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Gold: Long-Term Picture Remains Bullish

It's been a tough week and a half for precious metals investors as the yellow metal (GLD) has been beaten to a pulp after a couple of days spent residing above the $2,000/oz level.

This violent pullback of more than 10% has some second-guessing whether the metal has topped out, but history would suggest that this isn't likely the case.

While bullish sentiment remains in nosebleed territory which points to further consolidation as highly likely, there are no warning signs present to suggest this bull market has run its course at this time.

The current picture looks very similar to the 2005-2006 period based on one indicator, and gold saw a tremendous run, nearly doubling in the following three years. Let's take a closer look at the weight of evidence below:

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

Beginning with a chart of the Gold to S&P-500 ratio (SPY), we can see that gold finally broke above its long-term moving average in February and has remained above this key moving average since.

This is a bullish development as it shows that the metal is outperforming the general markets, and we often see much higher investment in mining stocks when this signal is on a bullish ratio.

While the recent pullback has been quite significant for gold and has this ratio trending lower, I would consider any corrections to be noise.

This is because as long as gold remains above this moving average (white line), the bullish signal on the ratio will remain intact.

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

If we take a look at the 2004-2008 period, we saw something very similar to the Gold vs. SPX ratio as the ratio consolidated for over a year after an extended downtrend and then finally broke above the moving average in 2005.

Following this breakout, we saw a 15% rally and then a pullback of 12%, which is quite similar to the 20% rally we've seen since February and pullback of roughly 10% from early August.

However, the main takeaway from this chart is that the first break and hold above this long-term moving average is a very bullish development long-term.

As we can see, this was just the beginning of the bull market, as the Gold vs. S&P-500 would trend higher with corrections along the way for another six years.

Therefore, given that we just saw the Gold vs. S&P-500 ratio break out in February, I would argue we're likely in the first few innings of this gold bull market, and nowhere near a long-term top.

This does not mean that gold can't endure 12-17% pullbacks as bull markets can see nasty shake-outs, but it does suggest that 13% plus corrections are likely to be long-term buying opportunities.

A picture containing screenshot Description automatically generated

(Source: TC2000.com)

If we take a look at the above daily chart for gold, we've fortunately worn off the sentiment sell signal we ran into during early August, where I warned that it not a good time to be adding exposure.

However, while we're no longer on a sentiment sell signal, we're still in nosebleed territory here.

This means that while bounces are possible, I believe it's very unlikely we'll see new highs in gold before October.

If we were to see $2,100/oz before October, this would be a bearish development, as it would push sentiment from a short-term sell signal to a long-term sell signal.

Instead, what investors want to see is gold consolidate between $1,775/oz to $2,075/oz over the next two months, as this would allow the impatient traders to leave the trade and allow sentiment to reset.

There's no guarantee that the market will take the ideal path, but this may be the healthiest thing for the gold market currently.

A close up of a logo Description automatically generated

(Source: Daily Sentiment Index, Author's Chart)

So, what's the best course of action here?

Given that we have bullish sentiment for gold in nosebleed territory but just outside last week's sentiment sell signal, I see no reason to rush into the metal.

While bounces are possible as gold can be quite volatile, I see a 50% chance of gold re-testing its lows at $1,860/oz before this correction has run its course, and I would be very surprised if gold made new highs before October. Based on this, I see no reason to be aggressive here.

Having said that, if the metal were to pullback towards $1,805/oz and sentiment begins to reset, this would set up a low-risk buying opportunity heading into what I believe will be a strong Q4 for the metal.

In summary, while this correction has been nasty, it's unlikely to have long-term consequences as the Gold vs. S&P-500 ratio remains bullish.

However, aggressively buying gold here with sentiment still in nosebleed territory is likely not the best move, so while I am holding several miners and gold, I am not adding to my positions just yet.

Disclosure: I am long GLD, KL, AU

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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The SPDR Gold Shares (GLD) was trading at $181.22 per share on Thursday morning, down $1.02 (-0.56%). Year-to-date, GLD has gained 26.82%, versus a 5.66% rise in the benchmark S&P 500 index during the same period. GLD currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 34 ETFs in the Precious Metals ETFs category.
NYSE:GLD August 20, 2020 10:22am

Silver: Bullish Sentiment Remains A Headwind

It’s been a volatile past week and a half for the precious metals market, with silver (SLV) getting hit the hardest, falling over 20% from its early August highs.

While we’ve seen an impressive recovery since the lows near $23.50/oz, we have one issue remaining: sentiment. Even though the sharp correction has managed to relieve the previous overbought condition in silver, we have seen absolutely no improvement in bullish sentiment, with sentiment readings sitting at their highest levels since the 2011 peak.

