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Trading Blog Monday, January 31, 2022

1/31/2022

MARKETS UPDATE (2:30 pm EST)

All three of our major broad stock market indices (DOW, S&P 500, NASDAQ) found support last week after a steep plunge on Monday (Jan. 24). It's possible one, two, or even all three indices completed medium-term cycle bottoms last week; however, there was no bullish divergence between them (they all made new lows), and last Monday was not in a reversal zone. This means the cycles could still be bearish and heading lower into our current reversal zone (Jan. 28 - Feb. 12). These indices are starting today with a rally. We will stay with our short position in the NASDAQ for now and will consider taking profits and covering that position if this rally can gain some legs. We don't want to see the DOW close above 35,500, and we would like the S&P 500 to stay below 4,600. The NASDAQ closing above 14,500 would also be a bullish sign. We will watch this rally carefully now - especially if it starts approaching these levels. If prices do drop again and one, two, but NOT ALL THREE indices make new weekly lows, that would also be a bullish signal (bullish divergence in a reversal zone) and would make us consider covering our short NASDAQ position.

In last Thursday's blog on gold and silver I wrote:

"We should be watching for a bottom to buy over the next several trading days, as long as gold can stay above $1759 and silver above $21.44. An ideal set-up would be for gold or silver (but not both) to make a new weekly low early next week for a case of intermarket bullish divergence inside our new reversal zone."

Well, we are now approaching the center of our reversal zone for gold and silver, and both metals are staying above our lower limit. Nevertheless, we are not getting any bullish divergence signal (yet), but more significantly, there are several very bearish technical signals appearing now - especially in the chart of silver. I am reluctant to go long just yet. Let's wait to see if silver or gold (but not both) can make a new weekly low. We will stay on the sidelines of both metals for now.

Today is the first day of a new reversal zone for crude oil (Jan. 31 - Feb. 8). Last Friday's high at $88.84 (March contract chart) may have been a significant top, but if not, there's plenty of time to make a new one this week or early next week. We have been watching crude for a significant correction to possibly buy, but so far we haven't gotten one. This new reversal zone may give us one. Let's wait and see. This market is still looking quite bullish. We will remain on the sidelines of crude for now.

Trading Blog Thursday, January 27, 2022

1/26/2022

MARKETS UPDATE (3:30 pm EST)

After the end of yesterday's FOMC meeting at 2pm, the Fed released a statement that was rather dovish in tone. Most Wall Street analysts had been expecting an interest rate hike in March, but the Fed refrained from saying this directly and simply stated that rates would rise "soon". Even the Fed's so-called "dot-plot" chart showed its policy rate only rising to 2.1% by the end of 2024 (although some former Fed officials have said that rates would have to rise closer to 4% to curb inflation). Equities responded to this news with a sharp surge at 2:00 pm, but later comments by Fed Chairman Jerome Powell were more hawkish. He suggested that there WOULD be a rate hike in March and warned that Fed policy won't always be accommodative. Powell's hawkish statements were enough to turn the market back down, and by the end of the day all three indices had lost all of their early gains. Interest rates remained unchanged (near zero) which was expected, but the Fed remained steadfast in its commitment to move away from its easy policy stance (and that means the imminent raising of interest rates and a continued tapering of its bond buying program).

Today equity markets started off with a rally, but at the time of this writing they are headed back down. We are entering another major reversal zone for the broad stock market (and other markets) tomorrow - Jan. 28 - Feb. 16. (This is a wide reversal zone with potential pivot points on Feb. 3 and Feb. 7.) It seems like this market could be headed to a major bottom in this reversal zone (i.e. over the next 3 weeks). There are no strong signs of a bottom yet, so we will continue to hold our short position in the NASDAQ.

In yesterday's blog on gold and silver I wrote:

"A normal sub-cycle correction is due in both gold and silver ether this week or next. Today, gold made a new weekly high but silver did not which creates bearish divergence between the two metals. A significant correction in gold could start now (silver has already moved down from last Thursday's high). These cycles are young (only 6 weeks old) and potentially quite bullish longer-term.. We will watch for buy spots in both metals this week and next as long as prices don't fall too low. Good corrective targets to buy could be around $1800 in gold and $23 in silver."

