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Trading Blog Thursday, February 28, 2013

2/28/2013

MARKETS UPDATE (2:00 pm EST)

It appears that the war between President Obama and U.S. congressional Republicans over federal budget cuts as well as congressional gridlock is continuing into the 11th hour of the sequestration "crisis", and it is looking like there's a good chance the sequestration cuts will start to kick in tomorrow (unless a last minute "miracle" plan is created to save the day or perhaps delay the cuts again). It's hard to gauge how the financial markets will react to all of this, but widespread public fear about the economy, whether justified or not, can can have a major impact on stock market and commodity prices.

My suspicion on Tuesday that the precious metals would start to back down a bit is proving correct, and this may give us an ideal entry point to go long both gold and silver. As I've mentioned before, there is strong support around $1530 in gold and $26 in silver, so buying as close to these levels as possible is ideal because we can set a stop loss just below them and bail out with minimal loss should they break (which is considered very unlikely at this time). Both gold and silver flashed short-term bearish signals today, so we will remain out of these markets and will wait to see what happens tomorrow when the dreaded sequestration could start taking effect.

The broad stock market has not changed much since my last blog (Tuesday). Curiously, the DOW continues to look bullish while the S&P 500 and especially the NASDAQ are looking quite bearish. The DOW also made a new multimonth high today while the S&P 500 and NASDAQ did not (yet). This is known as intermarket divergence and in this case is a bearish sign. With these mixed signals and with the sequestration deadline coming up tomorrow, we will continue to play it safe and stand on the sidelines of this market for now.

Trading Blog Tuesday, February 26, 2013

2/26/2013

MARKETS UPDATE (2:35 pm EST)

Disagreements and uncertainty over spending cuts in U.S. government programs are continuing into the sequestration deadline of March 1 (this Friday), and this is causing nervousness in all financial markets right now. This is making it tricky to trade these markets as the uncertainty leads to investor fear which often manifests as volatile movements in prices. Therefore, we need to be especially careful with our trading this week.

It appears that gold is breaking to the upside as expected and prices (intraday) are exceeding last week's high. Silver, however, is not making a new high (yet) which could indicate prices backing down a bit. Because of this and because we are a little cautious about jumping in too soon due to the potential volatility of the sequestration crisis, we will hold off going long for today in both gold and silver.

Volatility is definitely manifesting in the broad stock market. We had been waiting for a strong bearish signal in the S&P 500 to confirm those already given by the DOW and NADAQ. Well, yesterday we got that bearish signal in the S&P, but the DOW negated its bearish signal and turned bullish (the NASDAQ is still bearish). If Congress cannot resolve the sequestration crisis by Friday, I suspect the DOW will turn bearish again and we will probably short sell the market. But we have to wait and see what happens. Still out of the broad stock market for now.

Trading Blog Sunday, February 24, 2013

2/24/2013

GOLD AND SILVER ALERT (6:30 pm EST)

After analyzing the precious metals market over the weekend, I've decided to take profits and sell our short positions in gold and silver at this time. Both metals are close to or directly at several zones of strong support, and there are now numerous technical and cycle indicators suggesting we are at or very close to the bottom of this correction. While both metals could drop a bit more, it is also possible the bottoms are already in, so it is considered prudent to take our profits here. We will now reverse our trading strategy and direction and be looking to take long positions in both gold and silver very soon (perhaps early next week) as we are likely at the beginning of a new cycle in these metals and the start of a strong rally which could take prices much higher.

Note that there is very strong support for gold around the $1500 area and for silver around $26. Should the metals break clearly below these prices, it would be a very bearish development and we would postpone going long. This scenario is considered highly unlikely right now.

Trading Blog Friday, February 22, 2013

2/22/2013

MARKETS UPDATE (2:15 pm EST)

There was not much change in today's markets from yesterday.

Gold and silver prices are rising a bit, but momentum is still strongly bearish so we are holding on to our short positions into next week.

We are not getting that bearish signal from the S&P 500 that we were expecting today so we will continue to stand aside the broad stock market and wait to see what happens next week as we approach the March 1 sequester deadline. As mentioned in yesterday's blog, the price of the industrial metal copper (a reliable bellwether of the economy) is very weak and may be starting to break down. If it does, the broad stock market may follow.

The chart of the U.S. Dollar Index flashed a strong bullish signal today indicating very strong upward momentum. This supports our idea that the Swiss Franc is moving towards a deeper correction which we are looking to buy.