This is not ideal, as it suggests that we saw minimal fear during the pullback, and we continue to remain on a short-term sell signal based on sentiment. Given the lack of improvement in bullish sentiment, I see no reason to be starting new positions in silver above $28.75/oz.

A screenshot of a video game Description automatically generated

(Source: TC2000.com)

Many bulls are cheering recovery we've seen in silver over the past week, convinced that the selling pressured is completely behind us. However, while this relentless rally in silver off of the $23.50/oz lows is certainly impressive, I am not convinced that the metal is immediately heading back to new highs above $31.00/oz.

Unfortunately, while the correction allowed the metals' moving averages to catch up a little, bullish sentiment hasn't budged, which is alarming when we've seen a more than 20% correction in a week. Generally, we would expect sentiment to shift from extreme optimism to at least neutral after a pullback of this magnitude, but this isn't what we've seen at all.

A picture containing water, person, group Description automatically generated

(Source: Daily Sentiment Index Data, Author’s Chart)

As the chart above shows, the long-term moving average of bullish sentiment for silver is currently sitting at 85%, the 2nd highest reading in the last decade. This suggests that we’ve seen no real fear whatsoever for silver during the recent pullback. In fact, on the day that silver slid more than 10%, we had a reading of 68% bulls or more than two bulls for every one bear.

Based on these elevated sentiment readings, I would argue that this trade remains quite crowded short-term, as the bulls are unwilling to waver even in the face of adverse price action. While this doesn’t mean that we have to head back down to revisit the lows at $23.50/oz, it does mean that the reward to risk here is very poor when it comes to entering new positions above $28.75/oz.

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

If we take a look at the technical picture, we’ve got short-term resistance for silver at $27.80/oz, and this is a pivotal level for the bulls on a weekly close. While the intra-week rally above $27.80 suggests that the correction could be over, the bulls will need to get above $27.80/oz on the Friday close to increase the probabilities of this.

Unfortunately, whether the correction is over or not, we have strong support at $21.50/oz and are nestled right against resistance at $27.80/oz, which means there’s no great setup here for going long.

Based on the fact that sentiment remains on a short-term sell signal here, I would argue that there is a higher probability of this rally running into selling pressure between $28.50/oz to $29.00/oz, and I would not rule a pullback to $24.50/oz before this correction has run its course.

So, what’s the best course of action?

As noted in previous updates, I took some profits on my silver miners (SIL) in early August to re-balance any overweight positions.

While I remain long core positions in silver miners, I do not believe this is the time to be adding any new exposure. I prefer to start new positions when the majority is either hesitant or terrified, and we don’t have either setup here. Instead, we have the majority as bullish as ever, with the most bulls in silver since the 2011 peak.

While this doesn’t mean that silver is building a long-term top here, it does suggest that the $29.50 - $30.00/oz area could be a short-term top, and it’s less likely that we’ll see a V-shaped recovery to new highs.

Therefore, while I am open to adding new silver miners to my portfolio, I believe patience is the best move. As long as the bears can defend $27.80/oz to $28.00/oz on a weekly close, there’s no reason to think this correction is entirely over just yet.

Disclosure: I am long PAAS, GLGDF

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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ETF BASIC NEWS August 18, 2020 10:21am

Crude Oil Steady- The Odds Still Favor the Upside

NYSE:USO August 18, 2020 9:36am

Natural Gas Continues to Climb

  • Seasonality says it is still too early for a significant rally

  • The weekly chart looks more constructive than the daily

  • Another opportunity to buy on a dip could be coming soon- Look for a higher low

After trading down to a low of $1.583 on June 26, natural gas made a higher low at $1.646 on July 20. The constructive trading pattern gave way to a rally that took the price of the nearby September futures to a high of $2.379 per MMBtu on August 14. The price settled at $2.356 at the end of last week, just near the high.

Natural gas can be one of the most volatile commodities that trade on the futures exchange.

Since the NYMEX introduced futures on the energy product, the price has traded from a low of $1.02 to a high of $15.65 per MMBtu. With the 2020/2021 winter season approaches, the price bias tends to be on the upside. The time of the year when inventories decline begins in November, but stockpiles are significantly above last year’s level and the five-year average, which could prevent any significant rally.

In November 2019, the price rose to a high of $2.905 before falling to the lowest price in a quarter of a century in June when natural gas fell to $1.432 per MMBtu on the continuous futures contract.

The United States Natural Gas Fund (UNG) moves higher and lower with the price of NYMEX futures.

Seasonality says it is still too early for a significant rally

The EIA reported a slightly higher than expected injection into storage for the week ending on August 7.

The market projections were for a 40 billion cubic feet build, but the inventories rose by 58 bcf. The price of natural gas drifted slightly lower in the aftermath of the report but remained above the $2 per MMBtu level.

As we are now in the middle of August, there are still more than three months to go before the beginning of the withdrawal season in the natural gas market in the United States.

