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BRIEF COMMENT ON THE BROAD STOCK MARKET (3:30 pm EST)
The broad stock market indices rallied strongly today but are now falling as we approach the closing bell. None of our stop loss points were triggered, so we are staying with our short position in the S&P 500 for now. BROAD STOCK MARKET TRADE ALERT (10:30 pm EST)
In Monday's blog I wrote that the broad stock market: "...gave us a bearish divergence signal as the NASDAQ made a new all-time high unaccompanied by the S&P 500 and DOW. However, all three indices snapped back up to the top of their day's range after an intraday dip, which is a bullish sign. I am still reluctant to sell short just yet. We are in a reversal zone for the rest of the week (and actually next week too as another reversal zone overlaps our current one - Jan. 27 - Feb. 5). This means there is plenty of time for this market to make new highs before a significant correction down. if the DOW starts closing below 30,750, it may mean the top is in already." Well, the S&P 500 did manage to make a new all-time high yesterday, but the DOW did not, so our bearish divergence signal remains intact. Not only that, the market fell dramatically today suggesting a significant correction could have started. The DOW closed the day at 30,303, which is well below 30,750 and suggests the DOW's top was in with last week's high of 31,272. And all of this is happening in a strong reversal zone ( January 12 - Feb. 5). If the tops to the medium-term cycles in these indices are in, we should now see a significant correction to the final bottoms of these cycles. This gives us a good opportunity to sell short. The risk here is if the market pushes higher before this reversal zone is over (at the end of next week). What we can do now is enter a short position with a stop loss based on these indices making new highs. (But note, if only one or two of them -not all three- make new highs, we will still have a bearish divergence signal). I am going to short the S&P 500 this time because that index has currently fallen the least distance from its recent high (attained just yesterday), and it's stop loss point should give us the least loss (about 2%) if triggered. I am going to place the short sell order tonight to be executed at tomorrow's market open. Traders could also wait for tomorrow's market to open before placing a trade as we could see a bounce or brief relief rally after today's drop before it heads south again. (The risk there, of course, is missing a good short spot if the market continues to plunge). I am entering a short position in the S&P 500 (with an index fund tied to this index) tonight for tomorrow's open. Let's make our stop loss based on a close above 3,842 or if the DOW makes a new high (above 31,273). MARKETS UPDATE (11:30 pm EST)
Today the broad stock market gave us a bearish divergence signal as the NASDAQ made a new all-time high unaccompanied by the S&P 500 and DOW. However, all three indices snapped back up to the top of their day's range after an intraday dip, which is a bullish sign. I am still reluctant to sell short just yet. We are in a reversal zone for the rest of the week (and actually next week too as another reversal zone overlaps our current one - Jan. 27 - Feb. 5). This means there is plenty of time for this market to make new highs before a significant correction down. if the DOW starts closing below 30,750, it may mean the top is in already. Until that happens, let's stay on the sidelines. Gold and silver are most likely still completing the end of their medium-term cycles. The final bottoms in both cycles are due anytime over the next few weeks, and most likely this week or next. As I wrote in my Jan. 14 post: "This could be around $1650 - $1750 in gold, and $22 - $25 in silver. If $22 breaks, silver might get down to $20 or even lower." "Because this correction is likely already underway, we will wait for the cycle bottoms for a potentially good spot to buy. Those bottoms are due sometime over the next several weeks and could easily end up in one or both of two overlapping reversal zones specifically for precious metals coming up Jan.19 - 28 and Jan. 27 -Feb. 5. We will watch for those target prices in those time frames." So here we are in that time frame. Neither metal has fallen into those price targets (yet), but they also haven't rallied very much. There is a possibility that gold already started a new medium-term cycle with its low on Nov.30 ($1766) and that silver started a new cycle with last Monday's low at $24.28. If that is the case, both metals should be bullish now (especially silver). But until we see some strong rallying, I'm going to stick with our original bearish view of older cycles still moving towards a final bottom (and buy spot). On the sidelines of both gold and silver for now. It looks like crude oil may have made a shallow sub-cycle dip and bottom last Friday at $51.44 (March contract chart). If so, prices should rally now into a final top for the current medium-term cycle. That could happen this week and push prices somewhere above $54. This market could be taking cues from the broad stock market which, as I suggested above, could also be pushing higher this week. We will watch for a possible spot to sell short. BRIEF UPDATE ON THE BROAD STOCK MARKET (11:30 pm EST)
