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Trading Blog Sunday (night), February 1, 2015

1/31/2015

MARKETS UPDATE (11:30 pm EST)

In my Jan. 22 blog I stated: "Unfortunately, markets could be very unstable and volatile over the next three weeks so we may see choppy index movements as we move into February."
This is turning out to be true, especially in equity markets and the precious metals. Last week saw steep drops in both gold and silver as well as a steep drop in the DOW with 200 point daily seesawing. This kind of volatility could continue for at least two more weeks so we need to be especially prudent now in our trading.

The broad stock market looks a little more bearish than bullish at the moment, but technical signals are still quite mixed. If the DOW edges lower this week but can stay above 17,000, we may have a good entry point for a new rally into early March that may or may not make a new high (i.e. above 18,103). If that 17,000 level breaks, however, the markets could panic and we might see a steep drop into early March instead of a rally. A third possibility would be my original ideal scenario (still possible but less likely now) where the DOW rallies strongly next week but does not make a new high (now over 800 points away). We need to wait and see how the market moves next week before considering any trade. Still on the sidelines.

The steep drop in gold and silver prices last week brought both metals near to our ideal target prices for a bottom ($1250 for gold and $17 for silver). The only problem is that the ideal time for a bottom is the middle of this week, and so despite the price rebound on Thursday and Friday, prices could drop again this week. If they do, we will look to buy. Gold and silver are a tricky call right now as it is also possible for prices to surge this week. If this happens, we may get a good setup to sell short, especially if gold makes a new monthly high and silver does not (intermarket bearish divergence). We are late in the shorter-term cycles of both gold and silver so some sort of correction is due soon. Nevertheless, we can't rule out a strong surge here before the drop. As with the broad stock market, price movements next week will determine our trading strategy moving forward. On the sidelines for now.

Crude oil also made a bottom last week (a new low at $43.58 on Thursday) that was a bit early in terms of timing (it would be better this week). Any pullback in prices next week should probably be bought as we appear to be at the bottom of a long-term cycle in crude, this market is very oversold, and the timing is ideal for a reversal. On the sidelines and waiting to buy.

Trading Blog Wednesday (night), January 28, 2015

1/27/2015

MARKETS UPDATE (11:45 pm EST)

The minutes of this months FOMC meeting released this afternoon basically reiterated the Fed's recent policy of remaining patient and watching the economic data to determine when to raise interest rates. This came as no surprise to most analysts, but nervous investors concerned about an unstable European economy and a further drop in oil prices (and perhaps hoping for signs of a rate hike delay) seemed disappointed and the DOW dropped 195 points. The DOW closed at 17,191 which is below important support at 17,200, and it is also making a new low for the month. However, the S&P 500 and NASDAQ are not making new monthly lows (yet) so this could be a case of bullish intermarket divergence, especially if it can be maintained into next week. This market could go either way right now and how it moves into next week's reversal zone is important. I would still like to see it rise into that time frame for a good spot to sell short, but if the DOW continues down now and breaks clearly below the !7,000 area, the broad stock market could be in trouble. Directional momentum remains mixed bullish and bearish in the DOW, S&P 500 and NASDAQ. Still on the sidelines.

Gold and silver prices dropped sharply on Monday but have been stable Tuesday and today. Short-term indicators are suggesting more downside, and ideally gold will move closer to the $1250 area (and silver closer to $17) by next week which would be an ideal setup to buy. On the sidelines and waiting to buy.

The U.S. Dollar Index continues to be buoyed up by the plunging euro (which has taken a one-two punch this month, first from Switzerland's decision to de-peg the Swiss franc from the euro, and second from the ECB's announcement last week of a massive QE package to "rescue" the European economy). More dollar rallying could help push precious metal prices into our target areas, but the dollar is also extremely overbought and a correction may be imminent. We may have an unusual set of circumstances now where we will see the dollar and gold prices rising together as both could be seen as safe haven investments in an unstable global economy.

Crude oil prices have now dipped below the Jan.13th low of $44.78 which means the cycle bottom is still forming. Any new low into next week that holds above $40 could be an ideal entry point to buy for a possible rally to $60 (or higher). Still on the sidelines.