Inventories are likely to be at the highest level in years. In November 2019, stockpiles peaked at 3.732 trillion cubic feet.

We will only need to see an average increase of a little under 29 bcf to reach last year’s level.

A move to over four trillion cubic feet requires an average build of less than 48 bcf. The level of stockpiles and seasonality in mid-August tells us that it is still early for any upside fireworks in the natural gas futures market on NYMEX.

The weekly chart looks more constructive than the daily

At the $2.35 level at the end of last week, natural gas could be heading for a test of the early May peak.

Source: CQG

The daily chart shows that the latest high at $2.379 on August 14 was below the early May peak at $2.499 on the September futures contract. Price momentum and relative strength indicators were in overbought territory.

Open interest, the total number of open long and short positions in the natural gas futures market at 1.253 million contracts at the end of last week, had been drifting lower since June. The lower level of risk positions is a sign that speculators and hedgers are not rushing into the natural gas market in mid-August.

Instead, they have been closing long and short exposures over the recent weeks. The daily chart looks like the price could run out of upside steam.

Source: CQG

Meanwhile, the longer-term weekly chart looks a bit more favorable for the price prospects of natural gas. The continuous contract has made higher lows since June after hitting the quarter-of-a-century low of $1.432 per MMBtu. Natural gas hit a higher low of $1.558 in July and $1.605 per MMBtu later that same month, which was the most recent weekly low.

Meanwhile, natural gas rose to a high of $2.379 in mid-August, which surpassed the early May high and the first level of technical resistance at $2.162. Higher lows and higher highs on the weekly chart are a constructive sign for the energy commodity. Natural gas traded to its highest price in 2020 last week and since early December 2019.

Another opportunity to buy on a dip could be coming soon- Look for a higher low

It may be too early for natural gas to make a substantial move to the upside. The high level of stockpiles, which are significantly above last year’s level and the five-year average, are a factor that should continue to limit rallies in the energy commodity.

November is still over three months away, so any seasonal buying is not likely to appear in the natural gas market for at least the next month. Finally, the trading pattern over the past years has been bearish, and speculative shorts have had plenty of success selling on rallies and pushing the price lower.

Therefore, we should see another period of price weakness that takes the price below the $2 level. I am looking for another higher low above the $1.605 level on the weekly chart, and over $1.781 on the active month September futures. I will be a scale down buyer below the $2 level on the next dip to get ready for a seasonal rally this fall.

However, the high level of inventories could keep the price below the November 2019 high at $2.905, which stands as the critical level of technical resistance in the natural gas futures market going into the winter of 2020/2021.

Warren Buffett gave the natural gas market a vote of confidence with his purchase of Dominion Energy’s (D) transmission and pipeline assets. The price has moved higher since the announcement of the investment. We are still in the heart of the summer season where stocks are building for the coming peak season. The odds continue to favor another correction, but the recent trend has been higher.

I will continue to approach the market with tight stops. Small losses as the price move higher could give way to a profitable opportunity on the downside if the natural gas market decides to take another elevator ride lower.

ETF BASIC NEWS August 17, 2020 9:54am

Will Natural Gas Continue to Rally?

NYSE:UNG August 13, 2020 12:35pm

Natural Gas Makes Its Move

  • A rally to over $2, as expected

  • Natural gas could run into selling for three reasons

  • Trading the range for the coming weeks

In late March, the price of natural gas fell to a quarter-of-a-century low of $1.519 per MMBtu. After a recovery that took the nearby futures contract to $2.162 in early May, selling returned to the market, and the price dropped to an even lower low at $1.432 per MMBtu by late June. I had been writing that the odds favored another recovery from the new twenty-five-year low as the cure for low prices in commodity markets is low prices.

Since trading to the June lows, natural gas has made an impressive comeback. The falling level of injections into inventory provided fundamental support to the energy commodity. At the same time, the diminishing number of operating rigs means that production is falling.

In July, news that Warren Buffett made a $10 billion investment in the natural gas industry with the purchase of Dominion Energy's (D) transmission and pipeline infrastructure likely made some speculators think twice about shorting the energy commodity at the lowest price in two and one-half decades. Natural gas came storming back last week, and rose above the early May high, reaching a peak of $2.284 per MMBtu on August 6.

The United States Natural Gas Fund (UNG) tracks the price of NYMEX futures. The BOIL and KOLD ETN products provide double leverage for short-term traders looking to participate in the volatile natural gas market without venturing into the futures arena.

A rally to Over $2 as Expected

When natural gas was trading below $1.80 per MMBtu, I had written that I expected a recovery to over the $2 per MMBtu level. The injections into inventory have been at low levels.

