Blog Archives

Trading Blog Monday, January 30, 2017

1/30/2017

BROAD STOCK MARKET and GOLD TRADE ALERT and MARKETS UPDATE (3:00 pm EST)

We have yet another meeting of the U.S. Federal Reserve this week (Tuesday-Wednesday), but there is not much concern in the markets as most analysts don't expect the next interest rate hike for at least several more months. Nevertheless, equity markets did get spooked today, probably in response to some of Trump's executive orders on trade and immigration. This "Trumphoria" rally might turn out to be more fragile than originally thought as investors start to realize that Mr. Trump can be unpredictable, quick, and strong in his decision making.

In Friday's blog on the broad stock market I wrote:

"...it looks like Trumphoria has turned this market back up and could keep it up for at least several more weeks. A strong rally into the last week of February could set up another opportunity to sell short, but we will deal with that if and when it comes. For now, our strategy is bullish and we will look to buy any short-term dips that stay above the lows I mentioned above (19,678 in the DOW and 2,257 in the S&P 500)."

Today the DOW dropped to the 19,900 area and the S&P 500 to 2,268. This appears to be a good place to go long. Nervousness concerning the Fed meeting might push these indices a bit lower, but if the Fed keeps interest rates unchanged (most expect this), markets should resume their rally, and the DOW should be able get back above 20,000. Based on cycles, I would suggest that anyone using index funds go with a DOW fund rather than a fund tied to the S&P 500 as there currently seems to be more potential gain with the DOW. We can set a close stop loss for this trade on a weekly close below 19,800 in the DOW (and especially below 19,678), but we would also be concerned if the DOW can't close back above 20,000 by the end of the week. Going long in the broad stock market today.

Gold and silver appear to be ready to rally this week. As I stated in Friday's blog, this depends on both metals having started new cycles in December. That seems to be the case; however, if gold prices start closing below $1,170, it may be an older cycle that will send prices lower over the next several weeks. What we can do here is enter a long position in gold with a stop loss on a weekly close below $1,170. Let's stand aside silver for now. (If silver prices drop a bit tomorrow, we may consider buying). Going long in gold today.

Crude oil prices are still trapped in a congestion between $52 - $54. Let's remain on the sidelines of this market until the cycle pattern becomes more clear. Still out of crude oil.

Trading Blog Friday (evening), January 27, 2017

1/27/2017

MARKETS UPDATE (8:30 pm EST)

Here we are on the last day of the current reversal zone for several markets. Yesterday the DOW, S&P 500 and NASDAQ all made new all-time record highs with the DOW closing above a 20,000 milestone. This is all very bullish and shows that "Trumphoria" is still influencing the broad stock market. There is still a small possibility that the markets could turn down from here (we are still in the reversal zone), but that seems unlikely now. It is far more likely that the pivot point for this reversal zone was the low on Jan. 19 in the DOW at 19,678 and the low on Jan. 23 in the S&P 500 at 2,257. If this is the case, these markets could now rally strongly into late February (the next strong reversal zone). In my blog on Monday I wrote:

"Could stronger selling kick in over the next several days? Maybe, but we are now in the center of another reversal zone (the pivot point could be Wednesday/Thursday) and the markets are falling into it. The S&P 500 and NASDAQ are making new weekly lows today while the DOW is not so we have a potential case of bullish intermarket divergence in this reversal zone. The current cycle patterns also allow for a significant bottom now. Even though the current reversal zone is not as strong as the last one in early January, the bullish "Trumphoria" factor could give it extra strength in this current set-up."

So it looks like Trumphoria has turned this market back up and could keep it up for at least several more weeks. A strong rally into the last week of February could set up another opportunity to sell short, but we will deal with that if and when it comes. For now, our strategy is bullish and we will look to buy any short-term dips that stay above the lows I mentioned above (19,678 in the DOW and 2,257 in the S&P 500). Even if those lows hold, however, our bullish view might be in jeopardy if the DOW starts closing back below that 20,000 milestone level (which has major "psychological" significance in the minds of investors). On the sidelines of the broad stock market for now.

