but thus far has not been confirmed. All other signals are intact. We'll be posting a new page shortly with a currently signals and commentary.

We are in a wait and see mode here and have protective stops in place to lock in profits.

More posts later this week...

DBE has confirmed a buy signal and we expect it to be confirmed this week. Oil has shown some real strength the past few days. USO, DXO are also potential candidates with oil a target for another 10-15 dollar run to the upside. We will probably cover USO once our master portfolio is tweeked.

GDX still is a confirmed buy this time, with gold and silver probably able to get some more gains. However as May ends we are at a seasonal weakness, with the overhang of a possible large reversal.

Keep your stops updated!

A quick aside, there is a lot of action in FAZ -the triple leveraged short fund. We've seen it as a speculative play and it has taken damage this week (significant). Since our sell signal was initiated in late march, FAZ has fallen over 90%. However when the reversal signal comes, we believe it will be an excellent entry point.