The correction is underway. Today gold broke below $1800 and silver below $23. This strong price drop was triggered by today's strong surge up by the U.S. dollar (the result of yesterday's hawkish rhetoric from the Fed). We are now entering another reversal zone specifically for the precious metals (Jan. 27 - Feb. 4). We should be watching for a bottom to buy over the next several trading days, as long as gold can stay above $1759 and silver above $21.44. An ideal set-up would be for gold or silver (but not both) to make a new weekly low early next week for a case of intermarket bullish divergence inside our new reversal zone. We will stay on the sidelines for now.

Crude oil made yet another new weekly high today at $88.54 (March contract chart). I'm still not sure if Monday's low at $81.90 qualifies as a significant sub-cycle dip. If it was, prices could be quite bullish now, but if not, a deeper corrective low is due (possibly this week). Either way, we are now entering a major reversal zone for all markets (as mentioned above for equities) as well as a reversal zone specifically for crude coming up next week (Feb. 1 - 8). That suggests that another top and another correction is imminent. Hopefully, it will be deeper than Monday's dip and give us a potential spot to buy. We will stay on the sidelines of crude for now.

Trading Blog Tuesday, January 25, 2022

1/25/2022

MARKETS UPDATE (10:00 pm EDT)

All three broad stock market indices (DOW, S&P 500, NASDAQ) may be finding some support now as investors and traders await tomorrow's 2:00 PM statements from the Fed concluding this month's FOMC meeting. Dovish rhetoric from the Fed might kick-start a rally, while hawkish rhetoric could send this market tumbling down again. The DOW and S&P 500 medium-term cycles are old enough to form their final bottoms here (although that would be a bit early), but the NASDAQ's final bottom isn't due due for several more weeks (unless it contracts). Even if these indices rally now, that rally may not get very far before turning down again. Any traders who have short positions in the DOW or S&P 500 may consider taking some profits now, but I am going to keep my full short position in the NASDAQ until I see stronger signs of a final cycle bottom.

It looks like gold and silver both started new medium-term cycles with their lows on Dec. 15. A normal sub-cycle correction is due in both gold and silver ether this week or next. Today, gold made a new weekly high but silver did not which creates bearish divergence between the two metals. A significant correction in gold could start now (silver has already moved down from last Thursday's high). These cycles are young (only 6 weeks old) and potentially quite bullish longer-term.. We will watch for buy spots in both metals this week and next as long as prices don't fall too low. Good corrective targets to buy could be around $1800 in gold and $23 in silver. We are on the sidelines of both metals for now.

Crude oil prices are rising today from yesterday's low of $81.90 (March. contract chart). We have been watching for a corrective low to buy, but the two-day drop to yesterday.'s low was not significant enough for me to jump aboard (most significant sub-cycle corrections in bullish markets last 3-8 days). While it's possible that may have been a sub-cycle "dip", I would prefer to see a deeper correction before going long. We will stay on the sidelines of crude for now.

Trading Blog Monday, January 24, 2022

1/24/2022

UPDATE ON THE BROAD STOCK MARKET (2:30 pm EST)

It looks like our prediction of a MAJOR correction in the broad stock market is happening now. This week's FOMC meeting and apprehension concerning the Fed's plans to start raising interest rates and terminate bond-purchasing is causing a panic sell-off on Wall Street today. (More saber-rattling between the U.S. and Russia may also be contributing to trader panic - equity markets do not like geopolitical instability.) This, of course, is following last week's steep equity plunge. This does not bode well for 2022 as the stock market's performance in January is often a predictor of how well it will do for the rest of the year.

The DOW has now broken below what was probably the start of its current medium-term cycle - the low of 33,613 on Sept. 20, 2021. This means the cycle's trend has turned bearish and can fall lower before hitting its final cycle bottom. We are now just stepping out of our reversal zone for equities (and other markets). If this market can find some support today or tomorrow and can close back above 34,265, there's a chance this cycle could bottom now and a new medium-term cycle could start (which would be at least temporarily bullish). Otherwise, it looks like this market is going lower - possibly to the 30,000 area.

