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Trading Blog Thursday, February 27, 2020

2/27/2020

MARKETS UPDATE (3:30 pm EST)

The broad stock market is now at a critical juncture. The current corrective dive has reached a strong support level.

For the DOW, a critical level now would be the 25,743 low that started the current medium-term cycle back on 10/3/19. In the S&P 500, there is critical support around 3,000, and in the NASDAQ around 8,800. A weekly close below these supports could be bad news for equity markets suggesting a strongly bearish trend and an even bigger correction.

If these supports can hold, however, we could be at the final bottoms of the medium-term cycles for all three indices and an ideal spot to buy. This idea is supported by the fact that we are now at the dead center of a strong critical reversal zone (Feb. 24 - March 6) which means a strong reversal back up could be imminent. Let's wait and see if this market can hold support into the end of the week before we consider any long positions. Still on the sidelines of the broad stock market.

Crude oil prices have now broken below the Feb. 4 low of $49.50 that may have started a new medium-term cycle. If so, this market's trend is now very bearish. But since we are in a strong reversal zone, it's possible crude is still completing an older cycle that will find its bottom by the end of next week. That cycle labeling would be more bullish. Let's remain on the sidelines of this market until these cycles are more clear.

Gold and silver prices have also been correcting down, but not quite enough to encourage me to buy. Let's also remain on the sidelines of this market for now.

I have been ignoring the U.S. Dollar Index recently because it has been moving in tandem with precious metal prices (which is unusual as these two markets normally move in opposite directions), and thus it has not been a reliable contra-indicator for gold and silver. This recent trend is being driven by the current investor flight to "safe haven" investments (perceived to be gold, silver, and the U.S. dollar) as equity markets look increasingly vulnerable and "crash prone". The greenback rallied strongly this month with the U.S. Dollar Index nearly touching the 100 mark late last week. It is falling back (so far) this week. 103.82 is an important level to watch in this index. A break above there would be a very bullish development for the dollar. If coronavirus fears (and/or other bearish factors) cause a major tanking of the broad stock market, we could see gold, silver, AND the U.S. dollar rally strongly.

Trading Blog Tuesday, February 25 , 2020

2/25/2020

UPDATE ON THE BROAD STOCK MARKET (4:00 pm EST)

It appears that anxiety over the potential impact of China's coronavirus epidemic on the global economy is triggering a major broad stock market dive. Yesterday's DOW lost over 1000 points, and the Wall Street carnage continued today with an 878 point DOW loss.

All three market indices (DOW, S&P 500, and NASDAQ) are now closing well bellow their late January lows. This strongly suggests that the DOW and S&P 500 did not start new medium-term cycles on Jan. 31 - as I have suggested in recent blogs - and are instead (like the NASDAQ) coming to the end of their older cycles with a final corrective drop to their final cycle bottoms. Those bottoms could very easily happen in our current strong reversal zone (Feb. 24 - March 6). Technical studies give us a wide range for a bottom here. For the DOW, the correction could level off around 27,000 (it is there now) or it could get below 27,000, and even as low as 26,000. Because it is still early in the reversal zone, there is plenty of time for this cycle to find a bottom in this range. We will watch for it as a possible spot to buy. Even though we had been anticipating a sharp correction, we were unfortunately "whipsawed" out of our short position two weeks ago (sigh!) so our best strategy now is to wait for the bottom. As long as this correction doesn't get too low, we are still anticipating another rally into the summer and most likely to new highs. We are on the sidelines of this market.