Trading Blog Sunday (night), January 25, 2015

1/24/2015

BRIEF MARKETS UPDATE (11:30 pm EST)

Last Thursday the European Central Bank announced its QE (quantitative easing) program and the DOW surged up nearly 260 points. This was not surprising as the U.S. stock market's recent nervousness and volatility has been at least partly due to concerns about a collapsing European economy. These fears were exacerbated when Switzerland made its surprise announcement on Jan. 15 to de-peg the Swiss franc from the euro, a development that many see as the Swiss government's lack of faith in eurozone economics. With our own QE program now gone (unless QE4 is waiting in the wings) and a rise in short-term interest rates not too far in the future (probably mid-2015), it is easy to see why U.S. equities markets would cheer a new European QE program coming to the rescue to inject new life (at least for the short-term) into European economies on the brink of collapse. This should act as a bullish influence on the U.S. stock market moving forward now.

We are still looking at the first week of February for a major turning point in the broad stock market. A continuation of rallying into that time may present us with a good opportunity to short the market (especially if the DOW stays below 18,103). On the sidelines for now.

Gold and silver are showing even more signs of an imminent short-term correction which could happen next week.
If gold prices can drop to the $1250 area (and stay above $1220), we will probably have a good spot to buy as overall directional momentum in this market is very bullish now. On the sidelines and waiting to buy.

I am are still waiting for crude oil prices to either start rallying or move lower into the first week of February. A new bottom in that time frame would be an ideal buy spot (as long as prices don't close below $40). Out of this market for now.

Trading Blog Thursday, January 22, 2015

1/22/2015

MARKETS UPDATE (3:30 pm EST)

The broad stock market seems to be following the first (bullish) scenario I outlined in my last blog, that is, it is rallying (so far), hopefully into the first week of February. As I stated on Monday, any rally into early February that stays below the all-time high in the DOW (18,103) will be a good opportunity to sell short. Unfortunately, markets could be very unstable and volatile over the next three weeks so we may see choppy index movements as we move into February. Because we are still in a time window for reversals (it ends tomorrow) it is possible for this market to turn down again today or tomorrow. If that happens we will again use the 17,200 level as a support area to watch. (Any new highs after Friday, however, would suggest the continuation of the rally into early February). As stated before, a break below 17,200 and especially a break below 17,000 would be a very bearish development and could lead to a steep fall in the markets. Still on the sidelines.

Gold and silver prices may be peaking now as several technical signals are suggesting a short-term correction.
If gold moves into the $1250 - $1270 area and silver into the $17 - $17.50 range, we will have good spots to enter long positions in these metals. If gold does correct now, we don't want to see the $1220 -$1240 area broken as that could mean the market is turning bearish again. On the sidelines and waiting to buy.

Crude oil prices continue to be stabile as they hover above $45. Nothing new to report here. We are still waiting for a sign to confirm that a cycle bottom is in. If prices don't start rising next week, we could see them move lower into the first week of February. $45 is an ideal target price for this bottom, but it is possible it could go as low as $40. If we can enter (buy) near the bottom of this cycle we, could see a rally to $60 or even higher before the market turns down again. On the sidelines and waiting to buy.

The U.S. Dollar Index continues to be amazingly bullish as it surged to just over 94 today. The fact that gold and silver are holding up so well now in spite of this dollar surge is strong testimony to the current underlying strength of the precious metals. The dollar is still overdue for a correction, but a little more rallying isn't out of the question which would help push gold and silver prices closer to our entry targets. We will continue to monitor the dollar's movement for its effect on precious metal prices.

Trading Blog Monday, January 19, 2015

1/19/2015

MARKETS UPDATE (9:15 pm EST)

Today is a holiday in the U.S. (Martin Luther King Jr. Day) and the stock market was closed so it is a good time to review our strategy for this week.

The DOW made a new monthly low on Friday (17,244) but then rose back up to close the day with a 190 point gain. Despite the strong finish, that dip early in the day was enough to trigger a strong bearish momentum signal, and directional momentum in the DOW (as well as the S&P 500 and NASDAQ) is now mixed bullish and bearish. This downward shift in momentum as well as several other bearish factors (such as the breakdown of copper mentioned in my last blog) and the fact that we are nearing the end of the current cycle in the broad stock market means that we should now be looking for a point to sell this market short. There are two likely scenarios that could unfold now. Ideally, the DOW reverses from Friday's low and rallies weakly into the first week of February but stays below the Dec. 26 all-time high of 18,103. That would be the ideal setup to sell short in early February. If instead the DOW continues to fall and breaks below the 17,000 - 17,200 area, then equity markets will likely fall steeply into early February. That bottom support around 17,000 is critical and is thus a key level to watch as we remain on the sidelines.

