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Trading Blog Sunday (night), February 28th, 2016

2/28/2016

BRIEF MARKETS UPDATE (11:30 pm EST)

It looks like my decision to enter a short position in gold last week (Thursday) was a good one. Gold prices dropped significantly on Friday and the current technical signals are reaffirming that a significant correction is likely in progress. Silver also dropped very steeply on Friday confirming my comment the day before that silver's correction had already started. Unfortunately, I avoided a silver short position as I thought the risk of an upside surge was too high. Because silver is already down over 3% and the current price dip may be brief, we will not chase this metal's correction even though it could go lower. We will rely on our gold short position for our profit in this precious metal trade. Gold prices could now move down to $1170 or lower very quickly. Holding my short position in gold but still out of silver.

The broad stock market is starting to manifest bullish technical signals that may be signaling a rally stronger than I had expected. We may therefore see this market rise to the upper end of our target zones (16,800 - 17,200 in the DOW and 1950 - 2000 in the S&P 500) or perhaps even higher. We will watch this rally carefully as we move into the month of March. As I have stated in earlier blogs, there are several turning points in March that could lead to more than one reversal, but we are on the lookout for a medium-term cycle high that could be followed by a major correction to a cycle bottom that could break below this market's recent lows of 15,450 in the DOW and 1810 in the S&P 500. As I have stated before, a clear break below 1800 in the S&P 500 would mean big trouble for these markets and could trigger a major sell-off in equities. Still on the sidelines of the broad stock market.

Our long position in crude oil seems to be holding up, and any rally now in the broad stock market should help push crude's price higher. I am still looking for a rally to at least $38 and maybe higher. This is possible as long as prices remain above the low of Feb. 11 (now $28.74 in the April contract chart). Holding my long position in crude oil.

Trading Blog Thursday, February 25, 2016

2/25/2016

GOLD TRADE ALERT and MARKETS UPDATE (2:30 pm EST)

The broad stock market continues to oscillate this week with large surges up and down, but so far it is not making much progress either way. While it is possible for this market to turn down any time now, cycle patterns suggest more rallying. There is a good chance we could see a top around March 7 so lets use that (for now) as our timing point to sell short. We will look for the S&P 500 to get between 1950 - 2000 around that time and for the DOW to reach the 16,800 - 17,200 area. Still on the sidelines of this market.

Gold and silver are still tricky to call, but it looks like a short-term correction is imminent in both metals and timing factors indicate a potential turning point from now through early next week. Technical analysis shows that gold could correct down to $1170 or even lower. COT (Commitment of Traders) charts are showing Commercial (i.e "smart money") short positions in gold to be at extremely high levels right now. This supports the argument for a correction.
Silver is down today and may already be starting its correction, but gold is up a bit and still not far from last week's high of $1263. I am going to enter a short position in gold today with a stop loss above that $1263 high. This stop is about 2% away from the current price which gives us a decent risk/reward ratio for the trade. Note that this is a short-term trade and that the overall longer-term trend of the precious metals market may be turning bullish. The depth of any correction now will tell us how bullish this market will be going forward into the rest of the year. As long as gold's low on Dec. 2 at $1046 and silver's low on Dec.14 at $13.14 aren't broken, it looks like new long-term cycles are starting in both metals. If that is the case then gold and silver should be bullish into 2017. Selling short gold today but staying out of silver.

Crude oil is following the broad stock market's gyrations (actually it is the other way around), but prices are staying above the low of Feb. 11 (now at $28.74 in the April contract chart) which keeps alive the idea that it was the medium-term cycle low and maybe even a longer-term cycle low. This would be bullish and would project a rally to $38 or higher. If the broad stock market rallies into next week we can expect crude prices to rise as well. Any move in crude below that Feb.11 low would negate our bullish strategy. Holding my long position in crude oil for now.