I am still not certain if gold and silver started new medium-term cycles in December. As I stated in Monday's blog:

"The cycle pattern in gold and silver is still not clear. It is possible that both metals started new medium-term cycles in the second half of December, but this isn't confirmed yet. If they did, then this market could turn very bullish. This entire week could be a reversal zone for the precious metals (with pivot points especially likely on Tuesday and Friday) and prices have been rising. It would therefore not be unusual to see gold and silver back down at some point this week, especially as both metals are now encountering strong resistance areas in their charts....If these are indeed new cycles then any correction now shouldn't be serious and may be a good opportunity to buy. If gold moves down to the $1,170 area and silver towards $16.50, I may consider a long position this week. At some point (perhaps after a small correction) gold will have to close above $1,220 and silver above $17.50 to confirm any new bullish trend."

Well, both gold and silver did turn down sharply on Tuesday, fell significantly Wednesday, Thursday and early today (but prices did not get down to our targets, although they got close), and both metals closed up today (especially silver). Could today be another turning point for a reversal up and the start of a bullish rally? Maybe, but current technical signals are suggesting the possibility of lower prices. If gold and silver are still completing an older cycle (i.e. if December was not the start of a new cycle) then we could indeed see prices go lower over the next several weeks that could test or break below those December lows ($1,124 in gold and $15.65 in silver). I am going to hold off buying for now. If prices continue to rise past Tuesday next week (and especially if gold exceeds $1,220 and silver exceeds $17.40) then the bullish scenario (newer cycles) will be confirmed. We may have to wait for that to happen before buying; however, if prices fall closer to our targets ($1,170 in gold and $16.50 in silver) early next week, I may consider buying with a close stop loss just beneath those lows. Still on the sidelines of gold and silver.

The bullish or bearish direction of the precious metals may depend in large part on the U.S. dollar. Last week the U.S. Dollar Index broke below a strong support line at 101, and it also broke below the lower line of a strong uptrend channel that had been in place since October 2016 (very bearish). Both of these levels are now resistance to any possible rally in the dollar (the lower channel line is currently at 102.5 and rising). This week the dollar found support at the 100 level and is now rising again towards 101. If this index can push a bit higher next week, it could send gold and silver prices down closer to our targets. Still, the dollar may not get beyond 102.5 (or even 101) before it turns back down (and sends gold and silver back up). The current medium-term cycle of the U.S. dollar suggests that the greenback may make a significant bottom in late February. This implies that any rally now will be turned back by these two resistance areas, and the dollar could move to lower levels over the next several weeks. That would be bullish for gold and silver.

Crude oil prices still seem to be caught in a congestion zone between $52 and $54 (March contract chart). A major reversal zone relevant to crude is coming up in the second week of February (Feb. 7 - 15) so we will now focus on that time for a possible turning point in crude prices. If prices start closing below $51.63, we could see a bottom at that time to buy. But if we see a rally into mid-February that tests or exceeds $56.18, we may have a good spot to sell short. On the sidelines of crude oil for now.

Trading Blog Tuesday, January 24, 2017

1/24/2017

BRIEF STATEMENT ON CURRENT MARKET CONDITIONS (10:00 pm EST)

As I look over my blog entries from the last week or two, I can see how a reader might become frustrated and confused about some of my calls and trading decisions and my analysis of the markets. Unfortunately, the fact is that the markets are a bit confusing right now (ask any financial analyst), and analyzing them can be a complex process. In my blog posts I try to summarize this analysis in a succinct and concise manner without a lot of technical detail. I realize this leaves a lot of questions unanswered, but this is not a financial "chit-chat" website (there are plenty of those on the internet for anyone who is interested). The purpose of my blog posts is to "cut to the chase" in terms of market directions and how we should trade them.

The current congestion and lack of direction in many markets right now is likely reflecting some of the confusion and chaos surrounding people's opinion of the new Trump presidency. The mainstream media seems to be criticizing and questioning Mr. Trump's every move; and to make matters worse, mainstream media and alternative media are now constantly pointing fingers and accusing each other of being "fake news". It's no wonder so many people are confused. Equity markets were clearly pro-Trump after the election, but that enthusiasm has leveled off since mid-December as investors try to figure out the financial ramifications of a Trump presidency. Hopefully, once the hoopla surrounding the election and inauguration fades away, investor uncertainty will ease and the markets will start to manifest some clear directional trends.

