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Trading Blog Friday, February 28, 2014

2/28/2014

MARKETS UPDATE (3:30 pm EST)

I have refrained from posting any blogs over the last four days as I was waiting to see how the markets would move into the end of the week due to the significance of Friday (today) being the center point for a likely reversal in all markets. The timing window for this reversal could extend into the first half of next week, a point to keep in mind as we analyze the markets below.

The broad stock market is clearly rising into this reversal zone so we are looking for a correction down now in this market. So far the DOW has not yet exceeded its Dec. 31 all-time high at 16,588 while the S&P 500 and NASDAQ are making new highs. This is a case of intermarket bearish divergence until the DOW breaks through that high. Despite this bearish sign, directional momentum in the S&P 500 and NASDAQ indices remains 100% bullish, so any correction now could be brief and shallow and give us a good entry point to go long in the broad stock market. The top to this current rally may push into early next week and I will be looking for a reversal then. Still on the sidelines of this market.

Gold prices rose into Wednesday close to the center of this week's reversal zone and are now falling. Silver prices peaked a little early on Monday and are also falling. In my blog last Monday I stated that, "...there are several short-term technical, cycle and timing signals that suggest a brief but sharp pullback now before this rally really takes off."
This is proving to be correct, with silver falling especially hard. I don't think the correction is quite finished, though, and we could see the precious metals edge down a bit more next week. Ideally I would like to see gold approach the $1280 area and the silver price closer to $20. One thing that has me concerned right now is the fact that the U.S. Dollar Index is breaking below its strong support at 80 today and is looking quite bearish. A breakdown in the dollar could kick start a strong rally in gold and silver. Curiously, gold is down today so this dollar break could be a false signal that may not follow through. There is still reasonable support for the dollar down to 79. I am watching this carefully as it could be a sign to go long in precious metals now. There are, however, some short-term momentum signals that are at the moment bearish for gold and silver. I am therefore going to hold off buying at least until next week when prices could move closer to the ideal targets mentioned above. On the sidelines here and waiting to go long.

Crude oil prices peaked a little early in the week (on Monday at $103.45) and they seem to be stabilizing above $102. We may see a higher peak into early next week (or a double top) before any correction starts. Directional momentum in crude oil charts is still strongly bullish, and as long as it stays bullish my strategy here will be to buy any short-term corrections. Still on the sidelines of this market.

Trading Blog Monday, February 24, 2014

2/24/2014

MARKETS UPDATE (4:30 pm EST)

As I stated in my last blog, I am focusing on the end of this week as a likely significant turning point for most markets and am therefore watching carefully market directions into this Friday.

The broad stock market continues to look bullish today with the DOW rising over 100 points and the S&P 500 making a new all-time high (intraday). It is significant that the DOW is still below its Dec.31st all-time high of 16,588 as until this is exceeded we have a case of divergence with the S&P and NASDAQ indices which is bearish. My strategy now will be bullish and I am looking to go long on any short-term corrections as long as momentum remains strongly bullish. That may be this week if the market starts falling now and makes a significant low near Friday. If instead this market continues to rise into the week's end I will watch for a correction from that high (especially if it fails to exceed 16,588) into the following week. On the sidelines of this market.

Gold and silver prices were also quite bullish today and bullish directional momentum is very strong now in all precious metal sectors (mining company stocks, ETFs, and the metals themselves). Nevertheless, there are several short-term technical, cycle and timing signals that suggest a brief but sharp pullback now before this rally really takes off. Such a pullback would offer an excellent entry point to go long in both gold and silver. The situation here is similar to that in the broad stock market. If prices start to fall sharply into Friday I will be looking to buy at the end of the week. On the other hand, if gold and silver continue rising this week I will look for a top around Friday and then a correction into next week. Still on the sidelines and waiting to buy.

Crude oil continues to be strongly bullish but is short-term very overbought and looking toppy after its steep rise over the last five weeks. Cycles and timing are also suggesting a brief correction now which could manifest as a sharp drop in crude prices into this Friday. The alternate scenario would be a new high by Friday or early next week and then a drop in the price. I will be looking to buy any short-term correction assuming directional momentum remains bullish. There is now strong support for crude around $98 so that would be a good target for any correction. On the sidelines of this market.