Trading Blog Sunday (night), February 23, 2020

2/23/2020

MARKETS UPDATE (10:00 pm EST)

The broad stock market's "irrational exuberance" took a hit in the second half of last week as more worrisome news on the death toll from China's coronavirus rolled in. Both the S&P 500 and NASDAQ made new highs last week while the DOW did not, and this gives us another intermarket bearish divergence signal. All three indices MAY be taking significant corrections now, but last week's tops (S&P 500 and NASDAQ) did not happen in a major reversal zone, and next week IS a major reversal zone. It's possible this market could edge up higher next week for a final top. If it doesn't, that time frame of Feb. 24 - March 6 should slow down any market dive, and we would likely see a significant cycle bottom in there We are still not sure if the DOW and S&P 500 started new medium-term cycles on Jan. 31. If they did, any correction now should be minimal and these indices would be bullish. The NASDAQ is most likely still completing an older cycle. That means it could take a more serious correction (which may now be in progress unless it pushes a bit higher into next week's reversal zone). We may have gotten "whipsawed" out of our short position on Feb. 12 too early, but if markets rally next week and give us another bearish divergence signal, we may get another good opportunity to sell short. Let's stay on the sidelines for now.

It looks like crude oil started a new medium-term cycle on Feb. 4 with its low of $49.50 (Apil contract chart).This would normally be bullish (as early cycle stages usually are), but it looks like crude may be turning bearish after its sharp turn down from last Thursday's high at $54.66. We will know soon enough if prices drop below that $49.50 low (bearish). If prices push higher next week, it could support a more bullish view of crude. We will stay on the sidelines for now. The direction of the broad stock market and crude oil is being strongly influenced now by news concerning China's coronavirus. Severe worries over this epidemic could tank both markets.

The cycle pattern of gold is still nor clear, but this metal is certainly in a "breakout" mode after last week's strong rally and close above $1610. We are in a reversal zone for precious metals (Feb. 14 - 25) that is overlapping with a strong general reversal zone for all markets (Feb. 24 - March 6) so gold prices could top out now and take some sort of correction. Any pullback to the $1590 - $1620 area would have us looking to buy. We will watch for that.

Silver is also rallying strongly, but like gold, may be topping out soon to take a steep correction down (silver's current medium-term cycle is getting old and may be ready for its final correction to the cycle bottom). We will stay on the sidelines of both metals for now and wait for a corrective dip to buy. Both gold and silver are looking potentially very bullish in their longer-term cycles now.

Trading Blog Monday, February 17, 2020

2/17/2020

MARKETS UPDATE (11:30 pm EST)

Despite recent hawkish rhetoric from the Fed's Jerome Powell and the persistent coronavirus epidemic, the broad stock market continues to rally with what some might call "irrational exuberance". All three market indices (DOW, S&P 500, and NASDAQ) made new all-time highs last week and stopped us out of our short positions. These indices seem poised for more rallying this week, but if we see another bearish divergence signal (one or two but not all three making new highs), it's possible a top and reversal could start this week. If that happens, we could see a sharp correction into our next reversal zone (a very strong one) Feb. 24 - March 9. I think it's more likely, however, the market will rally into that new reversal zone and make a top then.

Right now it appears that the the NASDAQ is at the end of an old medium-term cycle that is due to peak any time and correct sharply down to its final cycle bottom. The DOW and S&P 500 could also be completing older cycles, but it is also possible they already completed their older cycles and started new ones with their Jan. 31 lows. The difference is important because new cycles are usually very bullish and any corrective dips would likely be shallow. Based on this, any short positions that we enter now should probably be in the NASDAQ (i.e. an ETF or Index Fund tied to the NASDAQ). We will consider selling short again if we see a bearish divergence signal this week, but ideally I would prefer to see bearish divergence in next week's new reversal zone for a better spot to go short. Let's remain on the sidelines for now.

Gold and silver are still trading in a narrow range without breaking upside or downside, and cycle patterns are still not clear. We are in the middle of a reversal zone specifically for the precious metals (February 14 - 25), and prices have been rising so we may see a top shortly followed by some sort of correction. A drop down to the $1525 area in gold could be an ideal spot to buy. A close above $1610 would be a bullish signal and could also have us looking for a good buy spot. The $16 area (or even $17) in silver could also be a good spot to buy, but any close above $1810 could lead to a strong rally to chase. Let's stay on the sidelines of these metals for now and see if the current reversal zone can turn prices down into our ideal buying areas.

