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Trading Blog Tuesday, February 28, 2017

2/28/2017

BROAD STOCK MARKET and CRUDE OIL TRADE ALERT (3:15 pm EST)

The DOW and S&P 500 made new all-time highs yesterday while the NASDAQ did not. All three indices are down today with the strongest fall in the NASDAQ. This is a strong intermarket bearish divergence signal, and we are in the center of a strong reversal zone. It is also late in the current medium-term cycle of this market so a sharp correction and cycle bottom is due within the next several weeks. For these reasons I am entering a short position in the broad stock market now. We can base our stop loss on the NASDAQ making a new high this week (i.e. breaking above 5,868).

CRUDE OIL:

I am also going to sell my crude oil long position today as there is a danger of of crude prices dropping with equity markets.

Trading Blog Monday, February 27, 2017

2/27/2017

MARKETS UPDATE (3:30 pm EST)

Over the last several months we have been seeing a strong rally in the broad stock market that has been driven by a combination of "Trumphoria" (i.e. Wall Street's approval of Trump's pro-business policies) and the end of a tax year where many aging baby boomers are making significant final deposits into their retirement plans. However, we are now in a strong reversal zone. Last Thursday I wrote:

"This rally may be running out of steam. We should be looking for a top to sell short now, but we have to be careful because we have the potential for a "blow-off" top within this reversal zone which could extend through March 7. If we get a case of bearish intermarket divergence next week (where one or two of these indices, but not all three, make(s) a new high), that may be a good signal to sell short."

We are now (today and tomorrow) at the dead center of this strong reversal zone for equities where the probability of a top followed by a reversal down is high. The DOW and S&P 500 are making new weekly (all-time) highs today while the NASDAQ (at the time of this writing - 3:30 pm EST) is still below its high from last week (but is quickly approaching it). If the NASDAQ also breaks to a new high, we will lose this potential intermarket bearish divergence signal. Considering the strong bullish forces driving this market (mentioned above), I am staying on the sidelines today. It is going to be hard to call a top in this reversal zone, but one signal we can watch for is in the March contract chart of the S&P 500 index. If this index starts closing below 2,354, and especially below 2,325, it may be a good time to sell short. Longer-term, it is starting to look like once we get this correction, equity markets could start another strong rally (a new medium-term cycle) to yet new all-time highs over the next several months. If that happens, we will be especially interested in selling short the top of that rally as it could be followed by a very severe correction in these markets. For now, we will watch for a less dramatic (but significant) reversal that could start any day this week or early next week. Still on the sidelines of the broad stock market.

As usual, gold and silver charts are giving us mixed signals and making it hard to call this market for short-term trading. Both metals have been rallying into this current reversal zone (which is valid for several markets), and so we are looking for a top to sell short in this market too. Today the contract charts for gold silver are showing new weekly highs for both, but the spot price charts (which are what we normally follow) are showing a new high for gold but not for silver (i.e. intermarket bearish divergence). These mixed signals are making me reluctant to sell short, especially as gold has not yet touched our upward minimal price target of $1,270. If a correction starts now, gold prices may only pull back to a support level around $1,220. We will watch price movements carefully this week. On the sidelines of gold and silver for now.

Crude oil prices rallied to $54.60 early in the day but then backed down and are closing near $54. It is still possible to see prices spike up into the $55 - $57 range for the top of this current sub-cycle, but they have to do this over the next several days. Otherwise, we will have to consider last Tuesday's high at $55.03 (April contract chart) to be the top for this sub-cycle with lower prices ahead as the sub-cycle bottoms. Holding my long position in crude oil for now. We are using a close below $52 as our stop loss, but more conservative traders may wish to raise that to a close below $53.

Trading Blog Thursday, February 23, 2017

2/23/2017

MARKETS UPDATE (3:00 pm EST)

In Monday's blog on the broad stock market I wrote:

"If...they (DOW S&P 500, NASDAQ) move higher this week, we could easily see a parabolic "blow-off" rally into next week or even the first week of March. In that situation we would be looking for a top to sell short, most likely next week. A moderate correction over the next few days might give us a spot to go long, but right now it looks like it may be best to just wait for the top of this rally as it moves into the center of the next strong reversal zone next week."