The U.S. Dollar Index remains above its strong support at 80, but because directional momentum is currently 100% bearish in this index, it is vulnerable to a breakdown below that level. I am watching this closely as such a breakdown might kick the gold and silver rally into high gear immediately and bypass the correction we've been waiting for. We needn't worry too much, though, about missing a good entry point into the precious metals. Once the new long-term cycle in these metals begins there will be plenty of time to "get on board" as both gold and silver move towards new all-time highs.

Trading Blog Wednesday, February 19, 2014

2/19/2014

MARKETS UPDATE (7:45 pm EST)

People following this blog over the last few weeks know that I am on the verge of going long in several markets now (gold, silver, crude oil and the broad stock market) and am waiting for an ideal entry point to buy. Strategically I am focused on the end of this month as the next likely timing zone or turning point for a major reversal in all of these markets. This is important to keep in mind in the discussion of the markets below.

Many technical indicators and chart patterns are now clearly showing gold and silver to be in a "breakout" mode. Directional momentum in both gold and silver is now nearly 100% bullish as prices have broken important resistance areas over the last two weeks. Both metals, however, are overbought, and cycle analysis as well as some short-term technical signals are suggesting a small pullback over the next week or two. Ideally I would like to see a brief pullback for a bottom to buy at the end of next week, but if prices keep rising we may instead see a top into that time frame and then a correction into March. The pullback could go as low as $1270 - $1280 in gold and $20 - $21 in silver, which would be ideal entry points to buy these metals. I should mention here that many technical studies are now suggesting that the final bottom in the long-term cycle of gold could be in (that would be the $1183 low of June 27, 2013), and if so, the precious metals are set to rise dramatically and make new all-time highs over the next several years. Still on the sidelines of precious metals and waiting to buy.

In my last blog I stated that I wanted to see more bullish signals in the DOW before going long in the broad stock market. We are getting that this week, but the DOW is still not 100% bullish (it is now mixed bullish and bearish). The NASDAQ and some contract charts for the S&P 500, however, are 100% bullish which continues to suggest an underlying strength in this market. So this market does appear to be turning bullish, but because the end of next week could be a major market turning point, we need to choose any entry point carefully. I am reluctant to trade until we are closer to that time frame. One important thing to keep in mind here is that the DOW needs to break above its Dec.31 high at 16,588 soon to confirm that this market is bullish; otherwise we may be seeing a setup for another significant correction. Still on the sidelines of this market.

Crude oil prices continue to rise this week due to the unusually persistent cold weather in many parts of the U.S.
In my last blog I stated that crude should be taking a short-term correction soon and I speculated that the top could have been at the Feb.12 high of $101.38. Prices are now greatly exceeding that high (today's prices approached $104), so this market is very bullish and we may be seeing a top to this rally into the end of next week and then a correction into March. An alternative scenario would be a sudden sharp decline starting anytime now and bottoming into the end of the month. Either way we will be looking to go long on any correction as long as momentum remains bullish. Still out of this market for now.

I mentioned in my last blog that the U.S. Dollar Index had dropped down to strong support at 80 and could possibly react with a short-term bounce that might push precious metal prices down a bit and give us a good entry point to buy. That 80 level appears to be holding and there are some short-term technical signals today suggesting a brief relief rally in the dollar. Directional momentum in the dollar is now nearly 100% bearish so any rally here would probably be weak and possibly followed by another downturn that could break through the 80 level. If such a breakdown occurs it would likely kick start a very strong rally in gold and silver.

Considering the potential bullishness of precious metals, crude oil, and the broad stock market right now, one might pose the question: What could cause all of these markets to rise simultaneously? There may be several answers to this, but one factor that could have a bullish impact on many markets would be the Federal Reserve cutting back on QE tapering (i.e. tapering the "taper"). New Federal Reserve Chairwoman Janet Yellen has a reputation for being dovish, and in recent statements she has said that continued tapering is dependent on supportive data from the economy. I am speculating here, of course, but there are many financial analysts these days who doubt the ability of the Fed to maintain austerity measures over the long-term. We will have to wait and see if they can. If economic statistics start to turn gloomy, we may see the U.S. Treasury firing up the printing presses again before the year is over.