Gold and silver both made new highs last week and directional momentum is now nearly 100% bullish for both metals. Nevertheless, the precious metals are rising into the center of a timing window (ending this Friday) for a possible reversal so we should be watching for at least a short-term backing down of prices which could present us with a good opportunity to buy. There is resistance for gold a little above the $1300 area so prices may edge up to that point over the next few days and then start to fall. I will consider going long if gold pulls back towards $1250 this week or next as this market looks very bullish right now. Still on the sidelines.

Crude oil is almost certainly in the process of forming a significant long-term cycle bottom that should be completed by the first week of February. The low of Jan.13 at $44.20 may have already been it, but since I suspect this market is being manipulated, it wouldn't surprise me to see it push lower, perhaps into early February. We have already exceeded the lower target of $45 for the current correction so we should be considering a long position now; however, I feel we need to be cautious with this market, especially since directional momentum remains strongly bearish. I would like to see a bullish shift in momentum before considering a long position. Once this cycle bottom is in, there is a possibility of a rally to $60 or higher. Remaining on the sidelines for now.

Trading Blog Thursday (night), January 15, 2015

1/15/2015

MARKETS UPDATE (10:30 pm EST)

There was a major event in the financial world today that is going to have a significant effect on all major markets moving forward now. That event was a surprise move by Switzerland to remove its three-year cap on the value of the Swiss franc against the euro. This cap had been in place since 2011. The cap was designed to keep the value of the franc on par with the euro during a time when many global investors were pulling their money out of an unstable euro zone and putting it into Swiss banks (and currency) which are well known for stability and security. This "safe-haven" influx of cash into Swiss banks had caused the franc to soar against the euro and had severely hurt Swiss domestic exporting (important to the Swiss economy) as Swiss goods had become more expensive. For this and other reasons the cap was established in the summer of 2011 and since then has been keeping the value of the Swiss franc in sync with the euro, that is, until now. Without any warning, the Swiss National Bank lifted the cap today and stated essentially that the 2011 crisis period has past, the Swiss economy has adjusted and that "... maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified." European economies are still in crisis today, however, so many analysts are questioning the wisdom of this decision. Some feel this could be the beginning of the end of the euro.

Not surprisingly, the value of the Swiss franc soared today and the euro plunged. Gold prices also soared (nearly $30) and directional momentum in gold charts shifted to 100% bullish. As I expected, It looks like gold is breaking out and we should now be looking for a spot to go long. Today's large surge, however, may be a "buy on the news" (of the Swiss bank decision) jump that may back down a bit over the next several days. Supporting this idea is the fact that prices are rising into the middle of a reversal zone (next Monday) and silver did not make a new high today while gold did (intermarket bearish divergence). Silver's directional momentum also remains mixed bullish and bearish. We need to remain cautious with all of our trading now as market volatility remains high (this will, unfortunately persist at least into mid-February) and sharp rises can easily be followed by sharp drops. Remaining on the sidelines of both gold and silver for now.

Despite its currently overbought state, the U.S. Dollar Index is staying remarkably buoyant. Today's plunging euro is likely supporting the dollar as investor cash fearing a collapsing European economy lately seems to perceive a safe haven in the U.S. dollar (or at least the dollar has been seen recently as the "least rotten" apple in a barrel of global currencies; of course now the Swiss franc seems like a much better choice). The dollar is still overdue for a correction, though, and it could be starting any day now. I should mention here that it is significant that the precious metals have been holding up so well in spite of the dollar's recent strength. This suggests an underlying strength now in gold and silver.

