MARKETS UPDATE (9:45 pm EST)
Strange, conflicting, bizarre. These are some of the adjectives some of the analysts I follow are using to describe the behavior of all the major financial markets right now. I agree and, unfortunately, this is making the trading of these markets very difficult. There is an unusually high amount of conflict between various technical and timing signals as well as aberrations and distortions in the market cycles. These are truly unusual economic times we are living in.
In the last blog post we sold short crude oil for a short-term but potentially profitable correction down. The price does seem to be moving down, but it hasn't even touched our minimal expectation for a correction (around $94), and according to chart cycles the correction is due this week (or maybe early next week) - unless the cycle distorts. Interestingly, oil prices fell abruptly in the morning on Wednesday all the way down to $95 but then snapped back up to $97 by early afternoon. This could be a bullish signal. Because the price hasn't yet gone below that $95, it is possible that will be the extent of the correction (a truncated one). Like many charts right now, the chart for crude oil is giving bullish and bearish signals, so we will have to watch carefully the direction of this market. We will stay short today as there is still the possibility of further downside movement into next week, but we need to be nimble here and be prepared to bail out our short position if Wednesday's low turns out to be the full extent of the correction.
In no other market are there as many conflicting signals as there are now in the precious metals. The bull/bear stalemate in gold and silver continued this week, although I think it may be leaning a little more in favor of the bears right now, which is good as we are short in both metals. We are still anticipating a substantial correction here, and until we get a clear break above the $1700 area in gold or the $33 area in silver, we will stick with our short positions.
The broad stock market seems to be enjoying an extended period of what former Chairman of the Federal Reserve Alan Greenspan might call "irrational exuberance". Another major bull signal appeared in the NASDAQ this week, and the DOW, S&P 500 and NASDAQ all ended the week in a bullish mode. We note, however, that the chart of the DOW is looking "toppy", rounding over, and seems reluctant to clearly break through the psychological resistance level of 14,000 as well as the all-time high of 14,198. Another factor that could adversely impact the U.S. stock market right now is the sudden weakening of European markets that has been taking place over the last few weeks following financial scandals in Italy and Spain. I don't usually discuss social and political issues on the website, but the collapse of the European economy is something that would have major repercussions in the global economy and in the U.S., and so this situation should be watched carefully. That said, the U.S. stock market in its present jubilant state may yet make a new all time high, but, as mentioned in previous blogs, cycle and timing factors still indicate some sort of correction at this time, so we will continue to wait for that correction before entering this market. (Note that any bullish positions we may be establishing in the near future would be short-term and maybe medium-term positions because the long-term picture of the broad stock market continues to be dire).
Contrary signals and confusion were also characteristics of this week's currency markets, but here there was volatility as well. In my last blog on the Swiss Franc over a week ago I noted a sudden premature upsurge in this currency before it completed what I thought would be a deeper downward correction. This upsurge peaked on Feb. 1 with a new monthly high. That strong surge up and the new high could mean the Swiss Franc is turning bullish. However, the U.S. Dollar may disagree as it also surged up this week and gave strong upward momentum signals indicating that it too may be turning bullish after appearing to be breaking down the previous week. Because the Swiss Franc and U.S. Dollar generally move in opposite directions, it is unclear at the moment which one will turn out to be truly bullish and which one bearish. The recent breakdown in European markets is clearly influencing these currency moves and we need to keep a careful watch on all of this. We are still out of the Swiss Franc and will remain so until the currency picture is more clear.
Strange, conflicting, bizarre. These are some of the adjectives some of the analysts I follow are using to describe the behavior of all the major financial markets right now. I agree and, unfortunately, this is making the trading of these markets very difficult. There is an unusually high amount of conflict between various technical and timing signals as well as aberrations and distortions in the market cycles. These are truly unusual economic times we are living in.
In the last blog post we sold short crude oil for a short-term but potentially profitable correction down. The price does seem to be moving down, but it hasn't even touched our minimal expectation for a correction (around $94), and according to chart cycles the correction is due this week (or maybe early next week) - unless the cycle distorts. Interestingly, oil prices fell abruptly in the morning on Wednesday all the way down to $95 but then snapped back up to $97 by early afternoon. This could be a bullish signal. Because the price hasn't yet gone below that $95, it is possible that will be the extent of the correction (a truncated one). Like many charts right now, the chart for crude oil is giving bullish and bearish signals, so we will have to watch carefully the direction of this market. We will stay short today as there is still the possibility of further downside movement into next week, but we need to be nimble here and be prepared to bail out our short position if Wednesday's low turns out to be the full extent of the correction.
In no other market are there as many conflicting signals as there are now in the precious metals. The bull/bear stalemate in gold and silver continued this week, although I think it may be leaning a little more in favor of the bears right now, which is good as we are short in both metals. We are still anticipating a substantial correction here, and until we get a clear break above the $1700 area in gold or the $33 area in silver, we will stick with our short positions.
The broad stock market seems to be enjoying an extended period of what former Chairman of the Federal Reserve Alan Greenspan might call "irrational exuberance". Another major bull signal appeared in the NASDAQ this week, and the DOW, S&P 500 and NASDAQ all ended the week in a bullish mode. We note, however, that the chart of the DOW is looking "toppy", rounding over, and seems reluctant to clearly break through the psychological resistance level of 14,000 as well as the all-time high of 14,198. Another factor that could adversely impact the U.S. stock market right now is the sudden weakening of European markets that has been taking place over the last few weeks following financial scandals in Italy and Spain. I don't usually discuss social and political issues on the website, but the collapse of the European economy is something that would have major repercussions in the global economy and in the U.S., and so this situation should be watched carefully. That said, the U.S. stock market in its present jubilant state may yet make a new all time high, but, as mentioned in previous blogs, cycle and timing factors still indicate some sort of correction at this time, so we will continue to wait for that correction before entering this market. (Note that any bullish positions we may be establishing in the near future would be short-term and maybe medium-term positions because the long-term picture of the broad stock market continues to be dire).
Contrary signals and confusion were also characteristics of this week's currency markets, but here there was volatility as well. In my last blog on the Swiss Franc over a week ago I noted a sudden premature upsurge in this currency before it completed what I thought would be a deeper downward correction. This upsurge peaked on Feb. 1 with a new monthly high. That strong surge up and the new high could mean the Swiss Franc is turning bullish. However, the U.S. Dollar may disagree as it also surged up this week and gave strong upward momentum signals indicating that it too may be turning bullish after appearing to be breaking down the previous week. Because the Swiss Franc and U.S. Dollar generally move in opposite directions, it is unclear at the moment which one will turn out to be truly bullish and which one bearish. The recent breakdown in European markets is clearly influencing these currency moves and we need to keep a careful watch on all of this. We are still out of the Swiss Franc and will remain so until the currency picture is more clear.
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