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Trading Blog Wednesday, February 23, 2022

2/23/2022

MARKETS UPDATE (3:30 pm EST)

The broad stock market has been falling steeply (so far) this week, and it is now testing its deep low point from January. The DOW broke easily through support at 34,000 and is now testing 33,500. A double-bottom with January's low (33,150) COULD be forming here, but if the DOW breaks and closes below 33,150, it will probably be heading significantly lower. The S&P 500 is now testing support at 4,300, but it too could plunge lower if it breaks and closes below its January low of 4,222. It seems like the NASDAQ has broken definitively below strong support at 13,500 and will now test its January low at 13,097. This is not looking good for bulls, especially since there are no major reversal zones this week to halt any plunge. We do have one coming up next week, however (March 1 - 10). If this market can stabilize near these January lows for another week, we could see a significant double-bottom low forming here for another rally upwards. But that's asking a lot of Wall Street right now, especially in the midst of the current Russia/Ukraine/U.S. conflict. We currently have a 15% profit on our short position in the NASDAQ (entered on 12/31/21). If the market stabilizes here, I will consider covering (unloading) this position and taking that profit. For now, however, let's continue to hold that short position.

Gold and silver prices continue to rally this week. Gold has already soared beyond its January highs, but silver has not (but it is getting close). We may have a low level reversal zone for the precious metals from now through Friday. If silver stays below its January high ($24.76) over the next few days, we will have a case of bearish divergence between the two metals in a possible reversal zone. In other words, a correction down could be imminent. We may look to buy the low of any significant correction now, but we need to keep in mind what I wrote last week concerning gold's long-term (23 year) cycle:

"I should mention here that it is very late in gold's 23 year long-term cycle (it started around 2001), so unless gold can overcome resistance around $1900 - $1960 soon, it will not challenge or exceed the all-time high of $2070, and prices should be headed down for a steep correction over the next several years - possibly down to $1000 or even lower (see my GOLD Update on the Home page). We are looking to buy any significant short-term corrections now to possibly take advantage of a potential "blow-off" rally if gold can challenge and even make a new all-time high. But we obviously need to be careful here. If that resistance around $1900 - $1960 holds, we will want to switch to bearish trading strategies (i.e. looking to sell short)."

The U.S. Dollar Index seems to be stabilizing above its 15-day and 45-day moving averages with some other technical indicators suggesting some short-term bullish momentum. If the greenback can rally now, it could put downward pressure on gold and silver prices, which would support the idea of an imminent correction in these metals.

Crude oil prices dipped sharply lower last week to $87.46 (April contract chart) but found support at the 15-day moving average, and prices rebounded significantly up yesterday to almost touch $95. The correction could be over, and it was not deep enough to entice me to buy. As I stated in last week's blog on crude:

"As with gold, I would prefer to buy at a lower price, but with U.S./Russia tensions so high, we may not get that. But then again, with the "wildcard" factor of geopolitical instability influencing and creating potential volatility (both up and down) in crude prices now, it may be best to stay on the sidelines . "

So we didn't get our low price to buy, and we remain on the sidelines as the Russia/Ukraine crisis rages on.

Trading Blog Thursday, February 17, 2022

2/17/2022

MARKETS UPDATE (2:00 pm EST)

It seems that more "saber-rattling" today between the U.S. and Russia may be throwing a wet blanket on this week's rally in the broad stock market. All three market indices (DOW, S&P 500, NASDAQ) are moving back down towards support near their January lows. We are now out of our reversal zone. If all three indices break below their lows from last week, they could be down for another two weeks - if they can also penetrate their January lows. We will hold our short position in the NASDAQ for now, but if we see support holding around 34,000 - 34,500 in the DOW, 4,300 - 4,400 in the S&P 500, or 13.500- 14,000 in the NASDAQ, we will consider taking profits and covering that short position. It still looks like a major long-term correction is unfolding from the all-time highs we saw in November in the NASDAQ, and in January in the DOW and S&P 500.

Both gold and silver made new weekly highs on Tuesday (in our reversal zone) before prices took a slight correction. We are out of that reversal zone today, and prices are taking off again (especially gold). These metals are 'breaking out", and the cycles have turned definitively bullish. We have not had any significant corrective drops to buy, so we will remain on the sidelines until we get one. We could see a significant high (or low) form late next week. We are still on the sidelines of both gold and silver.

I should mention here that it is very late in gold's 23 year long-term cycle (it started around 2001), so unless gold can overcome resistance around $1900 - $1960 soon, it will not challenge or exceed the all-time high of $2070, and prices should be headed down for a steep correction over the next several years - possibly down to $1000 or even lower (see my GOLD Update on the Home page). We are looking to buy any significant short-term corrections now to possibly take advantage of a potential "blow-off" rally if gold can challenge and even make a new all-time high. But we obviously need to be careful here. If that resistance around $1900 - $1980 holds, we will want to switch to bearish trading strategies (i.e. looking to sell short).

