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Trading Blog Wednesday (evening), February 24, 2021

2/24/2021

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

Today Federal Reserve Chairman Jerome Powell stated publicly that the Fed is in no hurry to raise interest rates. Not surprisingly, this dovish rhetoric triggered a strong rally in the broad stock market with the DOW gaining 424 points. This one day surge pushed the DOW to a new all-time high, but not the S&P 500, and especially not the NASDAQ which is well below its 14,167 high from last Tuesday. We are thus maintaining our strong intermarket bearish divergence signal which could keep today's rally from gaining any legs. We shall see. Still on the sidelines of this market.

Trading Blog Tuesday (late night), February 23, 2021

2/23/2021

MARKETS UPDATE (11:00 pm EST)

Some of my sources for market and chart analysis have been delayed this week but should return next week. In the meantime, we will lay low and will extrapolate our analysis from our recently identified trends and cycles.

It still appears that we have started newer medium-term cycles in the DOW and S&P 500 from their Jan. 29 lows. The S&P 500 seems to have made a sub-cycle top last Tuesday, while the DOW made a new all-time high yesterday. This is giving us a bearish divergence signal. The NASDAQ is likely a much older cycle that also made a top last Tuesday, but unlike the DOW or S&P 500, it is falling very steeply from that high - most likely into its final cycle bottom. (We had been thinking of selling the NASDAQ short, but its steep correction seems to be already underway, and we will not chase it.) If the NASDAQ is falling to its medium-term cycle low, it should move lower at least for another week (maybe more) and into a more substantial corrective drop. If the DOW and S&P 500 are new cycles, their sub-cycle corrections may not be that deep. If the DOW did make its high yesterday, it has some time now to fall, even if only to a sub-cycle corrective dip. If all of these scenarios play out, we should still be focused on the NASDAQ as its final cycle bottom would most likely be a good spot to buy (unless that bottom drops close to 11,000 or lower). After that final bottom, we could still have another substantial rally in these indices before a final long-term top is in (which should be followed by a VERY big correction). We will remain on the sidelines of the broad stock market until my data sources resume next week.

Gold fell below our $1767 target level last Friday and has been rallying sharply from there. We will have to watch this carefully to see if that was a significant cycle bottom or if it will go lower. Silver's low that Friday was not nearly as significant which strengthens our theory that silver is in the early stages of a new medium-term cycle (and not ending an older one like gold). We will refrain from any trading of this market for now.

Crude oil has been amazingly bullish this month. Prices touched $63 today (April contract chart). We may be at the top of the current medium-term cycle now, unless prices push higher into Friday. If this commodity is taking its cues from the DOW, it could push higher before its final correction down to its cycle bottom. We remain on the sidelines for now.

Trading Blog Thursday (late night), February 18, 2021

2/18/2021

MARKETS UPDATE (11:30 pm EST)

As we move into the end of this week (and the center of a new relatively weak reversal zone - Feb. 17-24), it looks like the broad stock market might be rounding over to form a top. The DOW and NASDAQ made highs on Tuesday, and the S&P 500 made a new high yesterday. These are all new all-time highs, so again, we are not getting intermarket bearish divergence between these indices this week - something we like to see at an important cycle crest. Let's see if one or two (but not all three) of these indices can push higher into the first half of next week and give us that bearish divergence signal. Ten days ago (Feb. 8) I wrote:

"The big question here is whether or not the DOW and/or S&P 500 have already started new medium-term cycles from their Jan. 29 lows. If they have, they would be bullish and a significant reversal would not be imminent for at least several more weeks. It still looks like the NASDAQ is an older cycle which means that a top and significant downturn IS imminent (or should be)."

If the DOW and S&P 500 are newer cycles, they could make new highs next week, while the NASDAQ's high may not (it could have happened on Tuesday). This could give us our bearish divergence signal (and a possible opportunity to sell short) if it happens next week. Let's remain on the sidelines of the broad stock market for now.