Trading Blog Monday (night), February 22, 2016

2/22/2016

MARKETS UPDATE (11:15 pm EST)

In last Thursday's blog on the broad stock market I wrote:
"...it now looks like last week's new low of 1810 in the S&P 500 could be the start of the new medium-term cycle (instead of the 1812 low of Jan.20). If that's the case, it is too early for the new cycle to peak, and we could see at least another week of rallying."
We can now confirm that the start of the new medium-term cycle in the S&P 500 was on Feb. 11 at 1810. The start of a new cycle is always bullish for at least two weeks, and this only starts the second week. The small dip this index took last Thursday and Friday was within a mild reversal zone, and it seems to be over as the S&P 500 rallied strongly today and closed above the 45-day moving average (which confirms this as a new cycle). I suspect we will now see more rallying into our original target area of 1950 - 2000 as we enter the month of March next week. We are still on the lookout for a good spot to sell short this market (as long as the S&P 500 stays under 2100 and the DOW stays under 17,800), and because there are several strong reversal zones in March we may get one soon. March could be a wild market with more than one reversal, but we will try to identify the most significant turning points based on cycle and technical analysis. March 7, March 16, and March 23 could see especially strong reversals.
I am going to use 1980 as a general target for the S&P 500 and 17,200 for the DOW. If we approach these levels near any of those March dates, we may have a good opportunity to sell short what could be a major correction in equity markets . Still on the sidelines of the broad stock market.

After rallying for most of last week, precious metal prices fell strongly today. The correction from the Feb. 11 highs may not be over yet. Thursday and Friday of this week could be a major turning point for both gold and silver so we will watch that time for a bottom to buy if prices continue lower. If instead prices start to rally again, we may look to sell short from a top. Short-term signals are mixed right now in this market so these metals could move either way. Silver still hasn't hit our target for a bottom ($14.50), but it is getting closer as the spot price plunged briefly below $15 in early morning trading today. Still on the sidelines of both gold and silver.

Today's dip in gold and silver prices was triggered by a sudden surge in the U.S. Dollar Index. The dollar rose close to 97.5 intraday, There is very strong resistance between 97.5 and 98.5 so it may not get much further before backing down again. If it does back down, the precious metals may resume their rally.

Crude oil prices surged strongly today with the broad stock market and briefly broke above $32 intraday. This is a good sign that we are on track with a significant rally from what looks like the new cycle bottom on Feb. 11. I would like to see prices close above $32 to be more confident that this is indeed a new cycle. Until that happens, there is still a danger of prices moving back down below $26.13. A clear break over $32 could lead to a rally to $38 or higher. Holding my long position in crude for now.

Trading Blog Thursday (night), February 18, 2016

2/18/2016

MARKETS UPDATE (11:30 pm EST)

I would like to make a comment about the U.S. Dollar Index and its relationship to the price of gold and silver. Under normal market conditions within a fairly stable global economy, precious metal prices generally move opposite the U.S. dollar - if one goes up, the other goes down, and vice-versa. Of course, the global economy is far from stable right now, investors and traders are very nervous, market conditions are not "normal", and financial markets have been very volatile. Under such conditions it is possible to see gold and silver prices rally with the dollar. If equity markets start to fail, many investors today could see both gold and the dollar as a safe haven. Yes, the U.S. economy may not be doing that well, but many other economies around the world (e.g. the eurozone) are worse, and the U.S. dollar is still the world's reserve currency. I bring this up now because the U.S. Dollar Index may be stabilizing and getting ready to mount another assault on the 100 mark and maybe even break above it (perhaps to the 110 area), but this may not necessarily put a damper (as it normally would) on precious metal prices. Gold and silver also seem to be turning bullish, and it is possible that December was the longer-term cycle bottom in both metals (though not confirmed yet). These metals could rally hand in hand with a bullish dollar. If instead the dollar continues to break down, this would give a stronger kick to any rally in precious metals. If Janet Yellen and the Fed back off on raising interest rates and return to more dovish fiscal policy, we could indeed see the dollar break down.
A critical area of support for the dollar is around 93. If the U.S. Dollar Index breaks clearly below 93, the greenback will be in big trouble and could be headed down for the next several years (or longer).