Crude oil prices have been dropping from Monday's high at $95.82 (March contract chart). That high was in our reversal zone (which ended yesterday), so a significant sub-cycle correction could be underway here. As with gold, I would prefer to buy at a lower price, but with U.S./Russia tensions so high, we may not get that. But then again, with the "wildcard" factor of geopolitical instability influencing and creating potential volatility (both up and down) in crude prices now, it may be best to stay on the sidelines . And so we shall.

Trading Blog Wednesday, February 16, 2022

2/16/2022

BRIEF COMMENT ON THE BROAD STOCK MARKET (3:30 pm EST)

Today the minutes of last month's FOMC meeting were released revealing more detail about the discussions of Fed officials during that meeting. The Fed's public policy statements from last month were rather hawkish as they emphasized the imminent need to reduce bond buying (QE) and increase interest rates. Today's minutes softened that rhetoric a bit by saying that any policy decisions would ultimately depend on a meeting-by-meeting analysis of data. This gives the Fed a little wiggle room to soften their hawkish stance and be a little more accommodating with monetary policy if necessary.

A pessimistic broad stock market fell into the afternoon, but the release of the Fed minutes at 2 PM seemed to lighten things up, and equities bounced up sharply from there. At the time of this writing the market has recovered its early day loss. Where it goes from here is debatable. I don't think a slight softening of Fed rhetoric is going to change investor sentiment right now. Tensions between the U.S. and Russia over Ukraine is a much stronger factor influencing equities now. If that situation continues to escalate, it will likely send this market back down. We are still holding our short position in the the NASDAQ.

Trading Blog Monday, February 14, 2022

2/14/2022

MARKETS UPDATE (3:00 pm EST)

All three of our broad stock market indices (DOW, S&P 500, NASDAQ) made isolated highs in the middle of last week (near our second "pivot point" - Feb. 7 - within our current reversal zone), but only the DOW and NASDAQ made new weekly highs (the S&P 500 did not). This gave us a bearish divergence signal, and indeed, the market has been falling steeply from those highs (so far). But now these three indices are approaching support near their January lows. This is a critical juncture. If the lows hold, these indices could rebound into another strong rally to test and possibly exceed their all-time highs. But there are several technical signals suggesting this is unlikely. The recent rally penetrated between the 15-day and 45-day moving averages (the DOW even exceeded BOTH moving averages), but it quickly backed down and is now below those averages - a bearish sign.

Our long reversal zone ends this week on Wednesday. If equities don't rebound by then, they are likely headed lower. But if the January lows hold and sustain a bounce here, we may take profits and cover our short position in the NASDAQ, then wait and see if the rally gains any legs. Right now, it looks like the all-time highs from early January (DOW and S&P 500) and late November (NASDAQ) were long-term tops, but there's still a small chance that one, two, or all three indices could re-test or even exceed those tops over the next six weeks before taking the plunge to a final long-term cycle bottom. We will hold our short position in the NASDAQ for now.

In last Tuesday's blog on the precious metals I wrote:

"Last week silver made a new weekly low but gold did not, and that gave us a bullish divergence signal within our reversal zone for the precious metals. We are now out of that reversal zone but still within our general reversal zone for all markets which ends next week on Wednesday. Another top could form by then, but it's also possible that last week's low in silver and the prior week's low in gold were significant sub-cycle bottoms. The trend here is still uncertain, but it may be turning bullish."

Well, our reversal zone ends this Wednesday, and both metals are rallying strongly. Gold has been especially strong and surged dramatically on Friday as it exceeded its high from January. Silver rallied too, but it is still well below its January high. This sets up a possible bearish divergence within our reversal zone, so a top and the start of a corrective drop is still possible by Wednesday.

It seems that gold started a new medium-term cycle with its low on Dec. 15 (at $1759), so it its cycle is relatively young, and it looks like it is turning bullish. We don't want to buy this steep rally, but we will watch for any significant sub-cycle corrections to buy (one is due now) - possibly from a top forming this week. Silver also most likely started a new medium-term cycle with its low of $21.45 on Dec. 15. Like gold, silver could also be ready for a significant sub-cycle corrective drop, and it could be imminent. We will remain on the sidelines of both metals for now and watch for any corrective drops that could give us good spots to buy

Today crude oil prices pushed up to yet another new multiyear high at $95.82 (March contract chart) as geopolitical tensions between the U.S., Russia and Ukraine continue. Like the precious metals, the medium-term cycle in crude is due for a significant sub-cycle top and correction, and it's possible that top could be this week. We will watch for it and a possible corrective drop to buy. According to our cycle estimates, crude prices could surge as high as $115 this year. If tension between Russia and the U.S. continues to escalate, we may see even higher prices. We are still on the sidelines of crude.

Trading Blog Wednesday (evening), February 9, 2022

2/9/2022

BRIEF COMMENT ON THE BROAD STOCK MARKET (7:30 pm EST)

The broad stock market continued to rally strongly today. The DOW exceeded its high from last week, but both the S&P 500 and NASDAQ did not exceed their highs (they are close). This gives us an intermarket bearish divergence signal inside our current reversal zone. We have a good set-up here for these indices to fall now. If instead they push higher into the end of the week and both the S&P 500 and NASDAQ make new weekly highs, we will cover our short NASDAQ position (and take profits) and stand aside.

