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Trading Blog Wednesday, February 25, 2015

2/25/2015

MARKETS UPDATE (4:45 pm EST)

The broad stock market continues to rise this week bolstered by a eurozone bailout extension for Greece and Federal Reserve Chairwoman Janet Yellen's statements to Congress that interest rates will likely not be raised before the middle of the year. Of course, the need for more bailout money for any country is not really good news, but equity markets are short-sighted and love quick fixes. The DOW, S&P 500 and NASDAQ are all making new highs as we approach next week's big reversal zone. The first week of March (+/- several days on both ends) could be a significant turning point for many markets. If the DOW now pushes into the 18,300 - 18,500 area (or perhaps higher) and stalls (especially towards the middle of next week), we may have a good spot to sell short. We will be watching for this. Still on the sidelines.

In Monday's blog post on gold I wrote: "There is, however, a technical configuration in the charts this week that could lead to a sudden surge in prices from a bottom anytime this week. If this happens, we could get a high into next week instead of a low and we would then be looking to sell short from that high."
That might be happening as both gold and silver prices are now rising from their Monday lows. This rally, however, does not seem strong (so far) and there is still time for prices to drop back down to new lows into next week. Ideally, that is what I would like to see (lows next week) as it would be an ideal setup to go long. Should this rally gain more momentum, however, prices could surge into next week. In that case, we would be looking for a top to sell short.
Out of gold and silver for now.

As with gold, it is not clear if crude oil prices will fall or rise into next week's reversal zone. If prices fall and make a new low below $45 (or even stall in the $45 -$47 area), it will likely be a good spot to buy. On the other hand, we should be looking to sell short any rally into next week, especially one that stalls at the $55 level. We will wait to see what happens. On the sidelines.

Trading Blog Monday, February 23, 2015

2/23/2015

MARKETS UPDATE (4:15 pm EST)

When I made an early (11:45 am) blog post last Friday, the DOW had not yet made a new all-time high, but it did so by the end of the day (reaching 18,144). This negates the bearish intermarket divergence signal that had been in place because all three broad stock market indices (DOW, S&P 500, NASDAQ) have now made new yearly highs (and in the case of the DOW and S&P 500 new all-time highs). This market is obviously very bullish, and we are also early in the new cycles of these indices. I therefore expect more rallying into the major reversal zone of next week. If the DOW backs down a bit over the next few days (say, to the 17,700 -17,800 area) I may even consider going long for a short-term trade. However, I would cover that trade on any new high into the first or second week of March and probably go short as a significant market reversal would be likely then. Because the current broad stock market cycles are so bullish, we may not see a major correction in these markets start until the first week of April (although it is still possible for that to happen from a high in early March), but any high in early March should be a turning point for at least a small correction. Our trading strategy remains basically the same but with a slight modification. We will focus on next week for a top to sell short, but if the subsequent correction is small, we will look towards the first week of April for a new high and a much more severe correction to follow. Still on the sidelines.

Gold prices tested $1191 today, but are still holding above $1200. There is still a considerable amount of bearish momentum in the precious metal markets right now so prices could easily break lower here for a bottom into the first week of March. That would create an ideal spot to buy. There is, however, a technical configuration in the charts this week that could lead to a sudden surge in prices from a bottom anytime this week. If this happens, we could get a high into next week instead of a low and we would then be looking to sell short from that high. There is strong support for gold at $1180 so that may be the level from which a rally will start (either this week or next). Ideally, we want to see a low next week, and as long as that low stays above $1132 it should be an excellent spot to buy (both gold and silver). On the sidelines of both gold and silver for now.

Crude oil prices still look like they want to fall into the reversal zone of early March (although they still have some time to rally before next week). We may not get a new low below $45, but we should still be fishing for a bottom to buy next week (perhaps in the $47 - $48 range). Any rally now from a low that holds above $45 could rise to $60 (or even $70) before falling again. If, instead of falling, crude prices start to surge into next week, we will look for a top to sell short. On the sidelines for now.

Trading Blog Friday, February 20, 2015

2/20/2015

BRIEF MARKETS UPDATE (11:45 am EST)

I still have my eyes on the first week of March (+/- several days on both ends) for a likely turning point in many markets.