Gold and silver rallied strongly today (especially gold) so the dip we had expected may be over - maybe. Silver's correction stopped a considerable distance above our target of $14.50, and prices could still back down closer to that level as this is a highly volatile market right now. If we did miss the corrective bottom, we may just wait for a secondary top sometime next week that could equal or exceed last week's high of $1263 in gold and $15.95 in silver. That could end up being a good place to sell short for another short-term correction. If prices fall tomorrow, however, we will go back to our strategy of looking for a bottom to buy in our original target areas ($1190 in gold and $14.50 in silver). There are many short-term variables now that point to frequent price swings in the precious metals market which could persist over the next two weeks. We therefore need to be flexible and nimble in any short-term trading here. Once we are more confident that gold and silver's longer-term cycle bottoms are in, we can be more comfortable with buying and holding for longer periods of time. The cycles should become more clear over the next several weeks. Still on the sidelines of gold and silver.

We are now at the center of another (mild) reversal zone and the broad stock market is rallying into it so we should be looking for a good spot to go short; however, it now looks like last week's new low of 1810 in the S&P 500 could be the start of the new medium-term cycle (instead of the 1812 low of Jan.20). If that's the case, it is too early for the new cycle to peak, and we could see at least another week of rallying. (To confirm the cycle low of 1810 we need to see the S&P 500 close above 1950.) Furthermore, even though the DOW is entering into the lower part of our target range (16,400 - 17,000), the S&P 500 is still below our target of 1950 - 2000. The DOW's chart also manifested a strong bullish signal this week which turned its directional momentum from 100% bearish to mixed bullish and bearish (the S&P 500 and NASDAQ are still 100% bearish). For all of these reason's I am remaining on the sidelines of the broad stock market for now.

Despite crude oil's drop below $28 earlier this week, prices now seem to be holding above $30 which is supporting the idea that the Feb. 11 low at $26.13 was the start of a new medium-term and maybe even longer-term cycle in crude. This would mean that this market is about to turn bullish. We need to see prices break above $32 and especially $35 to start confirming this bullish picture. Otherwise, there is the danger of crude dropping below $26.13 which would mean the medium and longer-term cycle lows are still forming. Still holding my long position in crude.

Trading Blog Tuesday, February 16, 2016

2/16/2016

MARKETS UPDATE (3:15 pm EST)

European Central Bank President Mario Draghi made public statements yesterday hinting at more stimulus measures for the eurozone economy. This had the effect of lifting European equity markets on Monday, and it seems to be helping the U.S. stock market today (after the Monday holiday). This follows on the heels of Janet Yellen's testimony to the Senate Banking Committee last week in which she acknowledged the possibility of an economic recession and admitted that the Fed was looking into the feasibility of negative interest rate policy (NIRP) to help stabilize the nation's economy. It is certainly ironic that dire news about the state of the European and U.S. economies would be such good news to Wall Street investors. The reason for this, of course, is that these bad economic forecasts pressure governments into adopting "easy money" policies such as quantitative easing, near-zero interest rates, and more recently, NIRP. Equity markets will salivate at the mere mention of these stimulus measures, but can these desperate attempts to prop up an already bloated stock market go on indefinitely? And even if they do, can they prevent a severe correction in a market that some economists have described as "a bubble looking for a pin"? Cycle and timing studies and recent technical analysis are suggesting that they cannot.