According to Baker Hughes, the number of rigs operating was 100 below last year, with 69 in operation as of August 7. Moreover, we are now in the final month of the summer season, and the futures market reflects fall prices. The 2020/2021 withdrawal season will start in November, and natural gas often rallies with the uncertainty of the winter on the horizon.

Source: CQG

The daily chart of September futures shows that natural gas fell to a low of $1.583 on June 26. After a rally that fell short of the $2 level, the price reached a higher low of $1.646 on July 20. Last Monday, September futures rose above the July 7 high and moved through the $2 level as a hot knife goes through butter.

The price moved to a high of $2.284 on August 6. Price momentum and relative strength indicators were in overbought conditions. Daily historical volatility spiked higher to over 91% as the daily trading ranges expanded. Meanwhile, the total number of open long and short positions edged lower to the 1.289 million contract level at the end of last week. Speculative shorts likely exited risk positions during last week's rally.

On August 6, the price reached its latest high. Above last week's peak, the next technical resistance level stands at the early May high of $2.499 per MMBtu on the September futures contract. Natural gas settled at the $2.238 level on Friday, August 7, not far below the peak of the week.

Natural Gas Could Run Into Selling for Three Reasons

While I expected a move to over the $2 level, I cautioned that natural gas is not likely to run away on the upside at the beginning of August. The leading reason I expect another pullback is that the market has conditioned speculative shorts to sell the energy commodity on any rally over the past months. Selling at over $2 has been a profitable approach to the market in 2020.

The second reason for caution is that while stockpile injections have been small, at 3.274 trillion cubic feet, inventories are high for this time of the year. At the end of the injection season in 2019, stocks rose to a high of 3.732 trillion cubic feet, which set the bearish tone for 2020. Reaching that level by November would require an average of a 30.53 bcf injection into storage over the coming fifteen weeks. It is likely that stocks will rise to the four trillion cubic feet level for only the third time since the EIA reported inventories.

Finally, open interest has not increased with the price, which is often a warning sign for a futures market. The slight decline in the metric is a sign of short covering, but not of any substantial new longs coming to the market in early August.

The odds favor another move below the $2 level. Meanwhile, a higher low above the July 20 technical support level at $1.646 would be a constructive sign and a reason for a long position on a price dip with a tight stop below the higher low.

Trading the Range for the Coming Weeks

I expect natural gas to settle into a trading range over the coming weeks. The $1.70 to $2.20 level could become a comfort zone for the energy commodity. The upside action tends to come in October through December each year during the start of the peak season of demand during the winter months. Natural gas for delivery in January 2021 settled at $3.147 per MMBtu on August 7, which was above the November 2019 high at $2.905.

A short position with a tight stop could be the optimal approach to the September natural gas futures contract over the coming week. The odds favor another move to the downside after the most recent upside correction.

Want More Great Investing Ideas? 9 "BUY THE DIP" Growth Stocks for 2020 How to Trade THIS Stock Bubble? 7 "Safe-Haven" Dividend Stocks for Turbulent Times
The United States Natural Gas Fund L.P. (UNG) was trading at $12.49 per share on Tuesday morning, up $0.18 (+1.46%). Year-to-date, UNG has declined -25.92%, versus a 5.72% rise in the benchmark S&P 500 index during the same period. UNG currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #72 of 111 ETFs in the Commodity ETFs category.

About the Author: Andrew Hecht

andrew-hechtAndy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...
NYSE:UNG August 11, 2020 10:14am

Silver Bullish Sentiment Hitting Extremes

We had seen yet another strong week for silver (SLV) with the metal up 16% last week, and years of underperformance vs. gold (GLD) are now a thing of the past.

In the past three weeks alone, the gold/silver ratio has dropped from 130 to 1 to 70 to 1, and this massive outperformance has contributed to near-record optimism in silver currently.

As of Monday's close, the 14-week moving average for silver's sentiment was sitting near 83% bulls, which tells us that there are 8.3 bulls for every bear in silver on a trailing-three-month basis.

Even more worrisome, we've seen nine readings above 90% bulls for silver in the past 15 days, and even a single day of 90% bullish sentiment is typically a red flag.

Given the extreme exuberance levels we've seen, I continue to see this as a terrible time to be chasing the metal, as it rarely pays to chase an asset when everyone else is piling. Let's take a closer look below:

A screen shot of a computer Description automatically generated

(Source: TC2000.com)

As we can see from the first chart above, the silver/gold ratio has seen a near parabolic spike over the past month, and one of the most dramatic spikes in the past decade. While this certainly bodes well for silver long-term as it tends to perform better when it's leading gold, it's a red flag short-term.

The other issue is that the silver/gold ratio is now running straight into a multi-year resistance level dating back to 2016, and it's unlikely it's going to head through there with some difficulty.

Therefore, I would argue that at a gold/silver ratio of 65, silver's outperformance is likely getting a little ahead of itself.