It's still not clear if crude oil's low at $49.31 (March contract chart) on Feb. 4 was a final medium-term cycle bottom. If it wasn't, there's still time for prices to go lower as a normal cycle bottom is due anytime over the next three weeks (if it didn't already happen on Feb. 4). That new reversal zone (Feb. 4 - March 9) would be an ideal time for the final bottom. Let's stay on the sidelines of crude oil for now.

Trading Blog Wednesday, February 12, 2020

2/12/2020

BROAD STOCK MARKET TRADE ALERT (11:30 AM)

It looks like it's time to cover (unload) our short position in the broad stock market. Markets seem to be shrugging off the coronavirus scare with strong rallying this morning and also shrugging off yesterday's tumble (following the disappointing rhetoric from Fed Chairman Jerome Powell that dashed investor's hopes of an interest rate cut this year). With our bearish divergence signal from Monday now gone, it's probably best we step aside now and wait to see if the broad stock market is still completing an older medium-term cycle (bearish) of if it has just started a new one (bullish). Covering (unloading) my short position in the broad stock market today with a small loss.

Trading Blog Tuesday, February 11, 2020

2/11/2020

UPDATE on the BROAD STOCK MARKET (7:00 pm EST)

The broad stock market rallied sharply early this morning then fell with equal gusto into the afternoon after Federal Reserve Chairman Jerome Powell stated that current economic circumstances do not justify any changes in interest rate policy (i.e. no intended cuts for most of this year). Many investors were hoping the recent coronavirus's negative impact on equity markets would encourage the Fed to at least hint of another rate cut this year. It did not, and equities gave up most of their early gains by the closing bell.

The DOW's morning rally lifted it, along with the S&P 500 and NASDAQ, to new all-time highs so our intermarket bearish divergence signal (which we got yesterday) is now negated. That was our stop loss signal for any trader still short in this market (like me), but the market's bearish fall after the Fed's announcement made me reluctant to cover my short position today. It is still possible for a reversal now (we're still in a reversal zone through Thursday) despite the DOW's new high, but it's also possible for this market to rally some more into the last week of February or even the first week of March before taking a serious correction. For anyone (like me) still short, let's see if the momentum of today's downturn continues into tomorrow. If it doesn't, we may cover our short position and wait to let this cycle clarify its direction. (As I mentioned yesterday, the DOW and S&P 500 may have already started new cycles on Jan. 31. If so, they could be very bullish now). Still holding my short position in the broad stock market.

Trading Blog Sunday (late night), February 09, 2020

2/9/2020

MARKETS UPDATE (11:30 pm EST)

The broad stock market is at a turning point right now, and there are two scenarios that could unfold. The first scenario is bearish and assumes we are at the end of a medium-term cycle that has topped out (or is about to top out) and start a major correction down to the final cycle bottom. This is our favored scenario and is the one we have been going with recently. In this scenario, either a top formed last week with all-time highs in all three major indices (DOW, S&P 500 and NASDAQ) or (more likely) a top will form this week (with intermarket bearish divergence - one or two but not all three indices making new highs) and we will start a major correction down into the end of this month.

But there is now almost an equal possibility that the DOW and S&P 500 could have ended their cycles with their Jan. 31 lows and are now starting new medium-term cycles. If this is the case, they could be very bullish and could rally strongly now and also pull the NASDAQ up with them.

One argument for the bearish (older cycle) scenario is the fact that the S&P 500 and especially the DOW seem to have made "double tops" to their January highs last week, which is a bearish sign. A bearish divergence signal this week would be another good bearish sign as we are still in our reversal zone for most of the week (Feb. 4 - 13 -esp. strong Wed./Thurs). I am still holding my short position in this market and will wait to see what happens early this week. If all three indices rally to new all-time highs, I will cover (unload) this position. Otherwise, I may stay short for a deeper correction. Those on the sidelines should remain there for now (a bearish divergence signal this week may be another opportunity to go short). We need to be very alert and nimble with our trading now.