It still looks like the all-time highs in the DOW and S&P 500 in early January and the all-time high in the NASDAQ in late November 2021 were long-term cycle highs. If that's true, this correction in equity markets may not be over yet, and these indices could fall a lot deeper than last month's lows. If equities continue to push higher past the middle of next week (the end of our reversal zone), we will wait to see if all three indices can make new ALL-TIME HIGHS. Until that happens, my view of the broad stock market remains bearish. We are still holding our short position in the NASDAQ until the S&P 500 and NASDAQ both make a new weekly high with the DOW.

Trading Blog Tuesday (evening), February 8, 2022

2/8/2022

MARKETS UPDATE (10:30 pm EST)

It is still possible that all three of our broad stock market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles with their lows on Jan. 24. But even if that's the case, the new cycles could still turn bearish. The rallies from those lows so far are still not giving us a definitive trend up or down. We are now inside a very wide reversal zone for all markets (Jan. 28 - Feb. 16) with two potential "pivot points" for likely reversals (Feb. 3 and Feb. 7). (The Jan. 24 bottoms were not in a reversal zone and there was no bullish divergence between these indices on that day. This is why I am reluctant to confirm that low as a new medium-term cycle bottom - although it is possible).

Last Wednesday's high in all three indices WAS in our reversal zone (and close to the Feb. 3 pivot point), so it could be a very significant turning point. The markets fell strongly from there. The markets are rallying today, but they may not be able to get back above last week's highs. Even if they do, we are near our second pivot point (Feb. 7) and are in this reversal zone through the middle of next week, so another top and reversal could be imminent to turn the trend bearish.

Let me repeat from last week:

"We note that currently the NASDAQ has dropped nearly 20% from its all-time high, the DOW about 10%, and the S&P 500 around 12%. These are big corrections, but if we are still completing a 90 year cycle in equities, these indices could go a lot lower. The behavior of stock markets in January is often a bellwether for how the markets will perform for the rest of the year. January's performance has been dismal. This doesn't bode well for the rest of 2022."

Right now the DOW seems to have the most bullish potential, and next would be the S&P 500. The NASDAQ seems the most bearish at the moment, which is good because we are still holding our short position there. I don't think we have to think about covering this position until last week's high (14,505) is exceeded. Similarly, we will maintain our bearish outlook in the DOW and S&P 500 until their highs from last week are broken (35,680 and 4,596. respectively). We will hold our short position in the NASDAQ for now.

Last week silver made a new weekly low but gold did not, and that gave us a bullish divergence signal within our reversal zone for the precious metals. We are now out of that reversal zone but still within our general reversal zone for all markets which ends next week on Wednesday. Another top could form by then, but it's also possible that last week's low in silver and the prior week's low in gold were significant sub-cycle bottoms. The trend here is still uncertain, but it may be turning bullish. We will stay on the sidelines of this market for now.

There was a reversal zone specifically related to currencies Jan. 27 - Feb. 4.
Last Friday (Feb. 4), the U.S. Dollar Index made an isolated low at 95.14, and it has been rising (weakly) from there. If that was a significant sub-cycle bottom, we could see more rallying. A strong rally in the dollar now could turn gold and silver prices back down and support a bearish view of the metals. Let's wait and see if this happens.

Last Friday crude oil prices made a top at $93.17 (March contract chart) in the center of a reversal zone specifically for crude. Prices have been falling from there, and today was the last day of that reversal zone. That high was likely a significant sub-cycle top. The only problem here is that it may be too early in this current sub-cycle (which started with the low of $81.90 on Jan. 24 for a significant correction. If prices drop into the $84 - $86 range, we may consider going long. Otherwise, we may have to wait for a higher top before we see a significant corrective drop to buy. We will stay on the sidelines of crude for now.

Trading Blog Tuesday, February 1, 2022

2/1/2022

BRIEF COMMENT ON THE BROAD STOCK MARKET (2:30 pm EST)

Just so we don't lose sight of the forest for the trees, I would like to clear up any possible confusion from yesterday's blog on the broad stock market about covering our short positions in the NASDAQ (or S&P 500 and DOW) once we discern the start of a new medium-term cycle in any of these indices. Yes, the start of a new medium-term cycle would be at least short-term bullish, and we would see some rallying. But we need to remember that medium-term cycles operate WITHIN longer-term cycles, so even if we start new medium-term cycles, a longer-term cycle correction in equities may not be over yet, and the medium-term cycles could easily and quickly turn back down to make deeper lows.

We note that currently the NASDAQ has dropped nearly 20% from its all-time high, the DOW about 10%, and the S&P 500 around 12%. These are big corrections, but if we are still completing a 90 year cycle in equities, these indices could go a lot lower. The behavior of stock markets in January is often a bellwether for how the markets will perform for the rest of the year. January's performance has been dismal. This doesn't bode well for the rest of 2022.