We didn't get any corrective dips to buy, and we are now entering the early part of this reversal zone (which could extend into the first week of March, but is strongest early next week). Today the DOW and S&P 500 are edging to new all-time highs, but the NASDAQ is falling a bit from its high on Wednesday. This rally may be running out of steam. We should be looking for a top to sell short now, but we have to be careful because we have the potential for a "blow-off" top within this reversal zone which could extend through March 7. If we get a case of bearish intermarket divergence next week (where one or two of these indices, but not all three, make(s) a new high), that may be a good signal to sell short. Still on the sidelines of this market.

Gold and silver are both making new weekly highs today as we enter another reversal zone for these metals. The center of this reversal zone is Monday-Tuesday next week. Unless prices drop quickly from today's highs, it appears that we are going to get a top for this reversal so we may be looking for signals to sell short over the next several trading days (ideally early next week). A low target for the current gold rally would be around $1,270, but the $1,290 area would not be out of the question if prices really take off. A good price target for silver would be $18 - $18.60 (it is in that range today). If one metal makes a new high next week while the other does not (bearish divergence) we may have a good signal to sell short. On the sidelines of gold and silver for now.

Crude oil's high on Tuesday was a little early for a sub-cycle top so I think prices could push higher into early next week (the center of the current reversal zone). I am going to hold my long position in crude for now. We can keep our stop loss based on a close below $52 (April contract chart).

Trading Blog Monday (evening), February 20, 2017

2/20/2017

MARKETS UPDATE (10:00 pm EST)

Today was a holiday (President's Day) in the U.S. and equity markets were closed. The DOW, S&P 500 and NASDAQ did not make new highs on Friday so they could be rolling over now for some sort of correction. If instead they move higher this week, we could easily see a parabolic "blow-off" rally into next week or even the first week of March. In that situation we would be looking for a top to sell short, most likely next week. A moderate correction over the next few days might give us a spot to go long, but right now it looks like it may be best to just wait for the top of this rally as it moves into the center of the next strong reversal zone next week. On the sidelines of the broad stock market.

Gold and silver prices did not change much today. It is still not clear which way this market wants to move short-term. Next week is a strong reversal zone for these metals, and cycle patterns still support a quick price drop into that time. If we get that, the new lows would likely be a good spot to buy. It is also possible, however, to get a rally into next week's reversal zone. If gold and silver make new highs into next week (or especially if both rally and one makes a new high while the other does not) then we may look to sell short for a brief correction. The movement of gold and silver will likely depend on what happens to the U.S. Dollar Index over the next few weeks. Next week is also a strong reversal zone for the dollar so it is possible for the U.S. Dollar Index to complete a medium-term cycle bottom with a low (below its 99.50 low from Feb. 1) in that time frame. The dollar is now pushing against strong resistance in the 101 - 102 area. It could start falling now, and that would push gold and silver prices up. If the dollar continues to rally through that resistance (directional momentum is 100% bullish at the moment), then precious metal prices would likely fall. Still on the sidelines of gold and silver.

Last Thursday we went long in crude oil. Prices have been rallying from there, and we would like to see the rally continue to at least $55 (March contract chart) by the end of the week. Next week's reversal zone could turn prices back down so we will likely be looking to take any profits in our long position in that time frame. Holding my long position in crude oil.

Trading Blog Thursday, February 16, 2017

2/16/2017

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

The DOW, S&P 500 and NASDAQ edged up a bit in early trading today and all made new highs, but this week's rally appears to be slowing down and may be rounding over for some sort of correction. Technically, yesterday was the end of the reversal zone, but a top today would be acceptable. If these indices push higher tomorrow, however, we could see a "blow-off" rally into the end of the month. The current cycle pattern in the DOW allows for this, but the S&P 500 has a sub-cycle low that is due this week or next. This is why I think these markets can turn down now. (A dip to the 2,280 area in the S&P 500 would be a good target). If we get this dip, we can look to buy, but if the rally continues unabated, we may be looking to the Feb. 22 - March 7 reversal zone for the top of the "blow-off" and a spot to sell short. Still on the sidelines of the broad stock market.

In Monday's blog on gold and silver I wrote:

"Based on current cycle patterns, we have two possibilities now for gold and silver. Prices could start rallying again towards a new high and a top likely in the last week of February (the next reversal zone for the precious metals). The other possibility is that gold and/or silver would continue to fall considerably lower and form a bottom in that same time period."