On Feb. 7 my blog on the precious metals stated:

"....our cycle labeling [is] very ambiguous at the moment in both gold and silver charts. Regardless of the cycle patterns, a key level to watch now in gold is $1767. A break below there could give us a possible buy spot. Silver is also very tricky to call right now. Despite last week's dramatic rally, this metal could still be bearish and about to fall to new lows in the $22 - $24 area which could also be a potential spot to buy."

The cycles are still a bit unclear, but gold has now broken below that $1767 line which means a medium-term cycle bottom could be imminent. We are also in a reversal zone specifically relevant to the precious metals (Feb. 16 - 25). Silver has been more bullish than gold and has not (yet) fallen to our target range of $22 - $24. This suggests its cycle is relatively new, and it may only be making a sub-cycle bottom now. Let's stay on the sidelines of both metals for now and see if gold and/or silver prices want to go lower.

My Feb. 7 blog on crude oil stated:

"...it is likely late in the current medium-term cycle in crude, and a final top in this cycle should be imminent. If it doesn't top early this week, it may push higher into the last two weeks of this month."

Prices are indeed pushing higher this week. Today crude prices got to $62.26 (March contract chart). As with the broad stock market, we can't rule out higher prices into the first half of next week. Let's stay on the sidelines for now.

Trading Blog Friday, February 12, 2021

2/12/2021

BRIEF UPDATE ON THE BROAD STOCK MARKET (2:00 pm EST)

It looks like the broad stock market could be rounding over and forming a top this week, but there was no intermarket bearish divergence between our major indices (DOW, S&P 500, NASDAQ). We are now out of our reversal zone, but we move into another (weaker) one late next week. It's possible a top could form then. I am not comfortable selling short right here so we will remain on the sidelines for now.

Trading Blog Monday, February 8, 2021

2/8/2021

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

All three broad stock market indices (DOW, S&P 500, NASDAQ) are making new all-time highs today, and so, as I suggested in last night's blog, ALL short positions should be closed now as we have lost our bearish divergence signal for this week. Does the lack of bearish divergence between these indices mean it is impossible we will see a top this week? Well, no. But it does make it less likely, and even if we do get a top, the reversal down may be modest. The big question here is whether or not the DOW and/or S&P 500 have already started new medium-term cycles from their Jan. 29 lows. If they have, they would be bullish and a significant reversal would not be imminent for at least several more weeks. It still looks like the NASDAQ is an older cycle which means that a top and significant downturn IS imminent (or should be). For this reason, we may be focusing on the NASDAQ for another possible shorting opportunity soon.

I should state here that the reason we are chasing a short sell in this market so vigorously is because the broad stock market is now very ripe for a MAJOR correction, not just in its medium-term cycles, but in its longer-term cycles as well. Wall Street's current rally is being driven by positive news concerning the distribution of COVID vaccines and the recent approval of another COVID stimulus package. But Wall Street and the DOW are very near-sighted beasts, and once this news becomes old, economic reality (as well as technical and cycle patterns) may kick in and pull the rug out from under this rally, a rally that some might characterize as "irrational exuberance".

We are now out of all our short positions in the broad stock market and will remain on the sidelines for now.

Trading Blog Sunday (evening), February 7, 2021

2/7/2021

MARKETS UPDATE (9:30 pm EST)

The DOW remained below its all-time high (31,273) on Friday (but it got really close). We therefore still have our bearish divergence signal (until that high is broken). Some traders are still holding short positions in the S&P 500 (unless they have already been stopped out). It's looking like this market could push higher this week, especially since there's a chance that the DOW and S&P 500 (but probably not the NASDAQ) could have started new medium-term cycles from their lows on Jan. 29. Any traders that are still holding a short position may stay short with a stop loss based on ALL THREE indices making new all-time highs next week. Others may remain on the sidelines for now.