The large "head and shoulders top" pattern forming underneath a gigantic "dome top" in the S&P 500 that I described several weeks ago (see blog posts from Jan. 20 and 24) is still valid, and, in fact, the right "shoulder" of the "head and shoulders" pattern is nearly complete. A likely scenario now could be a brief relief rally into the 1950 - 2000 area to relieve this market's short-term oversold condition and then another plunge possibly leading to a serious meltdown. If instead the broad stock market continues to rally and the S&P 500 breaks clearly above the dome top mentioned above (say over 2100), I will have to change my bearish view. Right now, however, it doesn't look like that will happen (but it is possible). Current directional momentum in all three major stock indices (DOW, S&P 500, NASDAQ) is nearly 100% bearish. We will enter another likely time period for a reversal in equity markets at the end of this week and into the middle of next week and then another period in the middle of March. We will watch any rallies into those times for a possible top to sell short. Our general target areas will be 1950 - 2000 in the S&P 500 and 16,400 - 17,000 in the DOW. Still on the sidelines of the broad stock market.

In Sunday's update on precious metals I wrote:
"Our trading strategy in both metals will now be bullish, and we will look to buy any corrective dips in the current rally. There is a good chance we could get one next week...A general target for a correction would be around $1190 in gold and perhaps $14.50 in silver, but there is a good chance prices could go lower."
We are getting that dip now. Gold dropped close to our target range today, but silver did not quite get there. There are mixed short-term bullish and bearish technical signals right now so this is a difficult call. The correction could be over and we could see a strong rally now, but prices could also drop significantly lower, especially in silver. I am going to give this correction another day to allow silver a closer approach to our target. Still on the sidelines of gold and silver.

The cycle labeling of crude oil continues to be a little ambiguous. It is possible that last week's low at $26.13 (March contract) was the medium-term (and possibly longer-term) cycle bottom. If so, the market is bullish and we should see prices rise to at least $35 or higher. The other possibility is that these cycles bottomed on Jan. 20 and the new cycle has already peaked early on Jan. 28 at $34.82. If that is the case then this market is bearish and prices will start to move below $26.13. Jan. 28 is unusually early for a cycle peak so the bullish scenario seems more likely at the moment. I am therefore going to hold my long position in crude in anticipation of higher prices over the next several weeks. If the broad stock market rallies now, it could help lift the price of crude.

Trading Blog Sunday (night), February 14, 2016

2/14/2016

BRIEF UPDATE ON PRECIOUS METALS (10:30 pm EST)

It is looking more and more like gold and silver are "breaking out" and experiencing a major trend reversal from bearish to bullish. Last week saw a major upward surge in the price of both metals as several resistance areas were broken. Directional momentum in both gold and silver charts is also turning mostly bullish. The lows in gold and silver prices we saw last December may be the long-term cycle bottoms that we've been anticipating for almost two years although that can't be confirmed just yet. Our trading strategy in both metals will therefore now be bullish, and we will look to buy any corrective dips in the current rally. There is a good chance we could get one next week, but there are also some bullish technical indicators suggesting the rally could push significantly higher (which is why we covered our short positions last week). If we do see prices pull back next week, we may go long in both metals. A general target for a correction would be around $1190 in gold and perhaps $14.50 in silver, but there is a good chance prices could go lower. We will watch for this correction to buy, but if the rally gains more strength next week, we may have to wait until the following week (or longer) before it happens. Still on the sidelines of gold and silver.

Trading Blog Thursday (evening), February 11, 2016

2/11/2016

IMPORTANT UPDATE ON THE BROAD STOCK MARKET (7:00 pm EST)

In testimony to the Senate Banking Committee today, Janet Yellen responded to questions about a possible economic recession by conceding that there was a "chance" of a downturn ahead. She also said that the Fed was taking a look at the use of negative interest rates to stabilize the economy, though she admitted that she wasn't sure if this was feasible or not. If the Fed does decide to implement negative interest rates it will be following in the footsteps of several countries (the Eurozone, Denmark, Sweden, Switzerland) that have already done so, including most recently, Japan.