Trading Blog Thursday, February 21, 2013 (6:00 pm EST)

2/21/2013

MARKETS UPDATE (6:00 pm EST)

There are major shifts occurring in all the financial markets right now that are most likely being triggered by the specter of sequestration - the government's fiscal policy procedure which forces cutbacks in spending on government programs to pay down the deficit. As many will recall, back in January Congress was unable to reach agreement on spending cuts, and the sequestration was delayed until March 2013 to avoid a full blown "fiscal cliff" disaster. As most people realize (except, perhaps, the U.S. Congress), when you kick a can down the road and continue to walk forward you will in short time encounter the same can again. So we now have another "fiscal cliff" deadline looming in March and, unfortunately, it seems like Congress has not made much progress in working out their disagreements. All of this can cause great nervousness in financial markets, and this is what we are seeing now.

But lets get back to managing our investments. Our gold and silver short positions are making excellent profits and the correction that we had expected is playing out well. We are now well within a reasonable price range in both metals for a likely bottom, and timing factors would suggest a reversal here as well. Nevertheless, we like to see more technical green light signals before trading, and we are not getting those just yet. In fact, gold and silver seem to have a stronger downward momentum today than they did yesterday which is why we are still holding our short positions. Please note that this situation could change rapidly and we need to pay close attention to this market over the next week or so (maybe days) and be very nimble here because we will also want to go long in both metals once it is more certain the bottom prices are in. There is very strong support around $1500 in gold and $26 in silver, so these may turn out to be the bottom points (breaking signifcantly below these levels would indicate a much more serious breakdown in precious metals and would be a very bearish development). Gold and silver mining stocks are also showing great weakness right now which is likely related to bearish developments in the broad stock market as well.

After weeks of indecisiveness, the broad stock market flashed some strong bearish signals today (especially the DOW and NASDAQ) and it is starting to look like we may see a significant correction here that is worth selling short. We had been waiting for a shallow correction to give us a good entry point to go long, but today's bearish shift changes that, and our strategy now is to look to sell short what could be a major correction down. Significantly, crude oil, which tends to move in the same direction as the broad stock market, has fallen steeply this week and could be leading the way in a downturn for both. The industrial metal copper is also looking very weak over the last few days, and because the copper market is often a reliable bellwether for the economy in general, this also does not bode well for the broad stock market right now. I would like to see the S&P 500 give a strong bearish signal (the DOW and NASDAQ have already done so) before shorting the broad stock market and this may come tomorrow, so we will wait until then to decide.

We were spooked out of our crude oil short positions a little too early last week and so have been unable to capture a profit on crude's recent downturn. Like the broad stock market, crude oil has suddenly turned bearish (at least short to medium term) and is now looking like it is capable of taking a major turn downward. Because the recent drop is already significant, I am hesitant to go short right here but will keep an eye out for any short-term rallies or pauses that may present another opportunity to go short. On the other hand, it may be best at this time to focus our short selling efforts on the broad stock market as any instability in the Middle East (which seems increasingly likely these days) can potentially send the price of crude soaring. This sort of wild card in the trading game can severely disrupt normal trading strategies. We will continue to stand aside crude oil for now.

In my last blog on the Swiss Franc (Feb. 17) I speculated that "...this currency may yet take that deeper correction.", and it looks like that is what it is doing now. The Swiss Franc has fallen significantly over the last two days and a strong bearish momentum signal appeared in the chart analysis today. We will now watch for the bottom which will be the end of a significant cycle in this market and will be a good entry point to go long.

Trading Blog Thursday, February 21, 2013 (1:52 pm EST)

2/21/2013

BRIEF MARKETS UPDATE (1:52 pm EST):

For the benefit of active traders I am making this brief post early on our trading status for today. I've decided to stay with our short positions in gold and silver for at least another day. We are still out of the broad stock market, oil, and the Swiss franc - i.e. no change. There are some major developments occurring in all the markets right now that are causing me to revise some of my recent trading strategies, and I will post more detail on this later today as I am still analyzing the situation.

Trading Blog Wednesday, February 20, 2013

2/20/2013

GOLD AND SILVER UPDATE (2:30 pm EST)

Gold and silver plunged further today and our short positions in both these metals are doing really well.
I am tempted to take profits right here as we are well into our target range for the correction and several timing factors would suggest a direction reversal soon. I see no indication of momentum change, however, in any of the charts I analyze which suggests that prices may drop some more. We will, therefore, hold on to our short positions today and wait to see how the markets behave tomorrow.

Trading Blog Tuesday, February 19, 2013 (10:50 pm EST)

2/19/2013

A NOTE ON GOLD, SILVER, AND GOLD AND SILVER MINING COMPANY STOCKS

Since we are actively trading gold and silver right now, I would like to point out that in the TRADING BLOG when I discuss gold and silver I am referring to the metals themselves and the trading of the metals through commodity exchanges, ETFs, or even the buying and selling of gold and silver bullion (coins and bars). The trading strategy will sometimes but not always apply to gold and silver mining company stocks.