Fortunately nothing violent or really dramatic happened at Wednesday's presidential inauguration. Wall Street was most likely relieved, and the broad stock market has responded favorably with a strong rally pushing all three market indices (DOW, S&P 500, NASDAQ) to new highs for the week. This negates our bearish divergence signal from last week and diminishes my desire to sell short, at least this week. Because our current reversal zone has been extended into next week (Jan. 12 - 28), we could see bearish divergence then and a possible spot to sell short. Let's stay on the sidelines for now and see how the market moves tomorrow. COMMENT ON THE INAUGURATION AND THE BROAD STOCK MARKET (11:30 pm EST)
So here we are, on the eve of the presidential inauguration, and despite the occupation of Washington D.C. by tens of thousands of military troops and National Guardsmen, things have been relatively peaceful, so far. Financial markets have also been stable so far this week. But, of course, tomorrow is the big day when Mr. Biden is expected to be sworn in as the new POTUS. We hope and pray that there will be no violence, but there are those on both sides of the political aisle who are speculating that things may not unfold peacefully. The mere presence of so many armed military (now at least 20,000 National Guard troops) occupying and surrounding our nation's Capitol building is alarming and causes one to reflect on why they are there. Most analysts on the Left claim it is to protect Mr. Biden from angry pro-Trump extremists and to insure a peaceful transition of power, but there are many on the Right who say that it is a corrupt and excessive display of power to protect a man and political party installed illegitimately through a fraudulent election. Some conspiracy theorists also claim that Mr. Trump may yet reclaim the presidency by invoking the Insurrection Act, and that the massive military presence is there to quell the chaos that could erupt under those circumstances. I am not passing judgement on any of these views, but simply describing the "wild and crazy" political environment we find ourselves in at the moment. And that environment could potentially trigger a lot of volatility in financial markets. Even if nothing alarming happens tomorrow in the political arena, a collective "sigh" of relief from investors could be the trigger for some kind of a sell-off or, alternatively, a strong rally. As I mentioned in my previous blog, we are now in a strong reversal zone (Jan. 12 - 21, possibly extending to the 28th), and the broad stock market has been rallying and appears to be making a top. Last week gave us an intermarket bearish divergence signal between the major market indices (DOW, S&P 500, NASDAQ). Normally, this would be a good set-up to sell the market short; however, sometimes under unusual circumstances, a top in a reversal zone can correspond to a dramatic "break-out" instead of a reversal down. I think our current political scenario would qualify as an unusual circumstance. We are coming to the end of the current medium-term cycles in the DOW, S&P 500, and especially the NASDAQ. They are all due to top out soon (if they haven't done so already), so we would like to be short for the final downward correction. I am tempted to sell short now, but there is still the chance of this market pushing higher before that fall. Let's see how the market weathers this potentially volatile inauguration day. A push to new highs might still give us a good point to sell short. We will remain on the sidelines of the broad stock market for now. MARKETS UPDATE and COMMENT ON THE 2020 ELECTION (10:30 pm EST)