The surprise Swiss bank decision today may have spooked the equity markets. It shocked and confused many investors on Wall Street as it increased fears and concerns about a weak European economy. The DOW dropped 106 points but still did not break last week's low (17,262). The broad stock market is giving many contradictory (bullish and bearish) signals right now which makes it very difficult to call. There are, however, some clear lines being drawn in the sand. If the DOW closes below 17,200 it is most likely turning bearish, and a close below 17,000 would be very bearish and a signal to sell short. On the other hand, if this index can stay above 17,000 and start to rally over the next several days we could see a significant rise into early February that may or may not make a new all-time high. It is late in the current cycle of the DOW so it is very possible that early February (another reversal point) could coincide with the bottom of this cycle, or it could end up being the final top from which we would fall to the bottom. The behavior of the markets over the next several days should give us a better idea as to which of these scenarios (or another) will play out. I should mention here that charts for the price of the industrial metal copper have recently turned very bearish; in fact it appears that the price of this metal has broken critical support around $2.75 and is now breaking down. This does not bode well for equity markets as copper is often regarded as a bellwether of the overall condition of the economy. This factor gives support to the bearish case stated above. Still on the sidelines of the broad stock market.

As an important industrial commodity, crude oil can also be a barometer of global economic conditions. A drop in crude prices could indicate a lack of demand from sluggish industries, but prices can also be manipulated for political reasons which is what I think is happening now. According to cycle analysis and timing, a very significant bottom is due in crude oil anytime between now and the end of February. Technical studies show the maximum low for this bottom to be around $45. We have already broken a bit below that low ($44.20 on Tuesday) but the price has come back up and is now hovering a bit above $45. Because of price manipulation, it is possible for the low to fall below target projections, and this is a concern right now. If the bottom is in, then we should see a bullish momentum signal soon, and I will use that as a sign to go long. Out of this market for now.

Trading Blog Wednesday, January 14, 2015

1/14/2015

BRIEF UPDATE ON THE BROAD STOCK MARKET (2:15 pm EST)

The broad stock market is falling steeply today, and at the time of this writing (2:00 pm EST) the DOW is getting very close to last week's low. If that low breaks it could mean trouble for the markets. Another support level around 17,000 is even more critical as a close below there would mean the current cycle is pointed down and stock markets would be bearish for at least two more weeks (and possibly well into February). Critical support for the S&P 500 would be around 1960. Directional momentum in the DOW and NASDAQ remains mostly bullish, but the S&P 500 switched today to mixed bullish and bearish, which could be a warning. We will watch these support levels carefully now as we move into Friday and early next week. If these indices can hold above these critical supports, we may have a good buying opportunity. If they break we will have to switch to a bearish trading strategy. On the sidelines for now.

Trading Blog Monday, January 12, 2015

1/12/2015

MARKETS UPDATE (5:45 pm EST)

Friday's jobs report showed 252,000 new jobs created in December which was a little more than ADP's estimate of 240,000 but far less than some investor's expectations of 300,000 or more. The nation's unemployment rate also fell more than expected, so the overall report was positive news for the economy. Wall Street, however, did not seem pleased with the report and the DOW dropped 170 points for the day. There were many reasons given by market analysts for Wall Street's displeasure (negative wage growth, worries about a collapsing European economy) but the major reason could be that a robust economy raises fears of an early interest rate hike.

The broad stock market continued its fall today with the DOW dropping another 122 points. I had been anticipating this market making new highs soon, but some technical signals are now turning bearish again so this idea may be in question now. Another turning point for this market may be early next week so if the DOW continues falling into the end of this week but stays above the Jan. 6 low of 17,262, we could still get a good spot to buy. If instead we rally into next week, we might have a good setup to sell short. If the DOW now starts to break below that Jan. 6 low then the broad stock market could be in trouble and the DOW could possibly plunge below 16,000. There are several possibilities here so I am staying on the sidelines until directions are more clear.

Crude oil prices made a new low today at $45.85. In terms of timing, it would have been better if the previous low on Jan. 7 ($ 46.83) had held, but this market is still forming an important cycle low now, and as long as prices hold above $44 we should still be looking to buy. I continue to watch for short-term buy signals here. Any new bottom by the end of this week could be a good buy spot. Still on the sidelines and waiting to buy.

Gold and silver are starting to look more bullish. It looks like gold's low on Jan. 2 was a major turning point for this market so we should be looking for a spot to go long now. Any dip now in gold prices that holds above $1200, especially into the end of this week, would be a good buy spot. On the sidelines for now.

The U.S. Dollar index is finally showing some signs of weakness as it backs off a bit from it's 92.50 high on Friday.
The dollar is extremely overbought and is now manifesting some short-term bearish technical signals. Any correction in the dollar now will help drive any rally in the precious metals.

