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Trading Blog Monday, February 26, 2018

2/26/2018

BROAD STOCK MARKET UPDATE and GOLD AND SILVER TRADE ALERT (3:15 pm EST)

The broad stock market is coming on like gangbusters today with the DOW up 347 points at the time of this writing. Last week's bearish divergence signal has been negated as all three market indices (DOW, S&P 500, and NASDAQ) make new weekly highs. We can now confirm that the DOW and S&P 500 (and maybe the NASDAQ) started new medium-term cycles with their lows on Feb. 9. Although the early part of any cycle is bullish (which is now being demonstrated), we are now entering a very strong reversal zone for this market. (I am going to expand that zone a bit and define it from Feb.26 -today- through March 13). If the rallying persists this week or even into next week, we should be seeing a top followed by some sort of correction. The nature of of the correction will depend on how far this rally can go. If the rally is weak and the DOW and/or S&P 500 cannot exceed their recent all-time highs (26,617 in the DOW and 2,873 in the S&P 500, then these new cycles could be peaking early, and we could see a severe correction down. On the other hand, if all three indices do exceed their all-time highs then any correction would probably be modest and followed by more rallying into the spring or even summer months. In both scenarios (but especially the first one) we will be looking to sell short at the top of this rally sometime over the next two weeks. If the second scenario unfolds (all three indices making new all-time highs) then we will cover our shorts after a modest correction and go long for a potentially strong rally into the summer. (Note that the top of that rally, if it happens, would likely be followed by a very severe market correction which we would also want to sell short). For now, we wait and watch for signs of a top and see how high this rally can go over the next week or two. On the sidelines of the broad stock market.

Today gold and silver prices rallied a bit but seem to be closing in the lower part of their day's range. Silver also made a new weekly high while gold did not. These are bearish signals and may be warning us of a short-term downturn. Since we already have a profit in both metals, I'm going to sell my long positions in both gold and silver today

We are entering a reversal zone specifically for these metals tomorrow (Feb. 27 - March 8). We could be making new lows in this reversal (which we may look to re-buy), but even if we make new highs, they will likely turn down quickly so I think it is best to sell our longs now. Curiously, at the moment the COT charts for silver are strongly bullish while gold COTs are slightly bearish which is a little odd as both metals usually move in sync. Selling my gold and silver long positions today.

Trading Blog Thursday, February 22, 2018

2/22/2018

BRIEF MARKETS UPDATE (2:30 pm EST)

Yesterday the NASDAQ made a new weekly high and the DOW and S&P 500 still have not so we now have an intermarket bearish divergence signal until both these latter two indices make new weekly highs. Today the broad stock market soared in early trading, but at the time of this writing it is falling again. This could be a turning point for these markets to fall into next week's reversal zone.

It looks like crude oil prices were boosted by the equity surge this morning which allowed us to unload our long positions in crude at a good price. We are now waiting to see if crude makes another low into next week's reversal zone or if it will rally some more.

As we expected, the U.S. Dollar Index was deflected from the strong resistance at 90 - 91 and is backing down again. This is pushing up gold and silver prices and helping our long positions in both metals. Hopefully we are still on target for a high into next week's reversal zone.

Trading Blog Wednesday (night), February 21, 2018

2/21/2018

CRUDE OIL TRADE ALERT and MARKETS UPDATE (8:30 pm EST)

Although the cycle pattern in the chart for crude oil is suggesting a rally into next week's reversal zone (as I described in Monday's blog post), some recent short-term signals in this market are contradicting this view. Technical signals accompanying this week's rally are showing weakening momentum, but even more significant are COT (Commitment of Traders) charts for crude which are looking very bearish (with Commercial traders- who are rarely wrong- holding heavy short positions). This is a warning sign that a drop in price is imminent. Instead of a high, we could see a sub-cycle low into the next reversal zone (Feb. 26 - March 6). Because of these bearish signals (especially the COT charts), I am going to take profits tomorrow morning in my long crude position. We entered this position last week and so far have a profit of about 4%. Unless the price gaps down dramatically tomorrow morning, we should come out ahead on this trade. Selling my long position in crude at tomorrow's market open.

Of course, we were expecting a bigger profit with crude prices at least reaching $66.66, but all markets are quite volatile right now, and we have to be nimble traders in this environment. Crude may be taking its cue from the broad stock market which seems to be turning down this week. If crude does make another low into the next reversal zone and stays above $56, we may yet see it rally towards $70 and above before the year is over. If it can't get above that Jan. 25 high of $66.66, however, this market could be turning bearish.

