Is Natural Gas The Next Big Energy Trade?

There’s no doubt that Oil and energy related assets have been a great place to be these past few months, but a lot of the names I follow are hitting my upside price targets left and right. I do believe current price action suggests they may have one leg higher left in them, but I think further upside may be limited as many of these securities approach their downward sloping 200 day moving averages.

I’ll admit, it’s hard to tell if this was the ultimate bottom in energy related assets or if it’s a correction within a structural downtrend, so I may end up looking like a total doofus with this post. That being said, I do tend to lean towards the latter because it will take weeks/months of price consolidation to allow the moving averages on a daily and weekly timeframe to flatten out and begin curling higher. Until we see that happen I think it will be tough to sustain any rallies over the intermediate or long term. Also, despite the recent relative outperformance, I think the weekly charts have a lot of work to do in correcting the structural weakness we’ve seen on an absolute and relative basis for the past few years.

That being said, I think natural gas is setting up nicely on the long side, in similar fashion to what we saw in other parts of the energy market months ago.

First, let’s take a look at the charts Crude and its related markets and outline the what I see as remaining upside targets if prices continue to act constructively.

crude1. Prices flagging above prior resistance at 58.

2. Momentum has yet to hit overbought conditions.

3. Next targets up toward 63, 66, 71 if we continue to stair-step higher.

Continue reading

Process Over Pride

So recently I opened a robinhood account with $100 and got the question from some friends as to why I would even bother trading with such a small amount of money.

In order to answer that question, I need to explain where I’m at in my trading journey and how I got here.

As many of you know, I haven’t traded a single share of stock since late 2013. I spent the majority of 2013 trading a small amount of money and learning about markets the hard way, by replicating the many mistakes the books and materials I read warned me against. In late 2013 I began blogging, developing a social media presence and honing in on my process. The past 15 months have been similar in nature, less the real trading, as I’ve spent every free moment studying, as well as creating and sharing my analysis. Additionally, I had the privelage of interning with, and learning from, some of the smartest market participants out there.

That brings us to today.

The sole reason I’ve not been involved in the market is because I believe that one should only trade with money he/she can afford to lose. I wasn’t, nor am I currently, in a financial position to risk significant capital and I don’t expect to be for the forseeable future. Any money I currently earn from my internships is restricted to funding the CPA/CFA exams/paying down student debt. Once I start my full-time job in the fall of 2016, I’ll be paying off student loans and plowing money into my retirement accounts. Allocating capital this way is a personal choice which comes at the expense of being able to trade right now, which I so badly want (not need), to do.

So let’s get back to the question I’m asked so often: Why do I bother to follow markets, further develop my trading plan, read new material, network, and now trade a robinhood account with the amount of capital that most real traders use to order lunch? Why on earth would anyone want to spend hours per week preparing to trade knowing that they have no immediate financial incentive to do so?

The simple answer is that I know the traits I’m developing now, on a small scale, will prepare me to take full advantage of the opportunity to trade on a larger scale when it presents itself.

So what exactly will trading with a small amount of money teach / reiterate to me? Continue reading

Price Leads Fundamentals

As a technician, I believe that price action leads fundamentals, and news in general. Since price represents the forward looking expectations of market participants, the actual news is often discounted ahead of time.

There are a lot of examples of this occuring every day, but this week two big names experienced this.

First up, LinkedIn. LNKD was down 19% on Friday after reporting poor earnings after the close Thursday. Weak price action suggessted a less than stellar earnings report may have been ahead.

On an absolute basis, after gapping higher in February, its bullish consolidation pattern resolved to the downside and prices failed to hold above the 2013 highs. When a consolidation fails to resolve in the direction of the underlying trend and price can’t reclaim a key technical level (the ’13 highs), it shows that sellers are in control until that overhead supply gets taken out.

lnkd Continue reading

The Contradiction That Wasn’t

An interesting conversation I had last week reiterated an important lesson in my life, which was that it’s okay to have opposing views on different timeframes as long as you clearly articulate those seperate views.

The conversation started when I peeked at the Finviz futures screen and uttered the phrase “I think bonds are setting up nicely on the short side.”

My friend’s response was “What? You’re bearish on bonds? Anytime someone talks about rates you say that they’re going lower. All you ever talk about is bond yields going lower, and now you’re bullish rates? What gives? You can’t just change your tune all of a sudden.”

Okay, that was a bit of an exaggeration, his response was more along the lines of “meh” or “pffft”, followed by “what’re we ordering for lunch?”, but nonetheless it brought to light an important topic of which the bond market is a great example of right now.

Long term I continue to think that current market conditions point to lower rates. I’m a keep it simple kind of guy, and rates beiing in a roughly 30 year downtrend suggests that this trend is not going to stop on a dime.

fredgraph Continue reading

No News Is Good News

Just when you thought it was safe to turn on the teevee or search your favorite financial media website again, the dreaded “good news, bad news” debate is back again in full force. Friday’s non-farm payrolls miss and continued equity market futures weakness / bond strength brought pundits out of the woodwork once again to hash out whether or not bad news really is bad news.

If you’re confused about the constant flip-flop and what exactly it all means, don’t worry, the people debating this topic haven’t a clue what it means either.

That brings me to this blog post’s title, no news is good news. As a technician, I choose to focus on price and market behavior so that I don’t have to worry about what’s going on in the news. At the end of the day, I have to trade the market that exists, not the one that the media is portraying, or that financial pundits are trying to convince me is coming. It’s a personal choice, but I’ve never understood the “news junkies” that think having a handle on every single piece of information out there is going to give them an edge in the market.

For example, the economic calendar for top countries alone has 36 events scheduled for Monday, April 6th, according to tradingeconomics.com. Combine that with the several earnings reports and conference calls that come out as well and you’ve got quite a bit of data to digest. Not to mention what the calendar might look like if we were still in the heart of earnings season.

Nobody in their right mind could possibly estimate and interpret all that data and forecast what the market’s reaction will be with any sort of accuracy. Trying to do so would not only be a waste of valuable time and resources, but the process itself would likely be dull enough to drive even the most patient person insane. The good news is, you don’t have to stress over any of this because price discounts the “news” in advance and represents all of the forward looking expectations of its participants. If you’re studying price, you’re already well ahead of the game in terms of getting down to the real story, what the market thinks.

At the end of the day, I’m not saying it’s unimportant to know what’s going on in the economy or news in general, but don’t expect to make any consistent profits off of it. I learned a long time ago that as market participants we’re not paid to know why, which is why I focus on the what / when and ignore the rest.

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.