A picture containing water Description automatically generated

(Source: Daily Sentiment Index Data, Author's Chart)

If we take a look at silver from a sentiment standpoint, we've been in the danger zone (red box) for over two weeks now, and any time silver has visited this zone, it has rarely ended well.

In fact, in the past three instances, silver corrected by over 15% over the following two months from the time that it entered the danger zone above 79% bulls. Assuming this were to play out similarly, we would expect silver to trade down to $22.60 before the end of September.

There's no reason to believe that the correction has to be this deep, but I would be quite surprised if we didn't head down to at least $24.50/oz by early October. Typically, when there are this many bulls in a trade, we need a significant correction to shake them out, so we're going to need at least a 17% correction from the $29.50/oz highs to begin to cool off sentiment.

A picture containing screenshot, computer Description automatically generated

(Source: TC2000.com)

Unfortunately, the other issue we have with silver is that it has charged higher in a parabolic fashion since June, with zero pauses along the way. This is an issue as parabolic rallies rarely unwind in a gradual fashion; instead, they correct violently as there are no support levels to catch them.

While this doesn't mean that we have to head back to the $22.00/oz level breakout on silver, it is certainly an outside possibility and a worst-case scenario. Therefore, while some investors might be tempted to buy this micro-dip to $28.50/oz, I would argue that it's probably not the best idea.

Ultimately, I would expect some more pain short-term before silver puts in a meaningful low.

So, what's the best course of action?

As noted last week, I had taken quite a bit of profit in my silver miners, and I continue to wait patiently for some fear to enter the market to repurchase my positions. At this time, we don't even have the slightest hint of fear, and we have the most overbought reading in years on silver, so I have zero interest in adding new positions here.

If we could see a pullback to the $25.00/oz level or a drastic shift in sentiment, I would consider adding some more exposure. For now, I believe investors would be wise to be patient and allow the correction to run its course.

Disclosure: I am long GLD

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Want More Great Investing Ideas? 9 "BUY THE DIP" Growth Stocks for 2020 How to Trade THIS Stock Bubble? 7 "Safe-Haven" Dividend Stocks for Turbulent Times
The iShares Silver Trust (SLV) fell $1.78 (-6.59%) in premarket trading Tuesday. Year-to-date, SLV has gained 50.30%, versus a 5.73% rise in the benchmark S&P 500 index during the same period. SLV currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #3 of 34 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...
ASX:ENY August 11, 2020 9:47am

Crude Oil Is Trying to Make A Move

NYSE:USO August 10, 2020 10:08am

Will Natural Gas Continue to Surge?

NYSE:UNG August 6, 2020 12:28pm

Is Gold Overextended?

We've seen an exceptional start to the year for gold (GLD) with the metal up over 35% year-to-date, surpassing most asset classes for year-to-date performance briefly being thrown out with the March bathwater.

This incredible run has seen the metal put in a new all-time high to finish the month of July, a very bullish development from a long-term standpoint.

However, while the stars are aligned for an eventual move towards $2,350/oz for gold as an initial target, we are beginning to see a couple of caution signs along the way, with bullish sentiment now at its highest readings it's seen in only five instances in the past twenty years.

Meanwhile, the daily chart is now beginning to get quite extended as well, printing the first caution bars in over six years for the metal. While this doesn't mean that one should rush out and sell their gold bars, it does suggest that not an ideal time to be buying. Let's take a closer look below:

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

As we can see in the chart above, gold broke out of a multi-year base last month and the follow-through from this breakout has been quite impressive.

Since the push above the previous high at $1,920/oz, the metal has climbed another 7% and has sliced through the psychological $2,000/oz level like butter. This bodes well for the gold market going forward, as the first technical target off of this breakout is $2,350/oz.

It's also a great sign as past resistance levels often become new support levels, and the previous resistance at $1,790/oz could now end up being the new floor for the market. Unfortunately, as noted above, things are beginning to get crowded, and any asset class rarely goes up in a straight line.

A close up of a blackboard Description automatically generated

(Source: Daily Sentiment Index, Author's Chart)

As we can see from the chart above, bullish sentiment for gold has headed into the danger zone above 80% bulls and this has typically been a problem for the metal. Following all of these instances, the metal was down by 7% or more in the following three months from its highs, with most instances seeing corrections of 10% or more.

It's important to note that these pushes into this danger zone are leading indicators, and the metal often continues higher over the short-term. However, any upside that is captured while gold is inside these danger zones is typically retraced, and we've been in this danger zone since $1,970/oz.

Therefore, a pullback of 7% from the initial entry into this zone would target a correction down to $1,830/oz at a bare minimum before October. This time could be different, but this time rarely ends up being different in the market as markets are driven by emotions, and human nature never changes.