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

"...we can't rule out these indices (NASDAQ, DOW, S&P 500) turning down again and seeing these latter two indices make their final cycle bottoms below those Feb. 9 lows in our next reversal zone (Feb. 26 - March 6). Another possibility is to see the DOW and S&P 500 make double bottoms close to those Feb. 9 lows in this upcoming reversal zone. That would be an ideal situation as this reversal zone is much stronger than the one from Feb. 9 and is better suited to a final medium-term cycle bottom. Such a double bottom would be an ideal spot to go long."

We may be seeing one of these two scenarios unfolding now as equity markets are (so far) falling this week. We will look to buy if we get a double bottom or new low in the DOW and/or S&P 500 next week or the following week (Feb. 26 - March 9). Still on the sidelines of the broad stock market.

Speaking of volatility, our gold and silver long positions are taking a hit this week, but so far are staying above our stop loss points ($1320 in gold and $16.20 in silver). This fall in precious metal prices is being driven by another surge up in the U.S. Dollar Index. The dollar, however, is now pushing against strong resistance in the 90 - 91 area so it could easily turn down again. Let's hope it does so we are not stopped out of our gold and silver longs. I realize that this is a frustrating trading environment, but I would just like to say here that gold and silver continue to look very bullish short-term and long-term so even if we are stopped out (with minimal or no loss), we should soon have another opportunity to buy again and ride up a very strong rally that has been incubating in both metals for some time. Holding my long position in both precious metals for now,

Trading Blog Monday (late night), February 19, 2018

2/19/2018

MARKETS UPDATE (11:30 pm EST)

Today was a holiday (President's Day) in the U.S. and equity markets were closed. They will open tomorrow and begin a short (4 day) trading week.

Last week's strong rally in the broad stock market suggests that the DOW and S&P 500 could have started new medium-term cycles from their lows on Feb. 9 (23,360 in the DOW and 2,532 in the S&P 500); however, last week the NASDAQ made a new weekly high while the DOW and S&P 500 did not (bearish divergence) so we can't rule out these indices turning down again and seeing these latter two indices make their final cycle bottoms below those Feb. 9 lows in our next reversal zone (Feb. 26 - March 6). Another possibility is to see the DOW and S&P 500 make double bottoms close to those Feb. 9 lows in this upcoming reversal zone. That would be an ideal situation as this reversal zone is much stronger than the one from Feb. 9 and is better suited to a final medium-term cycle bottom. Such a double bottom would be an ideal spot to go long. If instead equity markets continue to rise into the next reversal zone, we will expect a correction then and will also look to buy the bottom of that correction. "Bottom" line : we are still waiting to buy near the bottom of new medium-term cycles in the DOW and S&P 500. On the sidelines for now.

I'm a little concerned that last week's rally in gold and silver saw gold, but not silver, make a new weekly high. This is a (short-term) bearish divergence signal which could mean a reversal in prices is imminent. Indeed, Sunday's and today's prices were down from last week's highs (especially in silver). For these metals to remain bullish, we need to see them break above last week's highs soon, and especially for gold to break above its Jan. 25 high of $1366. Ideally, we want to see these metals rally into the next reversal zone (Feb. 27 - March 8) where we can take profits on our long positions. Let's raise our stop loss on our gold longs to a close below $1320 and on our silver longs to a close below $16.20. I should point out here that the medium and long-term picture for gold and silver still looks quite bullish so any short-term corrections in these metals will be looked at as opportunities to buy. Holding my long positions in gold and silver

The U.S. Dollar Index seems poised for another short-term rally from support just above 88. From Friday's low around 88.20, the dollar rose to 89.38 today and seems determined to have another go at that 90 - 91 resistance area. If this happens, it could push gold and silver prices a bit lower, but unless the greenback can break above 91, any dollar rally will likely turn back down and allow the precious metals to rally some more.

Crude oil seems to be on track to continue its rally into the next reversal zone for crude (Feb. 26 - March 6). Crude's double bottom on Feb. 9 and Feb. 14 near $58 (March contract chart) was very likely a significant sub-cycle low. We bought crude near this low on Feb. 13 so our long position is doing well. While it is still possible for prices to back down again and make a new low into this next reversal zone, I think it's much more likely for us to see a high at that time. We will watch for that next week. If this market is going to stay bullish, prices should soon exceed the $66.66 high of Jan, 25. Let's move our stop loss for our long position up to a close below $59. Holding my long position in crude oil.