Trading Blog #2 Monday (late night), January 23, 2017

1/23/2017

MARKETS UPDATE (11:30 pm EST)

The cycle pattern in gold and silver is still not clear. It is possible that both metals started new medium-term cycles in the second half of December, but this isn't confirmed yet. If they did, then this market could turn very bullish. This entire week could be a reversal zone for the precious metals (with pivot points especially likely on Tuesday and Friday) and prices have been rising. It would therefore not be unusual to see gold and silver back down at some point this week, especially as both metals are now encountering strong resistance areas in their charts. Today gold made a new weekly high while silver did not so we also now have a potential case of intermarket bearish divergence (until silver makes a new high). If these are indeed new cycles then any correction now shouldn't be serious and may be a good opportunity to buy. If gold moves down to the $1,170 area and silver towards $16.50, I may consider a long position this week. At some point (perhaps after a small correction) gold will have to close above $1,220 and silver above $17.50 to confirm any new bullish trend. Still on the sidelines of both metals.

In last Thursday's blog I wrote:

"The U.S. Dollar Index broke back above 101 yesterday but is now encountering resistance at the underside of a downtrend channel it breached on Tuesday. This could be a set-up for another fall in the dollar and a surge up in gold unless reaction to Trump's inauguration kicks the dollar up (it could do the opposite)."

Well, the dollar fell after the inauguration (Sunday and today) and is now again below 101 and is looking quite bearish. This supports the bullish case for the precious metals discussed above. Directional momentum for the dollar is still mixed bullish and bearish, however, so we can't confirm a downtrend just yet.

Crude oil still seems undecided on what direction it wants to take. If prices can break below $51.66 (March contract chart), we will look for a sub-cycle bottom to buy this week or next. If crude stays above $51.66, however, we could soon see prices challenging the high (so far) of the current medium-term cycle at $56.24. Remaining on the sidelines of crude oil for now.

Trading Blog #1 Monday, January 23, 2017

1/23/2017

BROAD STOCK MARKET TRADE ALERT (2:30 pm EST)

The broad stock market has been falling since that important reversal date on Jan. 6 when both the DOW and S&P 500 made new all-time highs (the NASDAQ made its all-time high on Jan. 13); however, the fall has not been steep, and the market's correction has been very minimal (so far). Wall Street seems to like Donald Trump very much, and today investors don't seem that enthusiastic about "selling the news" following his inauguration on Friday. (At the time of this writing the markets are only slightly down). Could stronger selling kick in over the next several days? Maybe, but we are now in the center of another reversal zone (the pivot point could be Wednesday/Thursday) and the markets are falling into it. The S&P 500 and NASDAQ are making new weekly lows today while the DOW is not so we have a potential case of bullish intermarket divergence in this reversal zone. The current cycle patterns also allow for a significant bottom now. Even though the current reversal zone is not as strong as the last one in early January, the bullish "Trumphoria" factor could give it extra strength in this current set-up. For all of these reasons, I am going to cover (unload) my short position in the broad stock market today. We should have at least a small profit on this trade that we entered (shorted) on Jan. 9. If the bullish intermarket divergence between these indices persists into the end of the week (i.e. if the DOW does not make a new weekly low), I may consider entering a long position in the broad stock market. Stay tuned.

I will comment on the other markets later this evening.

Trading Blog Thursday, January 19, 2017

1/19/2017

GOLD TRADE ALERT (3:15 pm EST)

Gold prices have been falling since Tuesday, but not strongly. The U.S. Dollar Index broke back above 101 yesterday but is now encountering resistance at the underside of a downtrend channel it breached on Tuesday. This could be a set-up for another fall in the dollar and a surge up in gold unless reaction to Trump's inauguration kicks the dollar up (it could do the opposite). Because gold prices are now close to where we entered our short position last week, I am going to cover (unload) that position today with little or no loss and wait to see how the precious metals react to tomorrow's inauguration ceremony.

Trading Blog Tuesday, January 17, 2017

1/16/2017

MARKETS UPDATE (3:00 pm EST)

Monday was a holiday (Martin Luther King Jr. Day), and stock markets were closed in the U.S.