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

Meanwhile, from a technical standpoint, the daily chart of gold is now corroborating this view. As we can see above, the 280-day moving average for gold (green line) is quite a bit below price near $1,600/oz and gold has a tough time when it's 20% or more above this moving average. Meanwhile, the price action for gold with abnormal volatility is signaling caution bars as well (red bars), and this often tells us that we're seeing panic buying.

Generally, smart money does not panic buy, they buy in panic, and this tells us that retail is finally entering the trade here. While retail can make money temporarily, they often overstay their welcome and corrections ensue. Therefore, I believe that there's a good chance we might see a correction over the coming weeks, and I certainly would not be chasing the metal here.

So, what's the best course of action?

While I am in no rush to sell my position in gold that was bought below $1,450/oz, I am certainly not adding to my position here, and might look to lighten up if we head above $2,120/oz before fall.

This is because the trade is now beginning to get crowded, the metal is getting short-term overbought, and the miners are the most popular sector in the market, a bad sign short-term.

While the multi-year breakout points to higher prices over the long run, I am less inclined to believe we'll see the $2,350/oz target reached in a straight line, so I am being cautious here.

Based on this, I am holding a large position in Kirkland Lake Gold (KL), the most undervalued million-ounce gold producer, but otherwise am not looking to buy any miners at current levels. I've been bullish and adding to my position in gold and gold miners for several months now, but now that retail has arrived in full force, it's time to be open-minded to a pullback.

The bulls will remain in control and this bull market is nowhere near over, but for those looking to add exposure, a better opportunity will likely present itself over the coming months.

Disclosure: I am long GLD, KL

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Want More Great Investing Ideas? 9 "BUY THE DIP" Growth Stocks for 2020 How to Trade THIS Stock Bubble? 7 "Safe-Haven" Dividend Stocks for Turbulent Times
The SPDR Gold Shares (GLD) was trading at $193.20 per share on Thursday morning, up $1.85 (+0.97%). Year-to-date, GLD has gained 35.20%, versus a 4.11% rise in the benchmark S&P 500 index during the same period. GLD currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 34 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...
NYSE:GLD August 6, 2020 12:19pm

Is Now a Good Time to Buy Silver?

It's been an impressive start to Q1 for silver (SLV) as the metal has launched out of a multi-year base to new highs, catapulting over an area that's been tough resistance in the past.

This multi-year breakout is an extremely bullish development long-term as it has improved silver's relative strength across all other assets, and it's also increased the probability that a move to $32.00/oz is on the table long-term. However, while the long-term picture has made significant strides over the past month, the short-term picture remains very over-heated.

This is because we have seen bullish sentiment hovering above 90% in silver for two weeks in a row, and we've got one of the most overbought conditions in silver in several years. This suggests while holding for higher prices is not a bad bet for long-term investors, adding exposure here above $24.50/oz is likely a bad idea. Let's take a closer look below:

A picture containing water, computer Description automatically generated

(Source: Daily Sentiment Index Data, Author's Chart)

As we can see from the chart above of bullish sentiment, we remain in nose-bleed territory for silver as the long-term moving average is currently sitting well above 80% bulls. This has only happened on four occasions in the past decade, and every occasion was met by a 15% or larger correction within the next three months.

This does not imply that we must correct sharply to below $22.25/oz before the end of September from the recent highs at $26.00, but it does mean that the reward to risk is no longer favorable for entering new positions.

Typically, when we have this much bullish sentiment in a trade, it tells us that all the bulls are already in the trade, and it's difficult for an asset to go higher when the majority have already taken their positions. In fact, when everyone is locked into a trade, the market often goes lower as it almost always delivers the most pain to the most people possible.

A picture containing screenshot, computer Description automatically generated

(Source: TC2000.com)

If we look at the daily chart above, this view that things are a little frothy is corroborated by the most overbought condition we've seen in almost a decade for silver. As is shown above, we have not only printed multiple red caution bars, but we've also printed orange bars which are short-term sell signals.

Similar to the above sentiment readings, there is no guarantee that these signals will be correct, but they certainly do not bode well for short-term upside. In the past four instances following these signals, we have corrected at minimum 13% over the following three months, suggesting a trade down to $22.60/oz is in the cards before the end of September.

So, is there any good news for the bulls?

A screenshot of a computer Description automatically generated

(Source: TC2000.com)

Fortunately for the bulls, the massive breakout trumps both of these indicators, and it suggests that while a pullback is possible, it will likely provide a buying opportunity. Generally, multi-year breakouts will find support at their breakout point if we do see weakness, and I would expect the $21.00/oz level to be a brick wall of support on any pullbacks.

Therefore, while I am long-term bullish on silver following this breakout, I believe the best time to enter the trade will be on a correction to shake out many of the weak hands, not here, while retail traders are climbing over themselves to buy every silver miner they can find.