Trading Blog Thursday, February 15, 2018

2/15/2018

MARKETS UPDATE (2:30 pm EST)

The broad stock market is now edging its way up to challenge its highs from last week (25,520 in the DOW and 2,763 in the S&P 500) where there is some resistance. This could be a turning point. If all three market indices (DOW, S&P 500, NASDAQ) can make new weekly highs then we may have to label last week's lows in the DOW and S&P 500 as the start of new medium-term cycles and expect more rallying at least into the first week of March. On the other hand, if these indices cannot break through last week's highs or if only one or two do so (not all three), the broad stock market could resume its correction and plunge to new lows (and the final cycle bottom) in the first week of March (our next reversal zone). We are hoping for the latter scenario and a good spot to go long. Still on the sidelines of the broad stock market.

After rising steeply this week, gold and especially silver are taking a breather today and backing down a bit. As I said in Tuesday's blog, we will not worry too much unless both metals break below last week's lows. The next major reversal zone for the precious metals is coming up February 27 - March 8. Right now it looks like that will be a high for both gold and silver, but if prices suddenly turn south there is still a possibility of one or both metals forming a low then. We are keeping a close eye on this, especially as the U.S. Dollar Index has now dropped back to a support line it established in late January just above 88. We could see another bounce from here which could put downward pressure on gold and silver prices, but the U.S. dollar chart looks very weak right now, and short-term signals in this index are mostly bearish. A dollar breakdown could be imminent. Holding my long positions in gold and silver.

Our decision to go long in crude oil on Tuesday appears to be a good one as the price has been rallying from there. If last week's low at $58 (March contract price) was a sub-cycle bottom then we should see this rally continue for at least another week or two into the next reversal zone for crude which is February 26 - March 6. One bearish factor that I'm concerned with at the moment is the recent reporting of record highs in U.S. crude production and supply. This may have a dampening effect on any rally. We will maintain our stop loss for this trade on a close below that $58 low from last week. If that breaks, we would have to look for a new sub-cycle low in the next reversal zone (and possibly another opportunity to buy). I should point out here that we are going to watch closely any rally from a sub-cycle bottom now as the strength of that rally will determine our longer-term view of crude prices. It is highly likely that crude will exceed its recent Jan.26 high of $66.66 (March contract), and if it does, we could see prices get into the $72 - $76 range over the next several months or later this year. If crude prices can't exceed that $66.66 high, however, we may have to abandon our bullish view and focus on short selling strategies as the market would be turning bearish. Holding my long position in crude.

Trading Blog Tuesday, February 13, 2018

2/13/2018

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

The broad stock market shot out of the gates yesterday with a strong rally, but today it seems to have lost its bullish enthusiasm. We are now out of last week's reversal zone so if equities edge back down below last Friday's lows (23,360 in the DOW and 2,532 in the S&P 500) we will likely see more selling off for a final cycle bottom in our next reversal zone (Feb. 26 - March 6)and and a good spot to buy. The alternative view is that last Friday's lows were the final cycle bottoms and that we are now starting a new medium-term cycle in both indices. As I mentioned in Sunday's blog, we will need to see the DOW closing above 25,200 and 25,500 to confirm a new cycle has started. Still on the sidelines of the broad stock market.

So far it appears our timing was good for our gold and silver purchases last Thursday. Both metals have rallied from there, and it looks like last week's lows were significant sub-cycle bottoms ($1307 in gold and $16.20 in silver). One concern I have is that there could be some high volatility in precious metal prices this week. If prices turn south we won't worry too much unless both gold and silver break below last week's lows. In fact, we can now base our stop loss for these long positions on that happening. The next reversal zone for the precious metals is Feb. 27 - March 8. We're hoping that will be a high and a place to take profits, but if we're stopped out of our longs, it may turn out to be another place to buy. Holding my long position in gold and silver.

As we expected, the U.S. Dollar Index has turned down from a strong resistance band at 90 - 91. As I've stated in recent blogs, the overall picture of the U.S. dollar chart looks quite grim with directional momentum being almost 100% bearish at the moment. As I wrote on Jan. 26:

"One can observe on a long-term chart of the U.S. Dollar Index that after breaking below 90, there is some weak support at 88 and then 86. If 86 is breached, there is really no support all the way down to 80 where there is again a major support line. Could the dollar fall close to 80? Yes, it could. We are now in the middle of a longer-term 5.5 year cycle in the dollar that is due to bottom sometime in 2020 (possibly 2019), and the projected target for that bottom is around 81 - 82."