Both metals fell a bit early in the week, but prices are rising today with silver making a new weekly high as gold remains below its high from last week. (This is a bearish signal until gold breaks that high.) Directional momentum is still mixed bullish and bearish in both gold and silver charts so it is still not clear whether we will see new highs or new lows into the end of this month. I am still favoring a low, but that could change as this market is very volatile now. On the sidelines of gold and silver for now.

Crude oil likely made a significant sub-cycle bottom on Feb. 8 when prices dropped to $51.22 (March contract chart). Prices could (should) now rally to challenge the $55 - $56 area and possibly break higher if this market can stay bullish. Any break below the Feb. 8 low ($51.22) would negate this and turn the market bearish. There is also a support level at $52. What we can do here is enter a long position with a close stop loss on a close below $52 (and especially below $51.22). Entering a long position in crude oil today.

Trading Blog Monday, February 13, 2017

2/13/2017

MARKETS UPDATE (4:30 pm EST)

It appears that despite all the controversy and conflicting discourse surrounding the new U.S. President, Wall Street continues to like Donald Trump as we see "irrational exuberance" (thank you Alan Greenspan) pushing equity markets higher. Today all three major market indices (DOW, S&P 500, and NASDAQ) made new all-time highs. We are still within a reversal zone for equities through Wednesday, however, so a corrective downturn is still possible. This is especially true for the S&P 500. Nevertheless, any correction now will probably be minor, and would be an opportunity for us to go long again in this market. Another factor driving the current rally is the fact that we are approaching the end of the tax year in the U.S. and many aging "baby boomers" are contributing large sums to their retirement accounts into early April. Despite these bullish forces, it is late in the current medium-term cycles of the DOW, S&P 500 and NASDAQ so a crest or top followed by a significant correction in these markets could happen (and likely will happen) any time over the next several weeks. Such a top could form early this week (now), but is more likely to happen in the next strong reversal zone coming up in the last week of February through the first week of March. The bullish forces just mentioned (Trumphoria and retirement account funding) could theoretically drive a "blow-off" top into this time period. We will watch for a corrective dip this week to possibly go long again in the broad stock market.

Unlike the broad stock market, gold prices did take a correction last week and are continuing down today. Silver prices dipped last Thursday but then made new highs on Friday (and Sunday) and are down today. Based on current cycle patterns, we have two possibilities now for gold and silver. Prices could start rallying again towards a new high and a top likely in the last week of February (the next reversal zone for the precious metals). The other possibility is that gold and/or silver would continue to fall considerably lower and form a bottom in that same time period. This latter (bearish) scenario seems more likely at the moment, but that might change because this market may be quite volatile over the next several weeks. Our basic strategy will be to watch for this correction and to buy a bottom in late February. We will also watch for any short-term shorting opportunities if the cycle pattern and technical signals support it. Still on the sidelines of gold and silver.

The U.S. Dollar Index may be turning bullish. Last week directional momentum in the dollar switched from mixed bullish and bearish to nearly 100% bullish. It is late in the dollar's current medium-term cycle. The last week of February is also a strong reversal zone for the dollar so I had been thinking the cycle would bottom with a new low then. While that could still happen, we now need to consider the possibility that the low on Feb. 1 was the cycle bottom. If so, the dollar could rally now. Last week the dollar broke through resistance at 100 and is now pushing against another resistance line at 101. If the dollar can continue to rally into the end of the month it would likely push gold and silver prices lower.

It looks like crude oil made a significant sub-cycle bottom last Wednesday when prices dropped to $51.22 and then snapped back up to $54 by Friday. If the current medium-term cycle is going to stay bullish, we should now see prices rise to challenge their December highs around $56 (March contract chart). Prices today, however, were down strongly, and directional momentum is still mixed bullish and bearish in this market. With these mixed signals, I am going to remain on the sidelines of crude for now.

Trading Blog Tuesday, February 7, 2017

2/7/2017

BROAD STOCK MARKET and GOLD TRADE ALERT (2:00 pm EST)

Today the DOW and NASDAQ are making new all-time highs while the S&P 500 is not, and all three indices appear headed down (at the time of this writing) as we near the end of the trading day. These and other bearish technical signals are manifesting as we approach the center of this week's reversal zone (Wednesday-Thursday). It seems prudent here to sell our long position in the broad stock market and wait to see if we get a correction. If we do, it could be significant, but it doesn't have to be. If the correction is minor (or does not happen), we may look to buy our long positions back. We are slightly above our entry point for this long position so selling now gives us a slight profit. Selling my long position in the broad stock market.