Crude oil seems to be following the bullish trend of the broad stock market as the price is now getting close to $58. As with our equity indices, it is likely late in the current medium-term cycle in crude, and a final top in this cycle should be imminent. If it doesn't top early this week, it may push higher into the last two weeks of this month. We will stay on the sidelines of this market for now.

Last week's wild behavior in the precious metals market (especially in silver - manipulated by day traders inspired by GameStop) has made our cycle labeling very ambiguous at the moment in both gold and silver charts. Regardless of the cycle patterns, a key level to watch now in gold is $1767. A break below there could give us a possible buy spot. Silver is also very tricky to call right now. Despite last week's dramatic rally, this metal could still be bearish and about to fall to new lows in the $22 - $24 area which could also be a potential spot to buy. Let's stay on the sidelines for now and see what direction prices move next week.

Trading Blog Thursday (late night), February 4, 2021

2/4/2021

BROAD STOCK MARKET UPDATE (11:00 pm EST)

In Tuesday's post I wrote:

"My stop loss suggestion last week was 3,842, but now I would raise that a bit to 3,871, assuming the other two indices also make new all-time highs."

Well, today the S&P 500 closed at 3,871.74 - just a hair above our stop loss. The broad stock market rallied strongly with both the S&P 500 and NASDAQ making new all-time highs. Significantly, however, the DOW remained below its all-time high of 31,273 - but it is getting close.

OK, some traders may now be stopped out of their short position in the S&P 500, but some may still be short as the DOW is still below its all-time high (bearish divergence). If the DOW does make a new high tomorrow or early next week, all short positions should be closed. Should the DOW remain below 31,273 into the first half of next week, our bearish divergence signal would remain in force, and I would hold (or possibly re-enter) my short position as a reversal could (should) be imminent. All three indices making new highs after Wednesday of next week would suggest the medium-term cycle tops for these indices are not in yet and would likely happen later in the month (as they are now overdue).

Bottom line: If still short, hold that short position with a stop loss based on the DOW breaking above its all-time high
(31,273). If already stopped out, stay on the sidelines tomorrow. If the DOW stays under its all-time high early next week, consider going short again.

Trading Blog Wednesday (night), February 3, 2021

2/3/2021

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

Today the S&P 500 closed a few points higher than yesterday but still stayed below our new 3,871 stop loss level. The DOW stayed below yesterday's high and so far is not violating a strong resistance line around 30,820. The NASDAQ nearly touched its recent high from Jan. 25 (13,723) but quickly retreated back at the close of today's trading (bearish behavior). This is looking like the market is topping out now. Even if the NASDAQ edges a bit higher tomorrow to make a new high, the S&P 500 and especially the DOW do not look like they will do the same, and that scenario would give us another bearish divergence signal in our current reversal zone.
Let's hold on to our short S&P 500 position for now and at least until our stop loss is violated or the DOW's resistance line is cleared or all three indices make new highs.

Trading Blog Tuesday, February 2, 2021

2/2/2021

UPDATE ON THE BROAD STOCK MARKET (3:45 pm EST)

The broad stock market is rallying strongly again today, apparently buoyed by positive news on the COVID vaccine. Despite the rally, the DOW is still well below its Jan. 21 high (31,272). The S&P 500 and NASDAQ are also below their recent highs, although the NASDAQ is getting very close to its high (13,723 on Jan. 25). The S&P 500 is testing a stop loss point I suggested for our short trade last week (3,842), but more importantly, we are not seeing all three indices making new highs. Our current reversal zone lasts through the end of this week, and most likely also into next Tuesday. In other words, there is still time for this market to make new highs for a top in this reversal zone. We want to be shorting this market (which we have done); the only question is whether or not the tops are in already or will be made this week (or early next week). Note that the tops may be in for one or two of our indices, but not all three.