The S&P 500 is also testing the start of its current medium-term cycle (4,278 on Oct. 4, 2021) today. As with the DOW, there's a chance this index could have a short rebound from this level now, but it is a little early for the S&P 500 to be forming its final cycle bottom, and I don't think any rally will get far before turning back down again. Today this index "gapped" down at 4,400. It would take a close back above 4,400 to question the current bearish trend.

The NASDAQ's medium-term cycle trend turned bearish last Friday when it closed definitively below the start of the cycle (14,181 on Oct. 4, 2021). The final bottom of this cycle is due 3-7 weeks from now, so it has time to go lower. This index got close to 13,000 today, but at the time of this writing, it is rebounding from that low. As with the other two indices, we could see a temporary bounce now in the NASDAQ before it turns south again. We were anticipating a 10% - 20% correction. So far the correction has been about 16% (our short position is happy), so we are probably getting close to a bottom. Let's continue to hold our short position in the NASDAQ for now.

Trading Blog Thursday (late night), January 20, 2022

1/20/2022

MARKETS UPDATE (11:00 pm EST)

This morning equity markets took a "breather" from their severe tumble, bouncing off the support levels I outlined in my previous blog. This rebound was short-lived, however, as all three indices (DOW, S&P 500, NASDAQ) plunged into the closing bell with another day of heavy losses. Despite this bearish sell-off, we need to be aware of the fact that we are near the end of our strong reversal zone (we will extend it into Monday), so some sort of rebound is possible now, unless the reversal turns into a "breakdown" sell-off instead (very possible). I am reluctant to take profits in my short NASDAQ trade just yet as the short-term technical situation still looks rather bearish. The DOW broke and closed below 35,000. There may be some support at 34,665, and after that at 34,000. A break below 34,000 and especially 33,613 would be VERY bearish. The S&P 500 looks poised to fall to at least 4,400 as long as it stays below an upper resistance line around 4,610. Closing back above 4,610 would be bullish. The NASDAQ closed slightly below the start of its current medium-term cycle on Oct. 4 (14,181). If it can't close above that mark tomorrow or early next week, this market is in trouble. We will hold on to our short NASDAQ position which already has a profit of 10% since we entered the trade three weeks ago.

Gold and silver prices pushed a bit higher today, but they may be peaking over the next day or two as their reversal zone comes to an end. Silver could reach $25 and gold around $1860. Silver is especially overbought at the moment and ripe for a correction. We are still on the sidelines and watching for some sort of correction to buy in both metals.

Saber rattling between the U.S. and Russia has recently been fueling the parabolic rise in crude oil prices. Crude edged even higher today, but like gold and silver, its reversal zone is coming to an end tomorrow. Thus a corrective drop could be imminent which might give us a good buying opportunity next week. We are still on the sidelines of crude.

Trading Blog Wednesday (night), January 19, 2022

1/19/2022

MARKETS UPDATE (10:00 pm EST)

The broad stock market continued its tumble down today. The DOW broke below support at 35,200 and may now find support at the 35,000 level. The S&P 500 moved down to a line of support around 4,530. The NASDAQ broke below last week's low and is now approaching the 14,181 support I mentioned in my last blog. If these supports hold into the end of the week, the correction may be over (for now), but if traders/investors start panicking, this fall could gain more momentum, and the plunge could continue into next week. We will continue to hold our short position in the NASDAQ until we see signs of a corrective bottom forming.

