Hello members!
Administrative note:
I changed the labeling of each Tischendorf Letter from ‘Week XYZ’ to ‘Issue XYZ’. This will make it easier for future reference purposes. Going forward, I also decided to break down the Tischendorf Letter into different sections. That should help you better digest all the information. Over the long run it will make it easier to decide which sections you like best and which ones I should focus on.
- Market Overview
- Sector Spotlight
- Gold Mining Stocks – Chart Review
- Winning Stocks of the Past
- Quiz
- Conclusion
- Watch List
1. Market Overview:
The best way to gauge the overall market is to analyze a broad based Index or ETF like the S&P 500. There are others, like the IWV – Russell 3000 ETF, but the S&P 500 is a widely followed index, so for now we will stick to that one.
Click on SPY – S&P 500 ETF chart to enlarge:
The chart above is summarized very quickly. We are starting to see short-term improvements, reclaiming the MA 20 is a noteworthy development, but the long-term outlook hasn’t changed yet. The market is still caught in a ‘Falling Tops’ pattern and the long-term moving averages like the MA 200 are trending lower. Overall the situation can be characterized as one that has to contend with a lot of ‘Overhead Resistance’. Some individual charts are starting to look more constructive, but this is not an environment conducive to super aggressive trading on the long side.
2. Sector Spotlight:
This week’s sector in the spotlight is GDX – Gold Miners ETF. The new theme introduced 2 weeks ago has developed extremely well and deserves a closer look.
Click on GDX – Gold Miners ETF – Daily chart to enlarge:
The annotations in the chart above outline what I deem to be the highest odds scenario. The key word to keep in mind is ‘Lock-Out Rally’. The past few weeks certainly look like a lock-out rally is currently underway. The downtrend in gold has been brutal for several years in a row. The majority of the gold market participants still have a bear market mind-set and do not trust this rally. They think it is only a vicious short squeeze and price will tumble lower soon to resume its bear market behavior. That might very well be the case. But for now I believe odds are high they will be proven wrong over the short-term, which according to my scenario outlined above would give the GDX enough room to move up another 10%.
Click on GDX – Gold Miners ETF – Weekly chart to enlarge:
The weekly GDX chart shows a bear trap in full motion. From a psychological perspective, these set-ups should never be underestimated. When traders are truly trapped, the ensuing moves can last much longer and go much higher than one might think. I see the potential for an extremely bullish ‘High Pole Tight Flag’ chart pattern to be developing right in front of our eyes.
3. Gold Mining Stocks – Chart Review
Here are a few gold mining charts that will help analyze the current situation within the sector.
Click on RIC Richmont Mines – Daily chart to enlarge:
Click on RIC – Richmont Mines – Weekly chart to enlarge:
The updated technical price target on the weekly RIC chart implies a $6.40 target. A good reaction to Monday’s earnings report would mean the stock is on its way toward that target.
Click on LSG – Lake Shore Gold – Daily chart to enlarge:
Click on LSG – Lake Shore Gold – Weekly chart to enlarge:
LSG is one of the gold mining stocks I own because I wanted to ramp up my gold mining stock exposure. The weekly chart clearly shows that there is huge buying pressure. The huge volume bars are a result of the news that TAHO is in the process of acquiring LSG. There is always a chance for another company to place a higher bid. From a purely technical perspective, the double bottom chart formation would certainly allow for much higher prices.
Click on Gold Miners – Sector Overview chart to enlarge:
The sector overview chart of the senior gold mining stocks reveals that all of them are in the process of building out bullish consolidation patterns. Remember: When price breaks out of a consolidation pattern, it is most likely to resume the trend ‘leading into the pattern’. In our case that would mean the gold stocks will break out to the upside once the consolidation is over.
4. Winning Stocks of the Past:
Every now and then I will present winning stocks from the past. The reason is simple. If you want to own future winning stocks you need to understand how big winning moves set up and unfold. The more set-ups you study, the more likely it is you will start to see and understand the underlying conditions and chart patterns that lead to super performance. I will help you make sense of these moves and explain what drives price and how to properly enter and exit these stocks.
Great books covering that subject are:
- Brad Koteshwar: The Perfect Speculator + The Perfect Stock
- Nicolas Darvas: How I made 2.000.000 In The Stock Market
- William J. O’Neil: How To Make Money In Stocks
Click on VRTX – Vertex Pharmaceuticals chart to enlarge:
Here’s how the VRTX chart was setting up for a huge run:
- Long basing pattern lasting almost 2 years
- Game changing news
- Huge gap up + Monster volume
- Thrusting move
- Consolidation pattern
- Taking out the highs of the consolidation pattern –> Entry Signal
- Bullish Moving average expansion
- Rising MA 20 and no significant price close below the MA 50
- First close below the MA 50 is the sign the momentum run is most likely over
- Taking out the last low after printing a lower high –> Exit Signal
5. Quiz:
Find the perfect entry!
Click on Shanghai A-Shares chart to enlarge:
6. Conclusion:
This week we saw a slight improvement with the markets, leading many people to start doubting a multi-year bear market is about to unfold. I am completely neutral and really do not have too strong an opinion. The recent lows printed by the S&P 500 could indeed be THE low of the current correction / bear market. But, we will only know that in hindsight. For now, I do not see enough constructive set-ups to go long aggressively, although there are more set-ups with sound bases popping up in my scans.
Overall I still see most immediate price appreciation potential within the gold mining sector. The move is highly doubted, most people are in complete denial and think miners will go to zero and are therefore not invested in that sector. In plain English: This truly feels like a lock-out rally. Also refer to my comments on ‘moderately chasing’ yielding the best results with strong stocks, especially in the early stages of a bullish move. I will explain and talk about that concept more over the course of the years.
In case we see more follow through with the S&P 500, we need to keep an open mind. That is precisely the reason why I always stress the importance of being prepared at all times. It is the reason why I constantly scan and review my various watch lists. The best stocks end up in my 15 stocks to monitor at the end of each newsletter. I always provide a link, that way you can go back to past issues and see which ones have done well, are still holding up well, are setting up again or aren’t worth monitoring anymore. If you go through the watch list stocks of the past 4-5 weeks, you should have plenty of stocks to choose from. That’s the pond you want to fish in.
In closing, I want to remind you of the fact that being a successful trader takes a tremendous amount of time and work. No newsletter in the world can do all the work for you. You need to spend time reading books and going through charts. That way you will develop your trading skills. The more experienced you are, the better your instincts will become. It is also then that you will be able to trust those instincts and act upon them without hesitation. My goal is to help you reach that state.
7. Watch List:
Watch List Link – Tischendorf Letter Issue 13
The answer to successful trading cannot be found in any coach, book, or system. Success is something that is cultivated over time, with directed effort. – Brett Steenbarger
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