Last Tuesday crude oil made a new bottom at $49.31 (March contract chart), which was significantly below the low that started the current medium-term cycle ($50.18 on Oct.3, 2019). This means the cycle has turned bearish and could go lower. The end of the cycle (and final bottom) is due at any time. Last week's low could have been it, but like the broad stock market, we can't be sure it won't go lower. Let's remain on the sidelines of crude for now.

The current cycle patterns in both gold and silver (but especially in gold) are very ambiguous and not clear at the moment. Both metals appear to be in a congestive trading pattern that started in early January. If gold prices get down to the $1500 area and hold, that may be a good place to buy. A break above $1610 would also be a bullish sign and would encourage us to find a good entry point to go long. The $17.28 low in sliver on Jan. 29 may have been a significant bottom, and if so, this metal could rally now. But there's also the possibility of silver falling back to the $16 level (or even lower). Let's remain on the sidelines of these metals for now.

Trading Blog Friday, February 7, 2010

2/7/2020

BRIEF UPDATE ON THE BROAD STOCK MARKET (3:00 pm EST)

It's 3 pm EST as I write this blog, and it looks like the broad stock market is taking a substantial dip today and will close with a loss. The DOW appears to be finding support just above 29,000. I am going to hold on to my short position in this market for now as we could be seeing a turning point here. Those already stopped out should stay on the sidelines for now. They may get another opportunity to short the market again next week.

Trading Blog Thursday (late night), February 6, 2020

2/6/2020

IMPORTANT BROAD STOCK MARKET UPDATE (11:00 pm EST)

News of China cutting tariffs on $75 billion of U.S. goods (the first phase of the new trade deal - in spite of the ongoing corona virus crisis) is buoying stock markets today. The DOW and S&P 500 edged slightly higher today with the DOW finally clearing it's all-time high of 29,373 from Jan.17 (by only 6 points). This negates our bearish divergence signal FOR THIS WEEK; however, we are still in our reversal zone (Feb. 4 - 13), so if we get another bearish reversal signal next week (one or two but not all three market indices - DOW, S&P 500, NASDAQ - making new highs, then we could get a top and reversal then (it is very late in this cycle and a final top is due now).

We closed above 29,373 in the DOW today so our stop loss was broken and many traders may have covered their short NASDAQ (or other broad stock market) position as I suggested in yesterday's blog. Those traders should remain on the sidelines for now. I held my short NASDAQ position into the closing bell hoping it would turn down sharply near the end of the day, but it did not. It also didn't rally much and did not get above yesterday's high. While this is a good sign that the rally is getting ready to roll over, we can't rule out more rallying tomorrow or even early next week. I would suggest that anyone like me still holding their short position in the broad stock market place a reasonable stop loss on their position now (for tomorrow's open) to prevent excessive loss should the market surge up early tomorrow.
If the stop loss holds and the DOW closes back below 29,000, we will hold our short position into next week. If the stop loss holds and the DOW looks like it will close above 29,000 we will probably cover (unload) our short position manually.
If this is all very confusing just follow the blog tomorrow for any trade alerts.

Wall Street's optimism this week fueled by President Trump's acquittal and China lifting its tariffs may soon be tempered by more worries over the corona virus. The epidemic appears to be getting worse, and this could easily frighten equity markets into a correction soon.

Trading Blog Wednesday (late night), February 5, 2020

2/5/2020

BROAD STOCK MARKET UPDATE (11:00 pm EST)

Although the epidemic spread of the coronavirus continues, some news today of a possible vaccine being developed seems to have tempered Wall Street's fears. This, along with President Trump's victorious impeachment acquittal, drove a strong rally in equities today. The DOW gained a whopping 483 points or 1.68%. The NASDAQ surged on today's opening bell, but then lost nearly half its gains and closed with only a 0.43% gain. (This was a minimal loss for those shorting the NASDAQ.) Because the acquittal news came at 4 PM, one could argue that there was no time for equities to "sell the news". That could, however, happen tomorrow - especially as the DOW was still under its all-time high (29,373) today which maintains our bearish divergence signal. We are still holding our short NASDAQ position, but will be forced to abandon it if the DOW can clear that high (that will be our stop loss now).

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