Warning Signs

Metals

Most people are familiar with the stock or equities market.  A broker who serves that market is called a Series 7 broker.  The commodities markets for which we are trading in are served by Series 3 brokers like me.  The markets are separate but obviously if we are trading S&P and NASDAQ index futures there is some cross over.  You cannot buy gold on the equities market, but you can buy exchange traded funds (ETF's) that buy gold futures.  GLD is the largest of these ETF's.  There are also ETF's you can buy which follow gold that actually buy gold mining companies.  The large companies are held by an ETF called GDX.   the small mining companies which have more of an exploratory component to them are in an ETF of Junior minors called GDXJ.  You can buy these through a stock broker and put them into your IRA.

We got a warning on Wednesday when GDXJ showed us a shooting star candle.  These candles indicate exhaustion in the market.  The market just runs out of buyers.  These are reversal candles.  GDX closed lower but did not shout the warning GDXJ did.

A second layer of ETF's are called Inverse ETF's.  If you think a sector is about to go down, you can buy these ETF's and profit from the move down.  Another group of ETF's have a leverage component to them.  You can buy ETFs with 2X leverage and 3X leverage.  A 5% move in an underlying EGF can give a 15% move with a leveraged ETF.  

There is a populer leveraged inverse ETF with the stock symbol DUST.  They had a good day Wednesday as the gold mining ETF's sold off.

This is still easy to overlook, but seeing the weekly DUST chart I am suddenly concerned.

Doubts are beginning to creep into my mind.  If the banksters really want to keep metals contained, they can't lose the 1800 area.  Given the volume of buying on the inverse ETF's, I am growing worried.  Maybe it will take longer to get through 1800 than I was thinking.  I was hoping we could get through it and challenge the all time highs before this daily cycle was done, but if the bankers are successful turning the metals lower then it could be next fall before we get there.

I am not giving up on our metals trades, but I am needing to figure out how to get us in the right position.   At this moment, gold is sitting right on the 10 day moving average.  Silver and Platinum are still quite a bit above the 10 dma.  I like to leave the stops lose at the beginning of a cycle and tighten them later.  I think at the very least we need to tighten the stops to the 10 dma so I am tightening all stops on silver and platinum positions before the market opens Monday evening to 16.80 silver and 830 platinum.

Just to be clear, I am still bullish the metals and believe these trades can be enormously profitable.  If not, I would just recommend exiting out.  I am just exercising some caution here.  We recovered a lot of Thursday's take down on Friday and maybe that is all there will be, but there could be a war at the 1800 level.  It could be we just have a horrable grind for a while.  Once we break through 1800 I think we are off to the races.

One other consideration you can make.....and it has to be your call is to just take down some leverage.  If you have several contracts, you could take profits now on some of them and keep just a small amount in the game.   I cannot say right now when I will be recommending another metals trade if we get out or get stopped out now.

Stocks

While stocks are only into day 6 of it's cycle, it does face a potential problem and that is Nancy Pelosi and the Democrats.  They have created a stimulus bill full of green energy and non economy related things that has no chance of passing the senate or being signed by the president.  They wish to make a statement to use for the election with this bill instead of actually making it easier for the country to open up.  If this bill is not modified, I think we could see stocks left translate and begin a rather strong sell off.  

I still believe if a reasonable bill gets passed we will see stocks back at new all time highs in short order but this bill could be a major sticking point.  Unless I hear otherwise from you, I will be raising stops on your NQ positions to 9200.  If you have different stock trades than the ones I have recommended, you need to determine how the best way is for you to manage this risk.

If we get stopped out at this stage we may be in cash for a few weeks or a month.  I have pretty much stopped recommending anything besides stocks and metals the past few weeks and expect this to continue until some sort of normalcy returns to the market place.