Gold and silver prices both exploded up today to new weekly (and monthly) highs, This negates our bearish divergence signal from yesterday and most likely confirms that the trend for both cycles is now bullish. We are still within our reversal zone for both metals (it ends Friday), so it is possible these new highs could form a top followed by a significant correction. If that happens, we will look for buying opportunities as the bullish trend could take prices considerably higher over the next several weeks. Longer-term, we are still waiting to see if gold can break above $1900 and possibly challenge its all-time high of $2070 from Aug. 2020. If that doesn't happen soon, we will have to assume the top to gold's 23-year cycle is in (at $2070) and that, longer-term, prices are now falling to a final 23-year cycle bottom due around 2024-2024. (NOTE - Even if that is happening, there are still buying opportunities for shorter-term traders as markets never move down in a straight line - there are always sub-cycle rallies and corrections along the way. Once the 23-year cycle top is confirmed, however, our trading preference will be to sell-short at the top of sub-cycle rallies.) We are still on the sidelines of gold and silver.

Crude oil prices continued rising today in an amazingly steep rally that nearly touched $87 (March contract chart). Tomorrow is the last day of our reversal zone for crude (we may extend it into Friday), so this market is ripe for a top and a correction now. As with gold and silver, we will watch for any correction as a possible buying opportunity. Crude may have started a new longer-term cycle in December, and that would mean the market could be very bullish for many more months. On the sidelines of crude for now.

Trading Blog Tuesday, January 18, 2022

1/18/2022

MARKETS UPDATE (3:00 pm EST)

Last week's rally in the broad stock market looked promising early in the week, but then it collapsed on Friday. The negative trend seems to be continuing this week as all three indices - DOW, S&P 500, NASDAQ - opened today with significant gap down losses. A deep correction could be underway. We note, however, that this market is falling steeply into the latter half of our strong reversal zone (Jan. 11 - 21), so a bottom could be imminent (by the end of this week). The alternative to a bottom would be a total "breakdown". (Usually reversal zones contain reversals - up from bottoms or down from tops - but sometimes they will correspond to "breakdowns", i.e. a continuation of a correction, or "breakouts", i.e. a continuation of a rally.) The chances of a breakdown here seems high as we now have many bearish technical signals in the charts of all three indices.

What we can do now is watch for signs of support that might indicate the correction is over and a new rally about to begin. Any such bottom would be due by the end of the week. If the market continues to fall next week, the window for a reversal would be over, and that would mean a deeper correction is in progress. The DOW might find support around 35,200 and the S&P 500 around 4,530. To be bearish, the NASDAQ now has to break below last week's low of 14,530. After that, there is strong support around 14,180. If any of these levels hold into the end of the week, we will have to consider the possibility that the correction is over. We are still holding our short position in the NASDAQ, but will consider covering and taking profits (we have a 7% profit so far since Jan. 1) on this trade if the support levels mentioned above can hold.

The cycles of gold and silver are still unclear (there are several possibilities), but regardless of their cycles, both metals have been rising into a strong precious metal reversal zone (Jan. 11 - 20, same as for equities). Gold prices made a high last Friday at $1828. Silver made a new weekly (and monthly) high today (without gold) at $23.58. This is setting up a strong case of intermarket bearish divergence within this reversal zone. A significant correction could therefore be imminent. We will watch for a corrective drop and a possible chance to buy (as long as the correction doesn't go too low). We are still on the sidelines of gold and silver.

The U.S. Dollar Index seems to be rallying from a low on Friday. While this rally could be short-lived, it could be enough to depress precious metal prices into a sub-cycle correction. We will watch this carefully now.

Crude oil continues its bullish rise despite the recent turn down in the broad stock market. It seems that crude started a new medium-term cycle (and possibly a longer-term cycle) from its low of $62.26 on Dec. 2 (Feb. contract chart). Its steep rise from there has been extremely bullish, but prices are now peaking in a reversal zone specifically for crude (Jan. 11 - 20, same as for gold and silver). It's certainly too late to chase this rally, so we will wait for a corrective drop to possibly buy. Some sort of correction could be imminent from a high between now and Thursday. We will watch for it. Still on the sidelines of crude oil.