We are now moving out of last week's strong reversal zone for the broad stock market. The DOW's all-time high of 19,999 on Jan.6 was right in the center of that reversal zone, as was the S&P 500's all-time high of 2,282 that same day. On Friday last week (Jan.13 - the last day of the reversal zone) the NASDAQ made a new all-time high while the DOW and S&P 500 stayed below their Jan. 6th highs. Thus we have another case of bearish intermarket divergence (unless all three indices make new highs this week). Under normal circumstances, we would expect a reversal from these tops and a correction to follow, and that may happen now; however, we need to consider Donald Trump's inauguration coming up this Friday as many analysts see that day as a possible pivot point for a downturn in equity markets. We know that the recent rally in stocks has been fueled by Wall Street's approval of what they perceive to be Mr. Trump's pro-business policies, but this rally could easily become a case of "buy the rumor, sell the event" with the inauguration being the event that the market has already factored in with its strong rally. These markets may start falling ahead of Friday's inauguration, but if they do rally some more, they may not get far because Friday is also the center of another reversal zone for equities. It is a minor one and not nearly as strong as last week's set-up, but the presidential inauguration may give it more significance. We will hold our current short position in the broad stock market unless the DOW, S&P 500, and NASDAQ all make new highs this week.

It still is not clear as to whether the precious metals are breaking out now or are about to take a substantial correction. In last Thursday's trade alert we sold gold short and I stated :

"There is strong resistance for gold in the $1,200 - $1,220 range so we can base our stop loss on a close above $1,220. If prices edge up tomorrow but remain under $1,220, we can set our stop loss next week on any break above tomorrow's high."

Gold didn't make any new highs on Friday, but today prices are rising above last Thursday's high of $1,206.30. Silver is also making a new weekly high today so we have no case of intermarket bearish divergence. Nevertheless, both metals are now approaching strong resistance zones ($1,200 - $1,220 in gold and $17 - $17.50 in silver) and Wednesday and Friday this week could be pivot points (lesser reversal zones) specifically for gold. What we don't want to see is gold closing above $1,220. I am going to hold my short position in gold for now (we are out of silver) with a stop loss on a close above $1,220. Even if gold is breaking out, prices may back off a bit this week and give us a better price to cover our short position.

I have rarely seen the precious metals market giving so many mixed (bullish and bearish) technical signals. Cycle analysis is also presenting an ambiguous picture now which could allow for a breakout or breakdown in prices. One factor that could be bullish for gold is today's drop in the U.S. Dollar Index. The dollar had been holding above a strong support level at 101, but today it broke that important support and has also moved out of a strong uptrend channel that had been in place since last October. Unless the dollar can snap back up quickly, this is looking bearish for the dollar and bullish for gold.

The charts for crude oil are also looking ambiguous. Crude's directional momentum is now mixed bullish and bearish. Last week crude rallied from $51 (it did not get close enough to our $49 - $50 target to tempt us to buy), but the rally so far cannot seem to close above $53 (Feb. contract chart). If prices can stay above last week's low of $50.75, we may see new highs above $55 shortly. But if prices break below $50.75, they would likely be headed for a subcycle bottom which could be anywhere from $45 to $49. If we see that happen by the end of this week or early next week, it may be a good spot to buy. On the sidelines of crude for now.

Trading Blog Thursday (evening), January 12, 2017

1/12/2017

GOLD TRADE ALERT (9:30 pm EST)

Gold and silver are still difficult to call right now. In Tuesday's blog I wrote:

"Directional momentum in both metals is mixed bullish and bearish. Some technical studies are showing the possibility of a breakout now followed by a strong rally, but others seem to indicate an imminent correction to new lows that could approach or even exceed the lows from late 2015. Thursday could be a pivot point for this market so I am going to wait and see if gold and silver prices can edge closer to those resistance lines ($1,200 and $17) before considering any short positions."