Based on this view, I believe any 15% pullbacks in silver towards the $21.75/oz level will be buying opportunities for leading silver miners and silver, but I would not be in a rush to chase the trade here. For now, I continue to hold a few of what I believe to the best silver miners, but I've taken some profits off the table the past week to re-balance my positions.

Disclosure: I am long SILV, PAAS, GLGDF

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

Want More Great Investing Ideas? 9 “BUY THE DIP” Growth Stocks for 2020 How HIGH Can This Tech Bubble Fly? 7 “Safe-Haven” Dividend Stocks for Turbulent Times
The iShares Silver Trust (SLV) was trading at $22.71 per share on Tuesday morning, down $0.03 (-0.13%). Year-to-date, SLV has gained 36.15%, versus a 3.00% rise in the benchmark S&P 500 index during the same period. SLV currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 34 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...
NYSE:SLV August 4, 2020 9:54am

Massive Reversal in Natural Gas After Hitting Historic Lows

  • The price action was bearish in July
  • High stock levels and weaker demand were a bearish cocktail for the energy commodity, but natural gas was too low
  • Back above $2, but the bears are likely to return
Seasonality is a critical factor in the natural gas futures market. The price tends to reach highs as the winter months approach, and lows in the early spring after the peak season of demand. The most recent high in the NYMEX natural gas market came in November 2019 when the energy commodity reached a high of $2.905 per MMBtu. In November 2018, the low level of stockpiles going into the peak season for heating demand took the price to nearly a four year high at $4.929. The lows typically come in February and March at the end of the withdrawal season as stocks begin to build for the next peak season. By the summer months, natural gas prices are already looking forward to the coming winter. Meanwhile, 2020 has been anything but a typical year in any market. Natural gas fell to a new twenty-five-year low in June at $1.432 per MMBtu. In July, the price remained under pressure and was at its lowest level of this century. The US Natural Gas Fund (UNG) tracks the price of the energy commodity futures higher and lower. The BOIL and KOLD products provide double leverage on the up and downside in the natural gas market. The price action was bearish in July At the end of last week, the now active month September natural gas futures contract had bounced from a higher low at $1.646 on 20. In late June, September futures hit bottom at $1.583. Meanwhile, the continuous contract reached $1.432. The premium for the September contract is a function of both seasonality and the high level of stockpiles, which were at 3.241 trillion cubic feet as of July 24.

Source: CQG

As the daily chart highlights, natural gas has made higher lows and higher highs since late June. Meanwhile, a move above the July 7 peak at $1.989 was necessary to break the medium-term bearish trend. On the first trading session in August, September futures blew through that level like a hot knife goes through butter, trading to a high of $2.154 and settling at over $2.10 per MMBtu. Price momentum and relative strength indicators were moving towards overbought conditions. Daily historical volatility at the 99.6% level spiked higher on the dramatic move on August 3. The open interest metric has been flatlining on either side of the 1.3 million contract level. Even though the price action since late June has been constructive, the natural gas futures market remains in a bearish trading pattern since early May. A move above $2.162 is necessary to negate the bearish trend. The September futures stopped short of that level on August 3. In June and July, the nearby futures contracts dropped to lows of $1.423 and $1.605 per MMBtu. High stock levels and weaker demand were a bearish cocktail for the energy commodity, but natural gas was too low Both crude oil and natural gas have suffered under the evaporating weight of demand caused by the global coronavirus pandemic. Crude oil fell to an all-time low in April. Natural gas declined to its lowest price since 1995 in June.

Source: CQG

The monthly chart shows that the lows in June and July were the lowest natural gas prices during those months of this century. The last time the energy commodity fell to a lower level in June was in 1991, and in July since 1995. Stockpiles and demand destruction caused the price of natural gas to fall to the lowest level in decades over the past two months. However, at below $2, the price fell to a level that was too low as the peak season for demand starts in approximately four months. Back above $2, but the bears are likely to return The bearish tone in the natural gas market is likely to remain intact over the coming weeks and months, despite the August 3 rally. Stockpiles seemed destined to rise to over the four trillion cubic feet level for only the third time since the Energy Information Administration began reporting data. The first level of technical resistance stands at $2.162 on the continuous contract and $2.499 per MMBtu on September futures. With the winter season of 2020/2021 on the horizon, natural gas tends to move higher as the withdrawal season that begins in November approaches. However, any rally is likely to attract speculative selling because of the high level of inventories and the market's overall bearish tone.  Over the coming months and into 2021, technical support stands at the recent $1.432 low. Below there, $1.335 and $1.25 per MMBtu are support levels from 1995. In 2020, crude oil fell to a new all-time low. In the natural gas futures arena, the $1.02 level, the bottom from 1992, stands as the line in the sand on the downside as it is the all-time low since natural gas began trading on the NYMEX futures exchange in 1990. The move on August 3 is a reminder for the bears that the risk of a short position increases the lower it falls. Want More Great Investing Ideas? 9 “BUY THE DIP” Growth Stocks for 2020 How HIGH Can This Tech Bubble Fly? 7 “Safe-Haven” Dividend Stocks for Turbulent Times
The United States Natural Gas Fund L.P. (UNG) fell $0.06 (-0.50%) in premarket trading Tuesday. Year-to-date, UNG has declined -29.00%, versus a 2.90% rise in the benchmark S&P 500 index during the same period. UNG currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #72 of 111 ETFs in the Commodity ETFs category.  