Trading Blog Tuesday (late night), January 11, 2022

1/11/2022

UPDATES on the BROAD STOCK MARKET and PRECIOUS METALS (11:30 pm EDT)

As I discussed in yesterday's post, the broad stock market indices (DOW, S&P 500, NASDAQ) appear to be bouncing off their lows from Monday (inside our Jan. 5-11 reversal zone). Our concern now is how high they will go. This market was falling this morning, but then it picked up around mid-day and managed to close the day with significant gains. The NASDAQ's rally was especially robust. Despite this one day snap-back, the NASDAQ's chart is still looking quite bearish, and there are short-term bearish technical signals in all three charts suggesting this rally might not get very far. Furthermore, any rally is now rising into our next strong reversal zone (Jan. 11 - 20), so a top and move back down could be imminent. The NASDAQ is still well below our short position entry point on Dec. 31, so I am going to hold my short position a bit longer as I don't want to get "whip-sawed" out of this trade too early. We will consider covering this short position if today's rally gains momentum and approaches 15,645.

Gold appears to be a new medium-term cycle that started with the low of $1759 on Dec. 15. It made its first sub-cycle high at $1831 on Jan. 3 and then made a sub-cycle dip to a low on Jan. 7. Prices are now rising from that low. This cycle is fairly young and could be bullish, but it has to clear that $1831 high and then at least challenge the $1875 high of Nov.16 before we can say the cycle's trend is truly bullish. There are some bearish technical signals in gold's chart now and, as with the broad stock market, prices are rising sharply into a reversal zone specifically for the precious metals - Jan. 11 - 20 (same as for the stock market). This could put a curb on any rally and turn prices back down any day now this week or next. Lets wait to see if we get another deeper correction. Any corrective dip that stays above $1759 may give us a good spot to buy, but if prices start breaking below $1759, the cycle's trend will then be bearish, and we may start looking for shorting strategies in this metal. Staying on the sidelines of gold for now.

In last Thursday's blog on silver I wrote:

"Unlike gold, silver is most likely an older medium-term cycle (that started with Sept. 29's low of $21.44) and could be ready to move down to its final cycle bottom. There is a chance (less likely), however, that silver started a new medium-term cycle with gold on Dec. 15 with its low of $21.45. In both silver scenarios, a significant low happened on Dec. 15 (either a new cycle started, or a significant sub-cycle correction happened in an older cycle). The question now is how low can this corrective drop from last week's high ($23.40) go? Today prices found support at $22. If that support can hold, as with gold, we may consider entering a long position. A break and close below $22, however, would be a bearish sign. A break below $21.45 would mean the trend has turned bearish, even if the cycle is a new one."

All of this still applies. That $22 level is holding (so far). But the rally from there seems a little weak, and as with gold, prices are now rallying into a precious metal reversal zone this week and next. A top could be imminent and prices could turn back down again. If gold can exceed last week's high (it is close) without silver doing the same (or vice-versa), we could get a strong bearish divergence signal in this reversal zone, and that could really hamper any potential rally in both metals. We will remain on the sidelines of silver for now.

Trading Blog Monday, January 10, 2022

1/10/2022

BROAD STOCK MARKET UPDATE (9:00 pm EDT)

Today was the next to the last day of a minor reversal zone (Jan. 5-11) which ends tomorrow. All three major equity indices (DOW, S&P 500, NASDAQ) dropped significantly early today but then snapped back up dramatically to recover most of their losses by the end of the day. A reversal could be happening here, but how significant will it be? Tomorrow we enter a much stronger reversal zone (Jan. 11 - 20). It's possible we could now see equities rally to a top in this new reversal zone, but if today's reversal doesn't gain any momentum (it's within a WEAK reversal zone), these indices could turn right back down and plunge further into a bottom within the time window of this new strong reversal zone. Right now the DOW and S&P 500 are POTENTIALLY poised for a strong rally back up, but the NASDAQ's chart is definitely looking more bearish. Let's examine these individually.