It is a bit too early to tell if Yellen's recognition of a possible recession and her willingness to consider NIRP (negative interest rate policy) will help lift the broad stock market, but equity markets did recover nearly half of their losses from earlier in the day at today's market close. This bounce was especially important for the S&P 500 as this index plunged to a low of 1810 in early afternoon which was alarmingly close to an important support line at 1800. Tomorrow's trading may be a bit of a nail-biter as equity markets need to start rallying now to avoid a potential meltdown. If the S&P 500 starts closing below that 1800 support, it could mean big trouble for equities. On the positive side, both the S&P 500 and NASDAQ have now made new yearly lows while the DOW has not (but it is close). This could be a case of bullish intermarket divergence in a reversal zone (which technically ends today) as long as that Jan. 20 low in the DOW (15,450) is not breached. Needless to say, any trader or investor who is currently in the stock market should exit if the DOW closes below 15,450 and especially if the S&P 500 closes below 1800. We are still on the sidelines of the broad stock market. Please note gold trade alert below.

Trading Blog Thursday, February 11, 2016

2/11/2016

GOLD TRADE ALERT and MARKETS UPDATE (1:45 pm EST)

As I've been saying over the last several weeks, all markets are extremely volatile now and this increases the likelihood of unexpected, abrupt surges up or down that can throw off normal cycle and technical analysis. Unfortunately we are seeing that now along with the possibility of an overall meltdown in equity markets and panic driven trading in all markets.

Gold is surging up into what looks like a "blow-off" top, but also what could be a major breakout and bullish trend shift. I suggested a stop loss area around $1200 - $1250 in Monday's trade alert for our short position from the $1200 level. Any traders who haven't been stopped out already should cover that short position now. Yes, there is still the possibility of a sudden correction down between now and next Wednesday, but prices could also surge higher before that happens so I consider it safer to step aside now. Covering (unloading) my short position in gold today (still out of silver).

The broad stock market is falling heavily today, and at the time of this writing (1:30 pm EST) the DOW is down over 300 points. Janet Yellen's somewhat hawkish comments yesterday were not appreciated by Wall Street investors as they were probably expecting the Fed to scale back its plan to raise interest rates this year. Wall Street's displeasure has intensified today, but Janet Yellen is continuing her testimony to the Senate Banking Committee for a second day. Some are hoping she will be a bit more dovish in her rhetoric to help calm an obviously nervous stock market.
We are at the end of a strong reversal zone for the broad stock market today, and the cycle pattern is still unclear. Feb.17-25 is another (weaker) reversal zone so it is possible that could be the time frame for a significant turning point. If the market continues to fall past this week, however, we could be seeing the start of a major breakdown in equities. In the S&P 500 we don't want to see a break and close below 1800 which is a major support line. If we do, these markets could be in big trouble. Today the S&P 500 is getting down to 1812 so we are close. Perhaps Ms. Yellen's testimony today will help calm Wall Street investors. Still on the sidelines of the broad stock market.

Crude oil prices have now breached our second stop loss point at $27.56 so many traders are probably stopped out by now. I am being a little stubborn in holding my long position here because crude's cycle pattern clearly shows that we are very close to a medium-term, and maybe even a longer-term cycle low that should bottom in the $24 - $27 area either now (within the current reversal zone) or possibly early March at the latest. If the stock market stabilizes now, crude prices may find a bottom today, but if both continue lower into next week, I may be forced to bail out of my long position and wait several more weeks for a final cycle bottom. Traders who are risk adverse may wish to get out now (if they haven't done so already based on the two stop loss points mentioned above) or just hold a small amount of money in this trade. Holding my long position in crude for now.