Gold has been rallying, but prices may now be stalling under a resistance line around $1,240, and we are in a strong reversal zone for gold. As with the broad stock market, gold's cycle pattern also allows for a significant downturn now. For these reasons, I am going to sell my long position in gold. We entered this position on Jan. 30 so we have a small profit here of about 3%. We may go long again on any correction that holds above $1,170.
Selling my long position in gold (still out of silver).

Trading Blog Sunday (late night), February 5, 2017

2/5/2017

UPDATE on the BROAD STOCK MARKET and PRECIOUS METALS (11:00 pm EST)

The very positive U.S. jobs report released on Friday seemed to lift equity markets from their early week slump, and the DOW was able to close the week above the 20,000 mark. The DOW, S&P 500, and NASDAQ did not, however, make new weekly highs (they all came close) so we will wait to see if they can this week. We need to carefully watch our long position in the broad stock market because this week we have a minor reversal zone around Wednesday so this market could make a sudden turn down from any new high any day now (but most likely Wednesday-Thursday). We will be especially concerned if we see intermarket bearish divergence between these three indices where one or two, but not all three, make a new weekly high. That would be a bearish signal. On the other hand, if all three indices make new highs, we could easily see a strong rally continue into the end of the month. Holding my long position in the broad stock market.

Gold prices are now edging above $1,220, and it looks like we can confirm that both gold and silver started new medium-term cycles in December. This means that these markets could be turning bullish. Nevertheless, timing and cycle studies show that there could be a significant reversal in gold prices sometime next week. Prices could go higher, but we will be watching technical signals for signs of a top that might have us take profits in our current long position. Even if we do get a correction, any dip that holds above $1,170 in gold may be another good opportunity to buy. If silver drops back to the $16.50 area, that too could be a good spot to buy. (We are currently out of silver). Holding my long position in gold for now.

Trading Blog Thursday, February 2, 2017

2/2/2017

MARKETS UPDATE (7:30 pm EST)

As expected, the Federal Reserve left interest rates unchanged on Wednesday. Nervous equity markets fell a bit before the release of the Fed statement at 2:00 pm but then rallied afterwards. That rally, however, is not continuing today as the DOW closed the day with a slight loss (6 points). Markets are being rattled by the startling speed with which newly elected President Trump is enacting some of his controversial policies as well as his testy exchanges with leaders from several countries including Mexico and Iran. Needless to say, Wall Street is not comfortable when the "status quo" is shaken up, especially the geopolitical status quo, and Mr. Trump is certainly shaking things up. The "Trumphoria" rally in equity markets could morph into a "Trumphobia" meltdown if things get really heated. Let's hope that's not happening.

Despite all the chaos, the DOW is staying above the 19,800 level (so far). We need to see rallying from here, however, in order to justify our current long position in the broad stock market. If the DOW closes beneath 19,800 tomorrow we may have to bail out as the risk of more downside will be high. A break below 19,677 would be an especially bearish signal. Holding my long position here with a stop loss on a close below 19,800.

Gold and silver prices are breaking to new weekly (and monthly) highs this week which supports our idea that both metals started new medium-term cycles from their lows in December. This is bullish and implies more rallying, but we still need to see gold close above $1,220 (it broke above today but closed at $1,216) or we run the risk of seeing prices turning down again. The second half of next week may be a significant turning point for gold and silver so let's hope it is a top and we see more rallying into that time. Unfortunately, silver prices did not dip earlier this week and give us a chance to buy so we missed out on a strong rally (but remember, prices could have gone in the other direction!). Holding my long position in gold, but still out of silver.

The U.S. Dollar Index is looking very weak at the moment, and this is supporting our current bullish view of the precious metals (as the dollar usually moves opposite gold and silver prices). The dollar recently broke below strong support at 101 and then 100 (those levels now act as resistance to any rallies). The next major reversal zone relevant to the dollar is coming up in the last week of February. That could turn out to be a significant cycle bottom and the pivot point for a reversal up from a new low, but until then it is unlikely the greenback will muster the strength to break through resistance in the 100 - 102 area.

Crude oil prices remain in a narrow range between $52 - $54 (March contract chart). A reversal zone for crude may be coming up in the second half of next week so we will watch for a possible new low or high to trade from at that time. Still on the sidelines of crude oil.

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