The S&P 500 and NASDAQ now have both made new yearly highs, but the DOW still has not broken its all-time high of 18,103. (It hit 18,052 on Tuesday - close, but no cigar.) This means that intermarket bearish divergence is still in place for these indices. While the DOW and S&P 500 do appear to be curling over at the moment, they could just as easily continue their rally into early March. Bullish momentum is especially strong in the S&P 500 and NASDAQ right now so I am favoring the idea of new highs into that first week of March (which could be a good setup to sell short). Still on the sidelines of the broad stock market.

So far the support for gold at $1200 is holding, but the bearish factors that made me bail out of my gold long position on Tuesday (see Tuesday's Gold Trade Alert) are still in place, and there is a good chance that gold and silver prices will fall lower into early March. If they do, we will be looking to buy. Out of both gold and silver for now.

Crude oil still has not broken above the $54.24 high it made on Feb. 3, and so prices could still turn down here and make a new bottom into early March. This would give us an ideal spot to buy; however, there is still time for a rally into that time frame instead. If this market rallies over the next week or two into the $55 - $60 area I may be looking to sell short. Still out of this market.

Trading Blog Tuesday, February 17, 2015

2/17/2015

GOLD TRADE ALERT (2:45 pm EST)

Today Gold is breaking significantly below $1220 and is aborting the bullish "inverse head and shoulders" chart pattern that I mentioned in my last blog. In that blog (last Thursday) I also stated that: "What we want to see now is a rally into early March, but we need to be aware that there is a possibility of prices falling into that time frame instead." Unfortunately, it looks like the latter scenario is unfolding. Gold prices have broken the $1220 and $1210 supports but are so far holding above $1200. There is a possibility that this third support level could hold the correction into the first week of March, but there is also a good chance of prices falling lower. Silver is also falling steeply today and broke an important support level at $16.50 which caused a bearish sell signal to appear in its chart. This negated the bullish intermarket divergence signal that had been in place between gold and silver and gives support to the idea that both metals will now move lower into that first week of March. It seems like the best strategy now is to bail out of our gold long position (with a less than 2% loss) and wait for a bottom to buy in early March which could hold in the $1200 area, but more likely will be at a lower level, possibly around $1180. If prices go lower than $1180, they must stay above $1132 or we will have to abort our bullish strategy. The bottom line here is that a significant cycle low is due and most likely to happen in early March either at $1200 or a bit lower (but above $1132) and will likely be the starting point for a significant rally that could take prices back towards $1300 and possibly much higher. It is never easy to bail out of a trade with even a small loss, but at least we don't have to wait long for our chance to recoup the loss and make a good profit (early March). Fortunately, because of potential volatility (which we are seeing), we cautiously stayed out of silver (it dropped nearly 5% today). Both gold and silver, however, should be good buys if they make new lows in early March. Selling my long position in gold today.

Trading Blog Thursday, February 12, 2015

2/12/2015

MARKETS UPDATE (5:00 pm EST)

Several cycle patterns, timing factors, and technical signals are coming together now in all the markets we follow, and this will help us navigate the direction of our trading over the next several weeks. Our focal point for timing is now the first week of March (+/- several days on both sides) which is an important reversal zone for all markets.

The broad stock market made an important low on Feb.2, and this bottom was likely the start of new cycles in the DOW and S&P 500. These two indices have been rising since then and are now approaching their all-time highs (18,103 in the DOW and 2093 in the S&P 500). The NASDAQ is making a new yearly high today, so if either one (or both) of the other two indices cannot break their high(s), then we will have a case of intermarket bearish divergence and the market could turn down and start to fall steeply into March. However, since we are no longer in a reversal zone for this market, it seems more likely that all three indices will make new highs into early March at which time I will consider selling short. I also may consider buying any significant pullback to the 17,600 area over the next several days for a rally into early March (assuming directional momentum remains bullish). Still on the sidelines.

Gold prices have dropped down to our stop loss level of $1220 which seems to be holding. This situation is a bit of a nail-biter now as this support level is at the "neckline" of a chart pattern know as an "inverted head and shoulders formation". This pattern is bullish unless it "aborts" by breaking significantly below that neckline. $1220 is therefore an important support area, but there is also support at $1210 and $1200. What we want to see now is a rally into early March, but we need to be aware that there is a possibility of prices falling into that time frame instead. Silver has still not made a new weekly low while gold has, so we still have a case of intermarket bullish divergence which is supporting the idea of a rally now. Holding my long position in gold. Still out of silver.