Trading Blog Wednesday, February 10, 2016

2/10/2016

BRIEF COMMENT ON YELLEN'S STATEMENT and GOLD UPDATE (1:45 pm EST)

Federal Reserve Chairwoman Janet Yellen testified before a House Financial Services panel today on the state of the U.S. economy and the Fed's current financial policy. Japan's recent negative interest rate policy has given rise to rumors that the Fed could start lowering interest rates again, but Ms.Yellen dispelled these rumors by saying: "I do not expect the FOMC is going to be soon in the situation where it's necessary to cut rates." Interestingly she also commented that the central bank has not completely researched whether or not negative interest rates would be legal. It seems that for now the Fed is "staying the course" with its plan of gradual rate hikes although, as always, monetary policy will be determined by any changing economic data. As Ms. Yellen states: "Monetary policy is by no means on a preset course."

Yellen's somewhat hawkish comments may have boosted the dollar which helped kick down precious metal prices today. We were expecting a sharp correction in gold and silver and this may be the start of it. This correction may be very brief (2-3 days) so we need to be ready to cover our short position in gold and possibly reverse to the long side by early next week. Stay tuned for updates. Holding my short position in gold but still out of silver.

Trading Blog Tuesday, February 9, 2016

2/9/2016

MARKETS UPDATE (1:30 pm EST)

Last week's jobs report stated that 151,000 non-farm jobs were generated in January which was much less than the 180,000 that analysts had been expecting. Wages rose sharply, however, and the unemployment rate dropped below 5% (to 4.9%) for the first time since 2008. Thus the report contained both good news and bad news. Jittery Wall Street investors, however, seemed mostly focused on the bad news as the DOW lost 211 points on Friday, and that bearish sentiment may be continuing into this week.

We are now at the dead center of our current reversal zone (which ends on Friday), and the broad stock market has still not decisively declared a new high or new low. There is still time for the DOW to move below its 15,450 low from Jan. 20 and especially for the S&P 500 to move below its Jan. 20 low of 1812. If that happens this week, it could mean that an old cycle is bottoming, and we would probably look to buy the start of a new medium-term cycle. If instead this market rallies strongly over the next few days and exceeds last week's highs, we would go back to the idea of selling short a cycle peak. A third possibility now is that the new medium-term cycle began on Jan. 20 and already peaked on Feb. 1. If that is the case, this market is very bearish and is headed lower for at least ten more weeks. The argument against that idea is that Feb. 1st was not technically within a reversal period. We should remain on the sidelines until one of these patterns more clearly asserts itself. If we don't see a clear turning point this week, then Feb. 20 (+/- a few days) could be another date to watch for a definitive bottom to buy or a top to sell. Still on the sidelines of the broad stock market.

Yesterday we entered a short position in gold to take advantage of what could be a brief but sharp correction down from a strong peak forming in the center of our current reversal zone. Both gold and silver prices have been surging dramatically into what could be a "blow-off" top. Gold has already exceeded its high from last October, but silver has not so this could be a strong case of intermarket bearish divergence. The cycle pattern in gold and silver is a little complex right now, but based on several technical and timing parameters one likely scenario would be as follows: Gold and silver could take a sharp correction right now or push a bit higher into early next week and then take that correction (targets for the correction could be $1110 - $1120 in gold and $14.20 in silver). Both metals could then rally sharply again towards their previous highs or above and then turn down again for another major correction to the end of the current cycle. For now, we will use this as our outline for trading. The imminent correction and subsequent rally could happen quickly and will likely involve short-term trading. Longer-term traders may wish to wait for the second correction described above to sell short. I am avoiding trading silver for now because it is more volatile than gold and our current trade strategy is short-term. We may short sell both gold and silver if and when these metals take their second correction. Stay tuned. Holding my short position in gold but still out of silver.

Crude oil prices have broken below our first stop loss level at $30 so some traders may already be stopped out. I am still holding my long position and watching our second stop loss point at the Jan. 20 low of $27.56 (March contract). We are in the center of the current reversal zone so we could be making a double bottom to that Jan. 20 low before turning up. If not, and prices go lower past this week, we will have to step aside and wait a little longer (perhaps into early March) for the cycle bottom and then look to buy again. Holding my long position in crude for now.

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