Brazilians Have More Fun: Postmarket Update

I wasn’t surprised to see the dollar getting beaten over the head again last night when I turned on the computer. The play book is pretty damn simple at this point, crush the US Dollar overnight, pump equities pre market, keep foot on materials pedal 9:30–4:00.

Gold exploded today in one of the more obvious rallies that I have witnessed. The yellow metal is not easy to trade on an intra day basis, it is better left for swing trading and investing. After popping on the open it consolidated in a tight triangle formation above the rising 5 day moving average and exploded at the first hint of upside volume. Large blocks of $GLD sold on the offer all afternoon. This isn’t rocket science people, certain trading is, but this was simple as pie. I said as much early last week when gold gave a great buying opportunity with a tight stop below the low from 9/25. Now we test the yearly highs. I don’t think we break through just yet, it will take time for gold to build up enough steam to crack this all time high which is the neckline to the large weekly reverse head and shoulders pattern we’ve been watching.

The $SPY rebounded 1.5% after tagging the 50 day moving average on Friday. A break of Friday’s low would have given me a sell signal on equities (not a short). Use Friday’s low as your stop if you are taking new long positions here. I like materials plain and simple, no need to complicate things with financials or retail.

I just went through the new 50 day highs list and it is chock full of Brazil. The banks, miners, oil, consumer, everything Brazil is on fire, and for good reason. It’s no coincidence that Brazil won the host spot for the 2016 Olympics. I’m not saying that this is a reason to buy Brazil, but it makes sense that this country deserves to be recognized for the excellent manner in which it is handling itself. The government down there is doing just about everything right and their currency along with equities will benefit. Take a look at the Brazilian Real and you will get the picture. Back at the beginning of September I chose to take Taiwan over Brazil, in hindsight I should have taken both and forsaken something else on the long side. I’m happy with my $EWT position, but Brazil was the better play.

The Brazilian equity leaders are as follows: $GGB, $CPL, $CBD, $ABV, $BBD, $ITUB, $SID, $VALE, $VIV. All of these are excellent companies and I would recommend them as investments, not just trades.

I closed out my short natural gas position in $UNG today right before the close. $UNG was able to recapture the 50 day moving average on the open this morning and closed above 12$ for the first time since mid August. Is this a buy signal, yes. I’ve given crap to the people who have been long nat gas here as the momentum was not evident, but the close today says that we may have seen the worst behind us. I still don’t like $UNG as a vehicle to play nat gas long and the contango in futures contracts makes this a tough play. The end result is that I’m just going to stay away, there is money to be made elsewhere.

I took two trades this morning, long Patriot Coal $PCX and short Stec $STEC. $PCX looks to have completed a textbook support test of the inverse head and shoulders pattern that it broke out of on 9/14. After bouncing off the 50 day moving average Friday it has closed strong two straight days on nice volume. This trade gives me reduced risk as my stop is set just below Friday’s low which will be the lower 20 day Donchian Channel next week. Go take a look at a weekly chart of $STEC, enough said. My target is 14$.

Longs: $PCX, $GNA, $SNHY, $KG, $NFLX, $GLD, $EWT

Shorts: $MGA, $LDK, $STEC, $FXB

Finally, please read this excellent post from Gregor Macdonald on “The Alignment of Asset Reflation and a Collapsed Economy”.

Have a great evening.