The 2020 presidential election fraud controversy has created a very heated and divisive political environment as we move towards the Jan. 20th swearing in ceremony to usher in a new administration. There is a lot of speculation as to what is going to happen on that day (next Wednesday). Nothing unusual may happen, but as a precaution, a lot of military and National Guards are deploying to Washington DC as I write this. Theories are running the gamut as to what may happen (from more pro-Trump protests to conspiracy theories suggesting Mr. Trump will invoke the Insurrection Act to forcefully take back his power). My main point in mentioning this is to point out that volatile political events can lead to volatile financial markets. The DOW is a nervous creature and does not respond well to political chaos. It is especially concerning that all of this is happening in one of our reversal zones (Jan. 12 - 21). We know that equity markets are now extremely overbought as they make new all-time highs. A dramatic political event affecting the entire country could be a catalyst for a significant downturn. Today the DOW and NASDAQ made new all-time highs while the S&P 500 did not (but it came VERY close). The Nasdaq 100 (E-Mini, March contract chart), however, did not make a new high. This gives us an intermarket bearish divergence signal in a reversal zone. All three indices closed with a loss, which is also a bearish sign. I am reluctant to trade any market at this time, but we could be seeing a good set-up here to short sell the broad stock market. We are still several days away from the Jan. 20th inauguration date, and we are moving into a holiday week-end (Martin Luther King Jr. day on Monday) which is often bullish for equities. If the S&P 500 breaks a bit higher tomorrow, that would negate our bearish divergence signal until next week. Let's stay on the sidelines for now and see how the week closes tomorrow. Gold and silver seem reluctant to rally this week which confirms our view that they are both currently in a bearish correction down to their final medium-term cycle bottoms. In my last update I gave likely targets for this bottom: "This could be around $1650 - $1750 in gold, and $22 - $25 in silver. If $22 breaks, silver might get down to $20 or even lower." Because this correction is likely already underway, we will wait for the cycle bottoms for a potentially good spot to buy. Those bottoms are due sometime over the next several weeks and could easily end up in one or both of two overlapping reversal zones specifically for precious metals coming up Jan.19 - 28 and Jan. 27 -Feb. 5. We will watch for those target prices in those time frames. We are on the sidelines of gold and silver for now. Crude oil has become very bullish, perhaps taking its cues from a buoyant equity market, but it may be forming a sub-cycle top in this and next week's reversal zone (Jan. 12 - 21). There is yet another reversal zone specifically for crude at the end of this month (Jan.21 - 29). We could therefore see a significant top anytime over the next two weeks (or even a top followed by a significant bottom by the end of the month). Because I'm expecting all markets to be quite volatile through the end of January (maybe longer) due to the controversial U.S. election, I think it's best to stay on the sidelines of this market for now. Crude prices broke above some significant resistance levels recently, so it's possible we could see them up into the $61 - $63 range (Feb. contract chart) fairly soon. We may see a corrective dip from current prices, though, before crude pushes up to that level. If we get a sub-cycle correction into the end of the month, it may be a good spot to buy. It looks like last week's low of 89.20 in the U.S. Dollar Index may have been the start of a new medium-term cycle. If that's the case, the dollar could be very bullish now. This supports our view that gold and silver prices are headed lower, because the precious metals usually move opposite the U.S. greenback. UPDATE on the BROAD STOCK MARKET and PRECIOUS METALS (11:30 pm EST)
I apologize for delaying my post (I promised one over the week-end). Fortunately, markets have been relatively stable so there has been no imminent need for an update. I will try to give a longer-term view of all markets soon. Yesterday and today all three broad stock market indices were relatively flat and remained below their highs from last week. Wall Street appears to be holding its breath as the chaotic circus of our current election politics plays out on the stage of mainstream and alternative media platforms. This may continue through at least Jan. 20th when a decisive and final transition of power should happen. As I mentioned last Friday, we move into a new strong reversal zone this week (Jan. 12 - 21). This suggests a significant top could happen this week or next that will be followed by a significant sub-cycle correction. Ideally, we would like to see new highs in one or two of these three indices (DOW, S&P 500, NASDAQ), but not all three, for a case of intermarket bearish divergence this week or early next week. If we get that, we may consider selling short. We're still on the sidelines of this market. It looks like gold and silver are both completing their current medium-term cycles with a strong correction to their final bottoms, although there's a small chance gold started a new medium-term cycle with it's $1766 low on Nov. 30. We will go with the first scenario, which will put us in the situation of waiting for the final bottoms in both metals. This could be around $1650 - $1750 in gold, and $22 - $25 in silver. If $22 breaks, silver might get down to $20 or even lower. We will stay on the sidelines for now. BRIEF MARKETS UPDATE (2:30 pm EST)