The value of stock in precious metal mining companies will often move hand in hand with the price of the precious metals since this is the commodity they are mining, but mining companies may have internal problems, be poorly managed, or have operational problems due to political or social unrest in the country in which they operate. These factors could cause a company's stock to lose value even during a strong rally in gold and silver. Also, one should always remember that even though a mining company stock has value based on the metal it mines, it is still a stock, and during a broad stock market crash all stocks tend to go down together. Precious metals (especially gold) are traditionally (and correctly) thought to be a good hedge against hard economic times, and therefore one would expect gold and silver mining company stock to rise in value during a general economic collapse. Unfortunately, we probably can't count on that happening. It could happen, and it should happen, but recent history (i.e. the plunge of gold and silver values - raw metal and mining company stocks - during the 2008-2009 stock market crash) has demonstrated that investors can lose their common sense during the panic of a crash and sell everything. (I might add here that should this scenario unfold again, investors would probably come to their senses after the dust of the crash clears, and gold and silver as well as the companies that mine these metals would likely be excellent investments at that time).

I will sometimes comment on gold and silver mining companies in the TRADING BLOG (usually when they are in sync with the metals themselves), but mostly my trade strategies in gold and silver will refer to directly trading these metals as commodities.

***BRIEF GOLD AND SILVER MARKET UPDATE:*** :
Gold and silver continued to move down today and we are watching carefully for the bottom of this correction and a change in momentum that would indicate a good point to take profits in our short positions and go long in both metals. This may happen tomorrow, so we should be alert and ready to trade. I will try to post any trade decision by 3:00 pm EST.

Trading Blog Sunday, February 17, 2013

2/17/2013

MARKETS UPDATE ( Sunday, Feb.17, 10:45 pm EST ):

I will begin this update with the precious metals gold and silver because this is the market we need to watch most carefully next week. Our short positions in these metals did very well last week as the steep correction we were anticipating kicked in. The price of both metals is now down to levels that would satisfy reasonable estimates for a bottom (a little below $1,600 for gold and near or below $29 for silver). While both could still go lower, timing factors suggest a reversal here, so we will be looking to take profits on these short positions early next week and possibly reversing position and going long, as we are at a good entry point for the next rally. I will try to post any trade decisions I make before 3:00 pm (EST) during the week to give traders enough time to place trades before the markets close. Because we will be attempting to call the bottom in these metals and reverse our positions, I would suggest checking the blog each day next week as precise timing could be especially important in this trading situation. Both metals may have already bottomed (gold especially exhibited some bullish behavior on Friday) so we need to be ready to exit our short positions quickly if necessary. Stay tuned.

Last Monday we exited our crude oil short positions at a breakeven point because the market seemed to be losing its bearish momentum and was possibly starting a short-term rally. It did rally into Wednesday but then came right back down by the end of the week, so we may have been premature in giving up those positions. Even if the downward correction resumes, however, it is not considered worth getting short right now as the gain may be minimal at this point. Our strategy now will be to watch for the bottom and look to go long there, for crude oil is still looking bullish medium to long-term.

The broad stock market was pretty flat all week and seemed unwilling to take a definitive bullish or bearish stance. The DOW is still reluctant to break through the 14,000 mark, so there is clearly strong resistance there, yet the market has buoyancy and does not seem to want to fall either. We will continue to stand on the sidelines with this market until things are more clear. There are many political events occurring now that are likely affecting the broad stock market and making it difficult to predict. Direct market manipulation to serve politcal agendas is another possible factor that could be altering the normal cyclic flow of this market (especially the DOW).

Our last post on the Swiss Franc discussed the possibility of this currency suddenly turning bullish after making an unexpectedly shallow correction (bottoming on Jan.18) and then going on to make a new monthly high (Feb.1). The U.S. Dollar was contradicting this with its own bullishness, and the dollar may turn out to be correct as the Swiss Franc showed increasing weakness last week with a gap down in price on Thursday. So the volatility continues, and this currency may yet take that deeper correction. If it does, we will look to go long at the bottom.

Trading Blog Friday, February 15, 2013

2/15/2013

BRIEF MARKETS UPDATE (11:30 am EST)

For the benefit of those who may be actively trading today I am posting this brief update.
There are no changes to our current positions in the market, i.e. out of the broad stock market, oil, and the Swiss Franc and short gold and silver.

Note that our gold and silver short positions are doing very well as the major downward correction we predicted is unfolding now. I will post a longer blog this weekend with more information on this week's market behavior.

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