Crude oil's low on Jan. 29 at $43.58 was a bit early in terms of timing for a significant cycle bottom; however, the high on Feb.3 at $54.24 was in the center of a reversal zone for oil. This suggests that prices could still fall to a new bottom (or double bottom to $43.58) from that Feb.3 high. If this happens, then the first week of March would be an ideal time for a final bottom to the long-term oil cycle and could be a good time to go long. If instead prices push higher into early March (especially if they reach $60 or higher), we will look to sell short as the market could start to turn very bearish again. Still on the sidelines.

The U.S. Dollar Index seems to be leveling off in the 94-95 area and short-term technical signals are suggesting a correction now. The dollar is extremely overbought and way overdue for a significant correction so this may start now. Such a correction would help fuel a rally in gold and silver. I should point out here that the normal inverse relationship between the movements of the dollar and the price of gold may not be as strong now as gold and the U.S. dollar are recently being perceived as safe haven investments by nervous investors worried about a collapsing global economy. For this reason we may start to see gold and the dollar rising together, at least short-term.

I haven't talked much about the Swiss franc for some time now as this currency was flat or declining for most of 2014. It appears, though, that the Swiss franc may be making a long-term cycle bottom now, and since the dollar may be about to take a significant correction, it could be a good time to buy. Switzerland's decision in mid-January to remove the cap on the value of the Swiss franc against the Euro has obviously increased the value and appeal of Swiss currency. This could drive a strong rally at the start of the new cycle in the Swiss franc. I will comment more on this in a future blog.

Trading Blog Tuesday, February 10, 2015

2/10/2015

GOLD TRADE ALERT (3:00 pm EST)

We will be leaving the timing window for a reversal in gold and silver tomorrow, and gold is now making a double bottom to the low of Feb. 5. This appears to be a good buy spot and so I am going to enter a long position in gold today. This market is still volatile, however, and there is a chance of gold breaking down further here. For this reason I am going to set a close stop loss for this trade on a close below $1220. Because silver is even more risky than gold in volatile trading environments, I am going to hold off buying it for now. It is possible for both metals to drop a bit further into the end of the week so we could see a better entry point for silver at that time. An ideal scenario would be for silver or gold to make a new low this week (but not both) for a case of intermarket bullish divergence. Going long in gold today but staying out of silver.

Trading Blog Sunday (night), February 8, 2015

2/8/2015

MARKETS UPDATE (11:15 pm EST)

As I've been stating in recent blogs, the broad stock market is highly volatile right now as major technical signals and momentum indicators have been alternating between bullish and bearish within very short periods of time. Last week was no exception as the DOW plunged to a low of 17,037 on Monday triggering a major bearish momentum signal, and then rocketed up to close just over 17,800 on Friday as that signal turned bullish again. Needless to say, this kind of market is difficult and dangerous to trade and a cautious approach to trading is especially appropriate at the moment. According to cycle analysis, it looks like that low on Monday (17,037) was a double bottom to the DOW's low of Dec.16 (17,067) which means last Monday was likely the start of a new cycle. This new cycle should be bullish and the DOW should now start making new all-time highs above 18,103. If it doesn't (or if it does and the S&P 500 does not) then we may still get a strong signal to sell the market short (especially if one makes a high and the other does not on Monday or Tuesday). If both indices start to pull back next week before making new all-time highs, we could also get a good buy spot (possibly around 17,500 in the DOW and 2020 in the S&P 500) to go long and ride a rally into the first week of March (which is the next major reversal zone for several markets). The fact that major bullish momentum signals appeared in both these indices last week (the DOW is now mixed bullish and bearish and the S&P 500 is now 100% bullish) supports this short-term bullish scenario. Yes, I know all of these possibilities are a bit confusing, but our strategy should become more clear as we move into this week. The main development from last week was a shift in momentum from bearish to bullish. Still on the sidelines.

We can be certain now that gold and silver prices are falling into the current reversal zone (which ends Tuesday) and so a bottom and reversal may be imminent in both metals. In terms of cycles, this bottom could be the start of a new cycle which would be very bullish. There is strong support for gold in the $1200 - $1220 area so we may get a good buy spot in that range early this week. Any break below $1200, however, would negate this bullish strategy and could spell trouble for the precious metals. Silver's support is around $16 so a drop towards there would also be a good buy spot. Current directional momentum in both gold and silver is nearly 100% bullish now (despite last week's price plunge) and this supports the idea of a new cycle bottom now. On the sidelines and looking to go long.