Despite a small dip on Monday and Tuesday (almost certainly due to Wall Street jitters concerning the Jan. 6 presidential election confirmation), the broad stock market did not take a significant correction this week as all three major indices (DOW, S&P 500, NASDAQ) made new record highs. Next week finds us moving into another strong reversal period (Jan. 12 - 21), so we may see a top (with bearish divergence) then. For now, we remain on the sidelines. The big financial news today is the dramatic drop in gold and silver prices - not a surprise to me as I had been suggesting in previous blogs that gold's medium-term cycle had turned bearish, and some sort of corrective drop was due in both metals. We are still on the sidelines of both metals. Following the broad stock market, crude oil has also pushed to new highs this week. Because there is no reversal zone this week, we may see higher prices into next week's reversal before any corrective drop begins. Still out of this market. I will post a more detailed markets update this week-end. MARKETS UPDATE (8:00 pm EST)
CORRECTION: Yesterday I stated that last week gold broke above its previous week's high. That was incorrect. Neither gold nor silver broke above their highs from the previous week, so there was no intermarket bearish divergence signal last week. Both metals did break above those Dec. 21 highs today, however, with gold still remaining below its Nov. 9 high of $1965 (silver has been above its Nov. 9 high since mid-December). This gives us a bearish divergence signal now. Gold is getting pretty close to that $1965 high. Readers may recall from recent blogs that I've said gold's new medium-term cycle was turning bearish. That could still be true if gold turns down now before breaking above $1965. If it does break $1965, we will have to revise that bearish view. We will remain on the sidelines of both metals for now. Both the DOW and S&P 500 made new weekly highs early today before falling dramatically. The NASDAQ, however, did not exceed last week's high before falling. This is a classic intermarket bearish divergence signal, and it may be heralding a significant correction now. We will watch this week to see if today's downturn will follow through to a significant sub-cycle correction. As long as that correction doesn't get too low, we will likely be looking to buy it. Still on the sidelines of the broad stock market. In yesterday's blog on crude oil I wrote; "Because of last week's holiday, we can extend last week's reversal zone into early this week. We will watch for a new top that could be a turning point for a correction. Like the broad stock market, this market seems bullish, so any corrective low could be a good buy spot." Today crude did edge up to a new high ($49.83 - Feb. contract chart) on the early AM market before falling steeply. As with the broad stock market, this could be the start of a significant sub-cycle correction. We will stay on the sidelines for now and watch to see if prices continue lower this week. BRIEF MARKETS UPDATE and HAPPY NEW YEAR WISHES (11:30 pm) All three broad stock market indices made new all-time highs last week. That negates the bearish divergence signal from the previous week. Nevertheless, a top could have formed last week, or it may form early this week because of last week's holiday. So far, this market looks bullish, so we will still be looking to buy the bottom of any sub-cycle correction (unless it goes too low) when it happens. We are still on the sidelines. Both gold and silver prices rallied last week with gold getting above its high from the previous week. Silver came close to its previous week's high but did not break it. This is a bearish divergence signal (unless silver breaks that high - $27.28 - this week). Both these markets look bullish right now so I am reluctant to sell short. Let's stay on the sidelines for now. Last week crude oil prices were relatively flat. They did not make a new top or a new low. Because of last week's holiday, we can extend last week's reversal zone into early this week. We will watch for a new top that could be a turning point for a correction. Like the broad stock market, this market seems bullish, so any corrective low could be a good buy spot. We remain on the sidelines of crude for now. Over the next few weeks I will try and post some longer-term analysis of these markets for the new year.  |
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