On a more positive note, it looks like our patience with our short positions in gold and silver is paying off as both gold and silver dropped steeply today with a major bearish signal appearing in gold price charts. This correction could be extensive, and we will now watch carefully to see how far it will go.
TRADE ALERT (3:10 pm EST): Our short position in crude oil taken one week ago is looking questionable at the moment. Today the price dropped back down to $95 but then snapped right back up and looks like it could be ending the day near $97. This is bullish behavior. As I mentioned in my last blog, oil's drop to $95 on Feb. 6 could be the correction we've been anticipating for several weeks although it didn't reach our expected price target. Today's drop to $95 looks like it might be a double bottom to that low, which is another bullish pattern. Since we are back up to the point where we entered the short sale, I've decided to bail out of this short position as the risk of loss here is too great in my opinion.
On a more positive note, it looks like our patience with our short positions in gold and silver is paying off as both gold and silver dropped steeply today with a major bearish signal appearing in gold price charts. This correction could be extensive, and we will now watch carefully to see how far it will go. MARKETS UPDATE (9:45 pm EST)
Strange, conflicting, bizarre. These are some of the adjectives some of the analysts I follow are using to describe the behavior of all the major financial markets right now. I agree and, unfortunately, this is making the trading of these markets very difficult. There is an unusually high amount of conflict between various technical and timing signals as well as aberrations and distortions in the market cycles. These are truly unusual economic times we are living in. In the last blog post we sold short crude oil for a short-term but potentially profitable correction down. The price does seem to be moving down, but it hasn't even touched our minimal expectation for a correction (around $94), and according to chart cycles the correction is due this week (or maybe early next week) - unless the cycle distorts. Interestingly, oil prices fell abruptly in the morning on Wednesday all the way down to $95 but then snapped back up to $97 by early afternoon. This could be a bullish signal. Because the price hasn't yet gone below that $95, it is possible that will be the extent of the correction (a truncated one). Like many charts right now, the chart for crude oil is giving bullish and bearish signals, so we will have to watch carefully the direction of this market. We will stay short today as there is still the possibility of further downside movement into next week, but we need to be nimble here and be prepared to bail out our short position if Wednesday's low turns out to be the full extent of the correction. In no other market are there as many conflicting signals as there are now in the precious metals. The bull/bear stalemate in gold and silver continued this week, although I think it may be leaning a little more in favor of the bears right now, which is good as we are short in both metals. We are still anticipating a substantial correction here, and until we get a clear break above the $1700 area in gold or the $33 area in silver, we will stick with our short positions. The broad stock market seems to be enjoying an extended period of what former Chairman of the Federal Reserve Alan Greenspan might call "irrational exuberance". Another major bull signal appeared in the NASDAQ this week, and the DOW, S&P 500 and NASDAQ all ended the week in a bullish mode. We note, however, that the chart of the DOW is looking "toppy", rounding over, and seems reluctant to clearly break through the psychological resistance level of 14,000 as well as the all-time high of 14,198. Another factor that could adversely impact the U.S. stock market right now is the sudden weakening of European markets that has been taking place over the last few weeks following financial scandals in Italy and Spain. I don't usually discuss social and political issues on the website, but the collapse of the European economy is something that would have major repercussions in the global economy and in the U.S., and so this situation should be watched carefully. That said, the U.S. stock market in its present jubilant state may yet make a new all time high, but, as mentioned in previous blogs, cycle and timing factors still indicate some sort of correction at this time, so we will continue to wait for that correction before entering this market. (Note that any bullish positions we may be establishing in the near future would be short-term and maybe medium-term positions because the long-term picture of the broad stock market continues to be dire). Contrary signals and confusion were also characteristics of this week's currency markets, but here there was volatility as well. In my last blog on the Swiss Franc over a week ago I noted a sudden premature upsurge in this currency before it completed what I thought would be a deeper downward correction. This upsurge peaked on Feb. 1 with a new monthly high. That strong surge up and the new high could mean the Swiss Franc is turning bullish. However, the U.S. Dollar may disagree as it also surged up this week and gave strong upward momentum signals indicating that it too may be turning bullish after appearing to be breaking down the previous week. Because the Swiss Franc and U.S. Dollar generally move in opposite directions, it is unclear at the moment which one will turn out to be truly bullish and which one bearish. The recent breakdown in European markets is clearly influencing these currency moves and we need to keep a careful watch on all of this. We are still out of the Swiss Franc and will remain so until the currency picture is more clear. QUICK UPDATE (3:20 pm EST): There are no changes to our market positions today (still short in gold, silver and oil and out of the broad stock market and Swiss franc). I am working on a longer blog entry right now as a lot is going on with these markets, but I wanted to post this short one before the markets closed for the benefit of anyone considering trading today.
TRADE ALERT (3:40 pm EST): We are getting some green lights to short sell crude oil today with the appearance of several bearish technical signals. We have been waiting to short sell this market over the last two weeks as we have been in a cycle time frame for a correction. We move out of this timing window next week so we will attempt the short sell here. Note that this correction may be brief and this may turn out to be a very short-term trade (which we normally avoid), but the correction could be significant ($3 or more) and is considered worth going for based on chart analysis and cycle timing. Conservative investors not interested in short-term trading should stay on the sidelines and wait until after the correction when we will likely reverse to the long side.
Gold and silver remained fairly stable and unchanged today and we will stay short while watching the precious metals market very carefully for a clear directional movement (hopefully down). MARKETS UPDATE (3:45 pm EST)
It looks like another bull/bear standoff is developing in the silver and gold markets as the price of the metals continues to push against our stop loss areas but doesn't quite clear them. We will continue to hold our short positions until we get a clear and decisive break above these resistance zones. There are many mixed and confusing signals in the precious metal markets right now. The stock charts of many gold and silver mining companies are looking quite bearish at the moment, and the behavior of these stocks is often a predictor of the direction the metals themselves will take. On the other hand, the chart for the U.S. dollar index is looking dire and a drop in the dollar usually indicates a rise in the precious metals. Hopefully, directions will be a little more clear next week in these markets. The broad stock market continued its bullish charge this week and is finishing with the DOW clearing the 14,000 mark today. Even the NASDAQ, which had been lagging behind the DOW and S&P 500 in rally strength, surged strongly today and gave a strong signal of bullish momentum. Of course, it is not very wise to buy into the top of a rally (assuming we know the top!) and there are still cycle and timing factors that would indicate some sort of correction about to commence. Even if the correction is small, it should give us a better entry point into the market. We will therefore continue to stand on the sidelines here. The chart for crude oil is looking similar to that of the broad stock market in that a correction looks imminent. As stated in earlier blogs, we may attempt to sell this market short if a strong sell signal appears. Crude oil is not looking quite as bullish as the broad stock market right now, and this may be an indication that both markets are ready to take a breather from their rallies. |
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