Trading Blog Thursday, January 8, 2015

1/8/2015

MARKETS UPDATE (3:45 pm EST)

Volatility remains high in equity markets today with the DOW rising over 300 points at the time of this writing
(3:15 pm EST). We can now confirm Tuesday as the reversal point for this market (unless the DOW plunges below Tuesday's 17,262 low tomorrow - highly unlikely) which means we should be looking to go long now. I am reluctant, however, to buy at the top of today's surge, especially since the December jobs report is being released tomorrow and there is a lot of conflicting speculation on what these numbers will be. Payroll processor ADP is estimating around 240,000 new jobs for December, but some analysts feel that this number is too low and that Friday's report will be closer to 300,000. Others are more conservative and are saying the numbers will be disappointingly below ADP's estimate. Lately Wall Street has been cheering any positive news about the economy, but since the Federal Reserve has consistently been saying that the time to raise interest rates will depend on how well the economy is doing, any good economic news now might spook investors with fears of an early rate hike. It may be wise to wait until next week before trading this (or any) market as trading volume is still relatively low and volatility remains high. Still on the sidelines.

Crude oil's low at 46.83 yesterday may be the cycle bottom we've been waiting for. If that low holds and prices can now close above $51 we may have a good spot to buy shortly. On the sidelines for now.

Gold and silver prices have been backing down a bit from their highs on Tuesday. This market still appears a bit ambiguous with conflicting technical signals. Gold's low of Jan. 2 and the high of Jan. 6 could both qualify as market turning points so directional momentum is unclear at the moment. As with the other markets, it may be best to put off any trading here until next week. The U.S. Dollar Index is pushing to yet a new high above 92 today with its directional momentum remaining 100% bullish. This strength in the dollar has been putting downward pressure on precious metal prices, but the dollar is extremely overbought now and overdue for a correction so this bearish force on gold and silver may not last much longer. On the sidelines of gold and silver.

Trading Blog Tuesday, January 6, 2015

1/6/2015

MARKETS UPDATE (3:45 pm EST)

In Sunday's blog I speculated that, "Market volatility this week may continue to be high." That is turning out to be true.

It looks like this year's "Santa Claus" rally is over as the post holiday broad stock market plunges with the DOW breaking support at 17,600 as it approaches another support level at 17,200. Despite yesterday's and today's steep fall, however, directional momentum in the DOW, S&P 500 and NASDAQ remains strongly bullish (so far). This suggests that the market might still find a bottom over the next few days and start to reverse and rally again. On the other hand, if these indices continue to move lower past the end of this week, equity markets could be in trouble (especially if the DOW breaks clearly below 17,000), We will continue to look for a bottom over the next day or two
as long as momentum stays bullish and the DOW stays above 17,000. Still on the sidelines.

Crude oil appears to be taking its cues from the broad stock market (or perhaps it is the other way around) as prices continue to fall this week. I sold my long position in crude on Dec. 29 (at $54) as I thought there was a chance prices could reach the $45 area. It looks like that was a wise decision as crude dropped to $47.55 (intraday) today.
If prices start to turn up over the next few days and can close the week above $51, we may have a good signal to go long. We appear to be at the end of a major cycle in crude and potentially the start of a new one, and if this is the case crude should turn bullish (at least for a good short-term trade). If prices continue lower past Friday, however, we will remain on the sidelines and reevaluate our timing strategy for a bottom. Out of this market for now.

Gold and silver are rallying strongly today and may be breaking out now. Some significant technical signals are still bearish, however, so I am viewing this rally with caution until next week as there is still a chance of prices pulling back over the next several days. Relevant to the price of precious metals is the U.S. Dollar Index. The dollar has been rallying like gangbusters since last August and is overdue for some sort of correction. Nevertheless, directional momentum in the U.S. Dollar Index remains strongly bullish as it pushes against resistance at the 91.50 level.
It seems likely that the overbought dollar will correct now, and that would help drive a strong rally in the precious metals. But if the dollar stabilizes above 91 and pushes higher, gold and silver could back down again. We will watch the U.S. Dollar Index carefully over the next several days and how it affects the precious metals. Still on the sidelines of gold and silver.

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