Crude oil is a tricky call right now. It looks like the Jan. 29 low was a significant cycle bottom, but prices are now pushing against resistance around $55 and we are still in a reversal zone for oil. This means prices could still back down (to a double bottom, or even a new low). This could continue into the first week of March. With volatility still high in all markets now, I am not ready to go long in this market unless prices can drop closer to that January low (around $43). Remaining on the sidelines of this market for now,

Trading Blog Friday, February 6, 2015

2/6/2015

BRIEF MARKETS UPDATE (1:45 pm EST)

Today the January U.S. jobs report was released and showed that the U.S. added 257,000 new jobs, but perhaps more significantly it reported that average hourly earnings jumped 0.5%. This reverses the December decline which, had it continued, may have given the Fed a good reason to delay an interest rate hike. So for now it looks like we are still on track for a mid-year (June or July) rate hike. This may be spooking the markets today as the broad stock market has been falling (at the time of this writing -1:30 pm EST ) as investors have been analyzing the jobs report data since its release earlier in the day. In early day trading, however, the DOW, S&P 500, and NASDAQ all made new monthly highs approaching their yearly highs of late Dec. 2014. This is certainly bullish, but we are still in a timing zone for a significant reversal from the top of a rally. We are going to wait and see if this rally can continue into next week and if all three indices can clear their December highs. If they can't and the market stalls, we may have a good spot to sell short. Still on the sidelines.

My suspicion that gold and silver prices would move lower is proving to be correct as both metals are down strongly today. I will analyze this development more thoroughly during the weekend, but right now it appears we should be looking to go long soon in both metals as a short-term cycle bottom seems imminent. On the sidelines for now.

Trading Blog Wednesday, February 4, 2015

2/4/2015

MARKETS UPDATE (4:00 pm EST)

In my last blog I stated: " If the DOW edges lower this week but can stay above 17,000, we may have a good entry point for a new rally into early March that may or may not make a new high (i.e. above 18,103). "

Well, the DOW plunged to 17,037 on Monday but by Tuesday had shot back up to over 17,600. Last week we also saw wild roller coaster movements with daily 200 point swings. This is indeed a wild and dangerous market right now and it is probably best to be on the sidelines until price movements stabilize a bit (this may not happen until the end of next week). My plan had been to buy a bottom near 17,000 and to ride a slower rally into early March for a possible top to sell. This market's high volatility, however, may be giving us a significant low and a significant high in the same week. So was Monday's 17,037 low an important bottom? Because it falls within our timing window for a reversal (this week), it might be, but we are now in the center of that window and the broad stock market is surging up into it. The highs we are seeing now could also be a turning point (unless they continue higher into late next week). If the DOW continues rising into Friday or early next week but stalls in the 17,800 area (or even the 18,000 area), it could still be a good setup to sell short (with a stop loss below the high achieved). This would be especially true if one or two of the three indices we follow (DOW, S&P 500, NASDAQ) makes a new monthly (or yearly) high but the other(s) doesn't (don't) for a case of intermarket bearish divergence in a reversal zone.
Supporting this bearish scenario now is the fact that the DOW's directional momentum turned 100% bearish on Monday (although momentum remains mixed bullish and bearish in the S&P 500 and NASDAQ). Still on the sidelines.

Gold barely made a new weekly high yesterday but silver did not, so we are in the middle of this week's reversal zone without a clear top or bottom (yet). Although directional momentum remains mostly bullish for the precious metals, there are still short-term technical signals now suggesting lower prices. This market still has three or four more days to make a significant high or low, and my bias is for a new weekly low in one or both metals for a good setup to buy. On the sidelines here.

Although crude oil's bottom on Jan. 29 at $43.58 was a bit early in terms of timing, it may have been the major cycle bottom we've been waiting for. This market has also been extremely volatile over the last several days as crude prices shot up to a little over $54 yesterday which triggered a bullish technical signal that now makes this market mixed bullish and bearish (it had been 100% bearish since August 2014). Because prices are rising into the center of the current reversal zone, however, we could see a pullback now. If this pullback is prolonged into late February, it is possible we could get a new low (or double bottom to $43.58) and an ideal spot to buy the new cycle bottom (probably above $40). Right now, though, it is looking more like the cycle bottom was last week (Jan. 29) and we should be looking to buy any minor corrections from any significant high (possibly yesterday's) this week. If last week was the cycle low, we can still expect a rally to $60 (possibly higher) before this market starts to turn down again. On the sidelines and looking to buy.

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