The greenback might be able to avoid (or at least postpone) a breakdown by breaking and closing above 91. While this is possible, it doesn't seem likely at the moment. The recent dive in the broad stock market has likely made the Federal Reserve much less enthusiastic about raising interest rates. There are even analysts suggesting that should equity markets tank further, the Fed could lower rates and perhaps even bring in another round of QE (quantitative easing) or something similar. Of course, this is all speculation, but none of these things are good for the value of the U.S. dollar. For us, the upside to the dollar breaking down is the boost it will give to gold and silver prices. For now, the dollar's weakness is helping our long position in the precious metals.

Last Thursday I attempted to enter a long position in crude oil but then got "cold feet" and withdrew the position after looking over some charts with short-term bearish signals. That turned out to be a good decision as prices dropped steeply the next day. Now, however, crude seems to stabilizing just above Friday's low of $58 (March contract chart). This is at the lower end of a price target range ($57.44 - $61.78) for a currently due sub-cycle correction. Friday's $58 low was in a reversal zone for crude that ended yesterday so that could easily be the sub-cycle bottom. What we can do here is enter a long position in crude with a very close stop loss on a break below $58. Because the current price is about $59, our loss would be very minimal if we are stopped out. Going long in crude today with a stop loss on a break below $58.

Trading Blog Sunday, February 11, 2018

2/11/2018

UPDATE ON THE BROAD STOCK MARKET (10:00 pm EST)

After last week's carnage in equity markets (which included some of the biggest intraday ups and downs in the history of the stock market) many investors and traders are understandably in a state of "shell shock". Despite many mainstream media financial pundits now encouraging people to "buy the dip", we have to wonder if investor's fears will subside enough this week to make an enthusiastic rebound rally possible. Several important support levels were broken last week, but both the DOW and S&P 500 closed with healthy gains on Friday after plunging to new weekly lows earlier in the day, which is a bullish sign.

As I mentioned in last week's blog posts, we are ending a reversal zone for equities tomorrow (Monday) so it is possible Friday's low was a significant bottom and end to the selloff (or we could see a lower low tomorrow and a reversal up from there). This reversal zone, however, is not a strong one. There is another coming up Feb. 26 - March 6 which is considerably stronger. If investor's fears linger, we could easily see the selloff continue into this next reversal zone which would technically be a better place for a final bottom to the current medium-term cycle in the DOW and S&P 500. If the DOW and S&P 500 both fall below their Friday lows (23,360 and 2,532, respectively) after Monday then there's a good chance we'll see that selloff for another two or three weeks. On the other hand, any close in the DOW above 25,200, and especially 25,500 would suggest that the bottom is in and we are starting a new medium-term cycle.

The bottom line here is that we are waiting to go long once we are reasonably certain of a final low and end to the current medium-term cycle in the DOW and S&P 500. That low is now overdue and could have happened Friday, but it could also come in the next strong reversal zone Feb. 26 - March 6.

I should mention here that an argument could be made that the recent all-time high in the S&P 500 (2,873 on Jan. 26) was a type of "blow-off top" (technically a "three-arc fan ascent" - curious readers can google this term to see what it looks like) that will now be followed by a major bear market for some time. If that is the case, then we won't expect the next medium-term cycle rally to get above that top. But even if it does (or just makes a double-top), we are looking to sell short the top of the next medium-term cycle later this year. The correction from there could end up being very serious with the market possibly dropping as much as 30 - 50%. But I am getting ahead of myself. For now we will watch for a medium-term cycle low and a spot to buy. Still on the sidelines of the broad stock market.

Trading Blog Thursday, February 8, 2018

2/8/2018

GOLD, SILVER BUY ALERT and MARKETS UPDATE (2:30 pm EST)

We are nearing the end of the current reversal zone for gold and silver and several other markets (Feb. 2 - 12). Both metals have been falling and are now in the ideal target price range and time period for a significant sub-cycle correction. In addition to this, there are now several short-term technical indicators suggesting a bottom is near.
It looks like a good time to go long in both gold and silver, and I'm going to do that today.
We can set a close stop loss for gold on a close below $12.80.
Silver's stop loss can be set on a close below $16.