Trading Blog Friday, February 14, 2014

2/14/2014

MARKETS UPDATE (5:30 pm EST)

The romantic optimism of Valentine's Day seems to have spread across several markets today with bullishness especially apparent in the precious metals and broad stock market. There are, however, technical reasons to exercise caution now in trading, a major one being the high level of volatility in all markets that is in place through early March.

Keeping in mind the above warning, it can be said that gold and silver seem to be in a "breakout" mode. In my last blog I mentioned that the gold and silver mining company indices HUI and XAU had turned 100% bullish (they remain so) and that this was a positive sign for the precious metals sector in general. This has been confirmed today with gold and silver prices rising strongly and breaking through important technical resistance. Directional momentum in silver had been 100% bearish, but is now, like gold, mixed bullish and bearish. (Note that I will continue short-term trading of precious metals until momentum signals are 100% bullish.) Both metals have been rising steeply for the last two weeks with no significant corrections, and there are some short-term technical signals suggesting a correction (perhaps minor) over the next week. My strategy here continues to be bullish and I will be looking to buy any short-term dips in this market. On the sidelines of gold and silver but looking to go long now.

Like the precious metals, the broad stock market is also breaking through resistance levels today and the DOW, S&P 500 and NASDAQ are all closing the week at new weekly highs. We short-sold this market on Jan.17 near the start of the recent correction, but then I took profits and covered these shorts a few weeks later anticipating the market bottoming and potentially turning bullish again (according to cycle and timing factors). Many mainstream media financial "experts" who had been quite bullish and optimistic about the stock market at the start of the new year suddenly became "gloomer/doomers" and were declaring that a major crash was in progress as the DOW dropped over 1000 points in the last two weeks of January. Of course, the fickle nature of the mainstream media is why I avoid following it (and I suspect is the reason why many of you are reading this website). Though it appears we have started a bullish new cycle in the broad stock market with the Feb. 5 bottom in the DOW at 15,340, we are not out of the woods yet. Directional momentum in the DOW is still strongly bearish and in the S&P 500 it is still mixed bullish and bearish. On the other hand, momentum in the NASDAQ has turned 100% bullish this week, so this could mean the other two indices will soon follow. So is the recent correction over? Maybe, but I want to see more bullish signals in the DOW before buying into this market. Still on the sidelines here.

In my last blog on crude oil (Feb. 9) I speculated that this market was turning bullish. This has been confirmed now as momentum signals in crude oil charts have turned 100% bullish. This means I will be looking to buy any short-term corrections (on the condition that momentum remains bullish). Crude should be making a short-term correction over the next couple of weeks (ideally into the start of March) which I will probably be looking to buy (assuming prices stay well above $92). There is resistance now in the $101 - $102 area, so the high on Feb. 12 just above $101 may have been a peak from which a correction is starting. Still on the sidelines of this market.

In my blog on Feb. 9th I also discussed the U.S. Dollar Index and how it has been moving within a narrow range between 80 and 81.5 since early January. This index today dropped down to just above 80 as momentum shifted from mixed bullish and bearish to 100% bearish. This, of course, helped to drive today's strong rally in the precious metals, but this 80 area represents a strong support zone for the dollar. A short-term bounce in the dollar from here might encourage gold and silver prices to back down a bit and give us a better entry point to go long in these metals. A clear dollar break below 80, however, would reinforce gold and silver's breakout and likely accelerate the current precious metals rally. The strong bearish momentum now in the dollar chart suggests that 80 level could be broken soon. This would be yet another signal to encourage long positions in both gold and silver.