Well, today gold prices got to $1,206 but then backed down and closed around $1,195. Silver got close to $17 at $16.96 then closed around $16.77. We are in a reversal zone for gold and silver (which ends this week) so this could be a turning point for a correction. The thing that concerns me, however, is the possibility that both metals started new medium-term cycles in mid to late December. If they did, this market could be turning bullish, and any correction now would be very minor and followed by a strong rally. If these are still older cycles coming to completion, the correction could be much more serious. Either way, some kind of correction seems imminent so I am going to enter a short position in gold now for the opening of tomorrow's market. There is strong resistance for gold in the $1,200 - $1,220 range so we can base our stop loss on a close above $1,220. If prices edge up tomorrow but remain under $1,220, we can set our stop loss next week on any break above tomorrow's high. Let's stay on the sidelines of silver for now. Entering a short position in gold for tomorrow's (Friday's) market open

Trading Blog Tuesday (late night), January 10, 2017

1/10/2017

MARKETS UPDATE (11:00 pm EST)

The DOW and S&P 500 rallied a bit today but then each closed in the lower part of their day's range. This is bearish behavior. Today the NASDAQ made another new weekly high while the DOW and S&P 500 remained below their highs from last week so these indices continue their intermarket bearish divergence. We sold short yesterday in expectation of a top and reversal by the end of the week. We will hold this (short) position unless we see both the DOW and S&P make new highs by the end of the week.

Both gold and silver made new weekly highs today so we are not going to get any intermarket bearish divergence signal this week. We are still, however, in a strong reversal zone for the precious metals through Friday. A top followed by a reversal down is still possible, especially as gold is approaching a strong resistance zone around $1,200 and silver is nearing resistance around $17. This market is very tricky to call right now. Directional momentum in both metals is mixed bullish and bearish. Some technical studies are showing the possibility of a breakout now followed by a strong rally, but others seem to indicate an imminent correction to new lows that could approach or even exceed the lows from late 2015. Thursday could be a pivot point for this market so I am going to wait and see if gold and silver prices can edge closer to those resistance lines ($1,200 and $17) before considering any short positions. Still on the sidelines of gold and silver.

Another argument for bearish gold and silver is coming from the chart of the U.S. Dollar Index. The dollar seems to be stabilizing at a support level around 101, and directional momentum in its chart is nearly 100% bullish. Furthermore, the recent jobs report from the U.S. Department of Labor did not present any major threat to rising interest rates which favor the dollar. All of this suggests that the dollar could now resume its rally and push gold and silver prices back down.

Crude oil prices fell strongly yesterday and today and are now approaching $50. There is a support level for crude around $49 - $50. If we get there before the end of the week, it could be a good buy spot. We need to be careful, however, because today directional momentum in crude charts switched from nearly 100% bullish to mixed bullish and bearish. That means crude's bullish trend may be reversing, and prices could break below that $49 - $50 support zone. On the sidelines of crude oil for now.

Trading Blog Monday, January 9, 2017

1/9/2017

BROAD STOCK MARKET TRADE ALERT (2:30 pm EST)

We are in the final days of what is a very strong reversal zone for several markets (it ends this Thursday), and today the NASDAQ is making a new weekly high while the DOW and S&P 500 are not. Thus we have intermarket bearish divergence in a reversal zone, which is a sell signal. The cycle structure of these indices also suggests an imminent correction in this market. Cycle analysis indicates that this correction could be substantial. For these reasons I am going to enter a short position now in the broad stock market. The only thing that bothers me here is that the presidential inauguration is coming up Jan. 20th. Many analysts view the current "Trumphoria" rally as a classic case of "buy on the rumor and sell on the news". In other words, the market may be rallying in anticipation of Trump's election, but the rally could top out and sell off after Trump takes office. These analysts may be right, and if so we may be selling short too early. What we can do here is sell short with a stop loss based on the DOW and S&P 500 both making new highs this week, and especially if they do this after Thursday.

As I mentioned in my last blog, our longer-term strategy for the broad stock market is still to buy the bottom of any significant correction. Even if the inauguration puts a temporary damper on the current rally, cycle analysis shows that 'Trumphoria" could carry these markets higher over the next several months. Nevertheless, a short-term short sell seems appropriate now. (There is also a smaller possibility of markets starting to panic in which case we could see the start of a serious longer-term correction that would negate any Trump-driven rally).

Entering a short position in the broad stock market today.

<<Previous

Archives

LEGAL and DISCLAIMER