The NASDAQ's current medium-term cycle began with its low of 14,181 on Oct. 4. This cycle most likely made its final top on Nov. 22 at 16,212 and is now in its late stage of moving down to its final cycle bottom due 5-9 weeks from now (although it could contract and bottom earlier). The low of 14,860 on Dec. 20 was a significant mid-point sub-cycle corrective low. Today the NASDAQ broke below this low and touched 14,530 before closing back above 14,860. This strongly suggests that the trend is now bearish and that the NASDAQ will continue lower until it reaches its final bottom. A good target for that bottom would be at least 14,181, and probably lower. One thing that could negate this scenario would be the DOW and S&P 500 suddenly turning bullish now and pulling the NASDAQ up into a strong rally. This doesn't seem likely because today is a little too early for the NASDAQ's medium-term cycle to bottom, but sometimes cycles can contract and bottom early, so it is a possibility. The NASDAQ breaking and closing above 15,000 could be a warning that this is happening, so we will watch this index carefully over the next few days. In the meantime, we will hold on to our short position in the NASDAQ.

The DOW, like the NASDAQ, could also be an old medium-term cycle ready to fall to it's final bottom. Unlike the NASDAQ, however, the DOW's cycle trend is still bullish and pointed up, and this means it could still make a new all-time high before falling to the final cycle bottom (due 2-5 weeks from now). Today the DOW fell to 35,634 which is in our range for a normal sub-cycle correction. It then snapped back sharply and closed at 36,069. This index could now begin a rally towards a new-all-time high (i.e. above 36,953). There is also a possibility the DOW started a new medium-term cycle on Dec. 1 with its low of 34,007. If that's the case, this index could be very bullish, but it would still have to take out 36,953 to confirm that. Let's remain on the sidelines of this index for now.

The S&P 500 is most likely an old medium-term cycle (like the NASDAQ) and could have made its final cycle top already with last week's high at 4,819. If so, it is now falling to its final cycle low due 2-6 weeks from now. But, like the DOW, this index could still push higher to a new all-time high before falling to the final cycle low. Today the S&P 500 fell a bit below 4,600 and then bounced strongly off of that. That was a good target for a sub-cycle correction, so this index could rally now. We will stay on the sidelines of this index for now.

OK...I realize all this analysis is a bit confusing. The bottom line here is that we have a conflict in equities now between the NASDAQ, which appears very bearish, and the DOW and S&P 500, which appear more bullish. There are two possibilities here:

1) The NASDAQ's bearish trend could prevail, and after a brief bounce, all three indices could continue down.

2) The DOW and S&P 500 could rally strongly now to a top in our new reversal zone (Jan. 11 - 20) and pull the NASDAQ up to a new all-time high (or at least to challenge its Dec. high of 15,901).

We currently have an almost 5% profit over the last six trading days on our short NASDAQ position. If the bullish scenario seems likely over the next few days, we will cover this position and take profits. Otherwise, we will hold our short position and ride it down to the final bottom in the NASDAQ's current medium-term cycle (due 5-9 weeks from now).

Trading Blog Friday, January 7, 2022

1/7/2022

BROAD STOCK MARKET UPDATE (2:30 pm EST)

It looks like our anticipated correction in the broad stock market is following through as equities are down sharply for the week. We need to watch this market carefully, however, as all three indices are now approaching potential support lines. The DOW seems to have paused at it's 15-day moving average, the S&P 500 may be getting support at its 45-day moving average, and the NASDAQ (the most bearish of the three as it has broken below both its 15-day and 45-day moving averages) could be finding support around 15,000 (or 14,860 - its Dec. low). We are in the center of a minor reversal zone (Jan. 5-11), so theoretically, a bottom could be forming now. But there is a much stronger reversal zone coming up next week (Jan. 11 - 20), and it would make more sense for this correction to bottom then. Furthermore, the ideal target for a corrective low in the DOW would be around 35,600, and this index is still a good distance above that level right now. A clear break below 14,860 in the NASDAQ would probably confirm a bearish trend for all three indices, but until that happens, we have to be aware of the possibility of a bullish rally reasserting itself. Right now, the DOW and S&P 500 are suggesting this could happen, but the NASDAQ is definitely leaning in the bearish direction. Thus we are seeing mixed signals in this market. I am holding on to my short position in the NASDAQ for now.

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