Our short position in the S&P 500 is currently slightly above the point where we made the trade (about 1% in the red). Traders may put an automatic stop loss for this trade at a level above this point based on their loss tolerance, keeping in mind that until all three indices break to new highs, the market is most likely still in a bearish correction. My stop loss suggestion last week was 3,842, but now I would raise that a bit to 3,871, assuming the other two indices also make new all-time highs. In the DOW, there is a lot of resistance around 30,820. Today this index broke above there briefly but closed below, which is bearish. A clear break above 30,820 would be bullish. The reward/risk ratio for our short trade is relatively high as a substantial correction in these indices is now due.

Holding my short position in the S&P 500 with a tight stop loss.

Trading Blog Monday (evening), February 1, 2021

2/1/2021

MARKETS UPDATE (9:30 pm EST)

Friday's plunge in the broad stock market (over 600 points in the DOW) is reinforcing our bearish view of equity markets right now, and more specifically, our idea that medium-term cycles in the DOW, S&P 500, and NASDAQ are in the process of correcting down to their final cycle bottoms. There is a slight chance that the DOW's low on Friday was already the cycle bottom (if true, it will rally strongly now), but this doesn't appear to be the case with the S&P 500 or NASDAQ. We shorted the S&P 500 on Thursday, and we will stick with our bearish view for now. The only thing that would turn us bullish now would be all three indices making new all-time highs, which doesn't seem likely at the moment. A good target for a bottom in the S&P 500 would be between 3,500 - 3,600 (it could go even lower if this is a longer-term cycle also coming to an end). Let's keep our short position in this market for now.

Most investors learned about the small video game store company GameStop last week as a coordinated social network of internet traders succeeded in driving its stock price to the moon. Today these same traders may have turned their attention to the precious metal silver as its price also took off like a rocket; however, some analysts are speculating that the silver rally is being driven by Wall Street hedge fund managers as a ploy to get investor attention away from the GameStop buying that caused enormous losses in their funds last week. We won't get into the politics and ethics of this kind of trading, but we note that this kind of volatility is obviously going to make any market more difficult (and dangerous) to trade. That said, it is interesting to note that, unlike GameStop, silver had been doing very well before today's surge, and in fact, in my last post on the precious metals (1/25/21) I had mentioned the possibility of both gold and silver turning bullish:

"There is a possibility that gold already started a new medium-term cycle with its low on Nov.30 ($1766) and that silver started a new cycle with last Monday's low at $24.28. If that is the case, both metals should be bullish now (especially silver). But until we see some strong rallying, I'm going to stick with our original bearish view of older cycles still moving towards a final bottom (and buy spot)."

So it looks like silver could have been ready for a big rally even in the absence of "GameStop" speculators. We note, however, that today's "super surge" in silver was not duplicated in gold, and the rally lost a lot of momentum in the final hours of trading suggesting it may just be a "flash in the pan". In other words, gold still looks like an older cycle that is bearish and heading towards its final medium-term cycle bottom. And even if silver did start a new cycle, it too could be turning bearish with an early peak. Any strong rallying in gold right now would change that view. It is clearly best to remain on the sidelines of this market (especially silver) for now.

In my Jan. 5 blog on crude oil I stated:

"It looks like crude oil may have made a shallow sub-cycle dip and bottom last Friday at $51.44 (March contract chart). If so, prices should rally now into a final top for the current medium-term cycle. That could happen this week and push prices somewhere above $54."

Well, it didn't happen last week in the reversal zone specifically for crude (now over), but overnight prices are just now pushing just above $54, and we are in a general reversal zone for all markets that ends on Friday (Jan. 27 - Feb. 5). It is late in this medium-term cycle so a final cycle top could be forming this week. If the broad stock market is going to continue its fall from here, crude may go down with it. I may consider a short sell in crude this week barring a strong rally in equities. If we miss the top in crude, we will wait for the final cycle bottom for a good buy spot. We are still on the sidelines of crude.

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