**** PLEASE NOTE: I have changed my position on CRUDE OIL over the last several minutes and am now staying on the sidelines of crude. I apologize for this quick change but new data shows that crude prices could be ready to take a serious hit - this market could be turning very bearish. ****

In Monday's blog on the U.S. Dollar Index I wrote:

"...it (the dollar) appears to be mounting another assault at the 90 - 91 line of resistance (formerly support) it broke down from in January. As I have discussed in recent blogs, the U.S. dollar may be starting a serious long-term correction down if it can't get back above 91 soon. Right now it appears the dollar could test that resistance, and in the process send the price of precious metals lower."

That is indeed happening as the greenback is now pushing hard into the center of that 90 -91 band of resistance. Because we are in a reversal zone, we could (should) see it turn back down now. We don't want to see the dollar break and close above 91 as that could be bearish for the precious metals. We will keep a close eye on this index.

After plunging dramatically early in the week, the broad stock market is now bouncing with wide swings up and down as it attempts to find some stability. The DOW's low on Tuesday at 23,778 was a bit lower than our target of 24,500 - 25,000, but this index may be stabilizing now in the 24,500 area. Although we are in a reversal zone (it ends Monday), it is not a very strong one, and we enter another stronger one in the first week of March. If this market can't stabilize here, it is possible to see it plunge further and form the final medium-term cycle bottom (which is overdue) in early March. This market is not giving us enough buy signals to go long just yet. If the DOW can close above 25,200 and the S&P 500 above 2,760 tomorrow, it might be time to buy. Still on the sidelines of the broad stock market.

Trading Blog Monday, February 5, 2018

2/5/2018

MARKETS UPDATE (3:45 pm EST)

The broad stock market continues to plunge lower today which confirms that we are now headed toward the final bottoms of the current medium-term cycles in the DOW and S&P 500. Now through next Monday is a reversal zone for equities so it is highly likely to see that bottom in this time frame. A good price target for a normal cycle bottom would be 24,500 - 25,000 in the DOW and 2,650 - 2,700 in the S&P 500. We are at those levels now, but this is a very nervous market that has had the rug pulled out from under it very suddenly. If panic sets in, there is the possibility of a more serious selloff that could take the bottom of these cycles to levels much lower than the "normal" ones just mentioned. I don't think that is going to happen, but it is a possibility. The DOW breaking and closing below 24,500 would be a warning sign. For now, let's stick with the idea of buying a bottom this week near those ranges stated above and watch for other short-term technical signals to buy. On the sidelines of the broad stock market and looking to buy soon as long as the DOW stays above 24,500.

Last Thursday it looked like the U.S. Dollar Index had breached its support at 89 and was breaking down again, but it was back above 89 on Friday, and today it appears to be mounting another assault at the 90 - 91 line of resistance (formerly support) it broke down from in January. As I have discussed in recent blogs, the U.S. dollar may be starting a serious long-term correction down if it can't get back above 91 soon. Right now it appears the dollar could test that resistance, and in the process send the price of precious metals lower.

We are still waiting to buy gold and silver. This week could also be a reversal zone for these metals so we are still watching for gold to move closer to our $1300 target. Last week silver plunged below our $16.80 target and appears to be headed closer to our secondary target near $16. Calling short-term movements in this market is a bit difficult right now, but today's dollar rally is suggesting that gold and silver prices could move lower. On the sidelines for now but waiting to buy soon.

This week is also a significant reversal zone for crude oil, and prices are resuming their fall to a significant sub-cycle correction after failing to make a new high last week. We may look to buy this week. This correction could get as low as $59 (March contract chart), but we don't want to see it close below $58 as that may alter our current bullish view of this market. Still on the sidelines of crude oil.

Trading Blog Sunday, February 4, 2018

2/4/2018

BRIEF MARKETS UPDATE (4:30 pm EST)

In last Tuesday's blog I wrote:

"If equity markets are starting a significant correction now, we could see a very rapid plunge into next week's reversal zone for a possible final bottom to the current medium-term cycle. As I mentioned in Sunday's blog, this correction could take the DOW down to 25,000 or lower. If this happens, we will abandon any plans to short sell and just wait to buy at the cycle bottom."

This happened last week as equities melted down on Thursday and Friday. I am unable to write an extensive blog at the moment, but I will be posting an update on all the markets tomorrow. There is a good chance we will be looking to enter a long position in the broad stock market this week (as long as this correction doesn't go too deep) so traders should stay tuned all next week. Gold and silver are also falling into our target ranges to buy so we may be going long in the precious metals market as well.

I apologize for not posting more right now, but I also suffered a nasty meltdown this weekend - the flu!

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