About the Author: Andrew Hecht

andrew-hechtAndy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...
NYSE:UNG August 4, 2020 9:41am

Crude Oil Is A Tightly Coiled Spring

NYSE:USO August 3, 2020 1:37pm

Will Natural Gas Hit $2 This Summer?

NYSE:UNG July 30, 2020 3:11pm

Natural Gas: August-January Spread Tells a Story

 
  • Natural gas consolidates moved higher after another small injection
  • January spread reflects plenty of supplies
  • Contango in natural gas is a function of seasonality
  The term structure in a commodities market can tell us a lot about supply and demand fundamentals and seasonality. In the natural gas market, the price tends to reach its peak as the winter season approaches. During the winter months, inventories decline as the demand for heating increases. The withdrawal season tends to run from November through March each year. From March through October, stockpiles build in anticipation of the demand season. At the end of July 2020, stockpiles are significantly above the level seen at the same time in 2019 and over the past five years. It seems likely that the total amount of natural gas in storage across the United States will rise above the four trillion cubic feet level by the time November rolls around. It will only be the third time that stockpiles rose to that level. The spread that reflects the prices for delivery in August 2020 versus January 2021 is in contango. The delivery date is trading at a far higher price than for nearby delivery. The spread reflects both seasonality and the high level of stocks. The United States Natural Gas Fund (UNG) follows the price of natural gas higher and lower. Natural gas moves higher after another small injection

Last Thursday, the Energy Information Administration reported the fourth consecutive decline in injections into storage across the United States. The build of 37 billion cubic feet was a sign of falling production, and the natural gas futures market moved higher in the aftermath of the report.

Source: CQG

As the chart highlights, the August futures rallied to over $1.80 per MMBtu in the aftermath of the weekly inventory data. Technical support is now at $1.605 and $1.517, with resistance at $1.924 per MMBtu. Price momentum turned higher but was over a neutral reading at the end of last week. Relative strength moved above neutral territory. Open interest, the total number of open long and short positions in the futures market has been steady at 1.302 million contracts. The metric has been on either side of 1.3 million contracts since early June. Daily historical volatility at just over 49% fell from over 82% on July 9 as the daily trading ranges narrowed. The August-January spread reflects plenty of supplies

We are about to move into August, which puts the natural gas market one step closer to the 2020/2021 winter season. Natural gas tends to peak each year in January as the demand for heating reaches a high during the heart of winter.

Source: CQG

The chart of natural gas futures for delivery in January 2021 minus August 2020 shows that the January futures were trading at a premium of $1.099 per MMBtu at the end of last week. The premium of 60.8% reflects the high level of stockpiles that could reach four trillion cubic feet in November. At that level, there will be plenty of natural gas available to meet all requirements during the upcoming winter season.  Contango in natural gas is a function of seasonality The contango, or premium for forward delivery in January 2021 versus August 2020, is because of seasonal factors. While nearby natural gas was trading around the $1.80 per MMBtu level at the end of last week, The January futures at nearly $2.90 per MMBtu make it expensive to positions on the long side for the upcoming winter season. With stockpiles at such a high level in July, I would not be a buyer of the January contract. However, on price dips, I continue to favor the nearby August or September futures from a risk-reward perspective. I would look for a 1:2 risk versus reward ratio on any long position. I believe that the nearby price will eventually move back to the $2 level or a bit higher, but the level of stocks will prevent natural gas from running away on the upside over the coming weeks and months. Want More Great Investing Ideas? 9 “BUY THE DIP” Growth Stocks for 2020 Newly REVISED 2020 Stock Market Outlook 7 “Safe-Haven” Dividend Stocks for Turbulent Times
The United States Natural Gas Fund L.P. (UNG) was trading at $10.56 per share on Tuesday morning, up $0.40 (+3.94%). Year-to-date, UNG has declined -37.37%, versus a 1.28% rise in the benchmark S&P 500 index during the same period. UNG currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #73 of 111 ETFs in the Commodity ETFs category.

About the Author: Andrew Hecht

andrew-hechtAndy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...
NYSE:UNG July 28, 2020 10:07am

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