Trading Blog Tuesday, February 11, 2014

2/11/2014

BRIEF GOLD AND STOCK MARKET UPDATE (3:30 pm EST)

There has been a significant bullish development in the precious metals market today. Major bullish signals have appeared in the charts of the the two major gold and silver mining company stock indices HUI and XAU, and so directional momentum is now 100% bullish in both. As I have mentioned in previous blogs, stocks in precious metal mining companies often lead the prices of the metals themselves, so this development could be signaling an imminent breakout in gold and silver. The precious metals market is very tricky to call right now as prices are on the cusp of either breaking upside into a new cycle rally or making a final corrective leg down before beginning such a rally. Technical signals have been ambiguous, but today's upturn in the HUI and XAU are a bullish sign. Unfortunately, there are also technical studies forecasting high volatility in all markets through the end of this month. This means that markets are susceptible to flip-flopping and giving false breakout or breakdown signals. Momentum in silver is currently still bearish. I will continue to watch for a good entry point to go long in gold and silver as the medium and long-term picture for these metals is still very bullish.

Janet Yellen's first public statement today as the new chairwoman of the U.S. Federal Reserve was comforting to investors as she suggested the Fed will keep its key short-term interest rate near zero for a prolonged period (a rising rate is a major fear associated with QE tapering). She also stated that she didn't think the recent volatility in global markets posed a serious risk to the United states at this time. The failure of the Fed to comment on global market instability on Ben Bernanke's last day as Fed chairman two weeks ago was thought to have exacerbated the stock market's steep correction. Ms.Yellen's mention of it today was likely intended to ease investor fears, and it seems she has succeeded as the DOW is up over 200 points at the time of this writing. Momentum signals are remaining bearish, however, even with this rally in the DOW, and we know from past experience that market surges triggered by Fed speeches can be short-lived. We should note that today's rally has lifted the DOW and S&P 500 to significant resistance points in their charts. I am remaining on the sidelines of the broad stock market until technical signals confirm a significant bullish shift in momentum.

Trading Blog Sunday (night), February 9, 2014

2/8/2014

MARKETS UPDATE (11:30 pm EST)

The U.S. government's employment report on Friday delivered good and bad news on the state of the nation's work force. January job gains were disappointing, but the unemployment rate was down. The stock market seemed happy with the report as the DOW gained 165 points by the end of the day. This rally, however, was not strong enough to change any of the technical momentum signals in the broad stock market that I described in last Thursday's blog. While the DOW and S&P 500 indices continue to be strongly bearish, the NASDAQ is still mixed bullish and bearish. I am still watching for technical signals that would indicate a shift to a more unified directional momentum in these indices. Until these signals appear, I am not comfortable trading this market. A directional trend should become more apparent by the end of the week as this week's time zone for market reversals ends on Wednesday. Any break now below the 15,400 - 15,500 area in the DOW would be a bearish sign, but if the index holds that support into the end of the week, we could see the start of another strong rally in this market. Still on the sidelines here.

The cycle picture for crude oil is clearing up a bit and technical data may be indicating that this market is turning bullish. What this means is that any corrections now could be minimal and serve as entry points to go long in crude.
Directional momentum is currently mixed bullish and bearish in crude oil charts, and I would like to see stronger bullish technical signals before buying. There is some support now for crude in the $97 -$98 area, so any correction that stays above that price zone may be a good buying opportunity. We will watch for this now. Still out of this market.

As I stated in last Thursday's blog, gold and silver prices may be topping out now (short-term), and they could take a small dip this week. This may present a good opportunity to go long in both metals. An ideal buy spot in gold would be near $1220 and in silver around $19.40. Any clear break below the $1200 area in gold and the $19 in silver would be a bearish sign that would suggest a deeper correction. Directional momentum continues to be strongly bearish in silver but mixed bullish and bearish in gold. The two major gold and silver mining company stock indices, HUI and XAU, also remain mixed bullish and bearish, so there seems to be a stalemate between bulls and bears in precious metals at the moment. On the sidelines of gold and silver and waiting to buy.

I haven't mentioned the U.S. Dollar Index for some time as it has been bouncing back and forth in a rather narrow range between 80 and 81.5 since the start of the new year. Because this index usually moves in a direction opposite that of gold and silver, it should be watched carefully now as any break above or below this recent range could kick start a breakdown or breakout in the precious metals. Momentum in the U.S. Dollar Index is currently mixed bullish and bearish.

Trading Blog Thursday (night), February 6, 2014

2/6/2014

MARKETS UPDATE (10:00 pm EST)

After falling steeply on Monday, the broad stock market may be finding some support now as we move into the end of the week. The DOW made a low at 15,340 yesterday and bullishly added 188 points today. We are at the center point of a strong reversal zone that ends early next week, so it is possible this market's correction is over and it is now starting to turn up. Arguing against this idea, however, is the fact that directional momentum in both the DOW and S&P 500 indices remains 100% bearish (although the NASDAQ continues to be mixed bullish and bearish and its refusal to turn fully bearish may indicate underlying strength in the market). Even though the DOW has found some support this week in the 15,400 area, the market's strong bearish momentum indicators could easily push this index below that level to form a new low by early next week. The U.S. employment report comes out tomorrow (Friday), and this may have some impact on the markets. The bottom line here is that the broad stock market could go either way right now. I would say that the technical signals are slightly favoring a deeper correction (which could possibly last into the end of the month), but we also can't rule out a bottom and a shift to a bullish trend by early next week. I am remaining on the sidelines until directional signals are more clear.

Gold and silver prices have been rising this week, but both are looking toppy and this week's reversal zone could push precious metal prices back down, especially as directional momentum in silver charts is still strongly bearish. An ideal buying setup now would be for silver to fall below $19 and gold to the $1220 area sometime before the end of next week. If that happens, I will be looking to go long in both metals. Currently on the sidelines of gold and silver.

Crude oil prices seem to be topping out at a major zone of resistance in the $99 - $100 area, and there are timing factors that suggest a significant reversal in this market now. Momentum, however, is still mixed bullish and bearish and I would like to see more bearish technical signals before selling this market short. The cycle picture in crude oil charts is still not clear, and, like the broad stock market, this market could be on the verge of turning longer term bullish or it could be headed back down for a deeper correction (well below $92). Despite this ambiguity, a significant short-term correction could be setting up now that would be worth trading. I will therefore be watching for the appropriate technical signals to sell short. Still out of this market.

Trading Blog Monday (evening), February 3, 2014

2/3/2014

MARKETS UPDATE (9:35 pm EST)

Today's 300+ point drop in the DOW demonstrates just how volatile the markets are right now, and, unfortunately, this high volatility is likely to continue at least through the first half of 2014. In my blog last Wednesday I stated:

"...I should point out here that stock markets in general (In the U.S. and globally) are very jittery and unstable now and so we need to keep in mind that there is always the possibility of panic selling being triggered by some seemingly minor event (such as the recent Fed announcement to continue QE tapering). A clear break of support levels and a bearish change in momentum (in the DOW, S&P 500 and NASDAQ) would be signs of this happening..."

Today's plunge in equities was blamed on various factors including weak manufacturing data, economic slowdowns in China, and worries over deflation in Europe. The DOW has now broken support at 15,600, which I thought would hold, and the S&P 500 and NASDAQ are also breaching important support areas today. In addition to this, major bear signals appeared today in charts for the DOW and S&P 500, and this makes directional momentum in these two indices now 100% bearish (the NASDAQ is still mixed bearish and bullish). Does this mean we should reestablish our short positions in the broad stock market? Maybe. My caution here is due to the fact that the market has already fallen substantially (over 1000 points in the DOW from its high on Dec.31), and we are still in a timing zone that has a high probability for strong market reversals (this could even extend into early next week). The next level of support in the DOW is around 15,000, and in the S&P 500 it is around 1700. It is still possible for the market to bottom in those areas this week and start to reverse back up. A clear break below those supports and a stronger bear signal in the NASDAQ would make a better case for going short again. I am going to remain on the sidelines of the broad stock market for the moment.

Both gold and silver jumped up today in early morning trading, but then closed the day significantly below their highs. This may have been a temporary surge in buying by investors fleeing equities. Directional momentum remains nearly 100% bearish in silver (but is still mixed bullish and bearish in gold) so I don't want to go long in these metals just yet. There have been bullish technical signals developing recently in the charts of many gold and silver mining company stocks which is a sign that these metals may be turning up soon. In terms of short-term cycles, there is still time for gold to drop closer to $1200 and for silver to break below $19. If that happens towards the end of this week or early next week, it could set up an ideal buying spot for both metals. On the sidelines of gold and silver for now.

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