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Trading Blog Monday, February 27, 2023

2/27/2023

MARKETS UPDATE (9:30 pm EST)

This week we have no major reversal zones for any market, so we don't expect any major changes in trend. Today the broad stock market opened with a strong rally, but that rally lost most of its momentum by the end of the day. The lows in the DOW, S&P 500, and NASDAQ from last Friday were inside a weak "pivot point" zone (that may extend into tomorrow), so it's possible they were a significant bottom. But if the market starts breaking below those lows after Tuesday, the trend may continue down until our next strong major reversal zone for equities coming up March 13 - 23. As I mentioned in my last blog, it would be ideal to see the DOW and S&P 500 make their final medium-term cycle bottoms in that time frame within our target ranges (that would be 30,500 - 32,500 in the DOW and 3,600 - 3,900 in the S&P 500). Let's continue to hold our short positions in this market for now as we wait for that bottom.

Both gold and silver made new weekly lows today which eliminates any bullish divergence signals for this week. Gold still hasn't closed within our target range for a final medium-term cycle bottom (due anytime now) which is $1770 - $1810. Silver IS within our target range ($20 - $22) for a final medium-term cycle bottom (now overdue), but still has room to move lower (it closed today at $20.63). Next week we have a very strong potential "pivot point" for silver from Monday - Wednesday, and a strong one for gold from Wednesday through Friday. We also have a strong reversal zone for both metals the following week (March 13 - 21). Any of these time frames would be a good place for gold and silver to make their final medium-term cycle bottoms. This encourages me to think that both metal prices will continue to trend down this week. We will stay on the sidelines for now until we see stronger signs of a cycle bottom forming.

Crude oil prices edged a bit higher today but still remain in "congestion" between $74 and $80. The strong reversal zone coming up March 13 - 23 could end up being the bottom of an older medium-term cycle in crude, or it could be a new high in a younger cycle - it is too early to tell which it will be. Perhaps a trend (up or down) will establish itself by the end of this week. Until the cycle and trend pattern become more clear, we will stay on the sidelines of this market.

Trading Blog Friday, February 24, 2023

2/24/2023

MARKETS UPDATE (2:00 pm EST)

After a small relief rally yesterday, it looks like the broad stock market is resuming its corrective fall as the DOW and S&P 500 approach the upper levels of our target ranges for a final medium-term cycle bottom (that would be 30,500 - 32,500 in the DOW and 3,600 - 3,900 in the S&P 500). This is good news for our current short position in this market. Our next strong reversal zone is coming up March 14 - 23. It's very possible for equities to continue their correction down into that time frame (i.e. for another two weeks) before reaching a final medium-term cycle bottom inside the ranges stated above. With this in mind, let's plan on holding our short position until we see some signs of a bottom forming in our target ranges, which may not happen for at least two more weeks. We are holding our short position in the broad stock market for now.

Precious metal prices continue to fall, and today both gold and silver are making new weekly lows. This negates any intermarket bullish divergence signal for this week. As stated in previous blogs, we are now waiting to buy the final bottoms in the current medium-term cycles of both metals. Gold's final bottom is due anytime now over the next 5 weeks in the price range of $1770 - $1810. Prices have just penetrated the upper part of that range today. Silver's final bottom is actually overdue which means its cycle is expanding (distorting), and silver is now moving into the lower end of its target price range ($20 - $22) for a bottom. Despite the lack of a bullish divergence signal, a bottom could be forming now as this week is a potential "pivot point" for both gold and silver. But there is a much stronger potential pivot point for both metals coming up the week of March 6 - 10, and there is a very strong reversal zone specifically for the precious metals coming up March 13 - 21. It would be ideal to see the final cycle bottoms in one of these time frames, so until we see stronger signs that a bottom is forming, I am going to hold off buying. Let's stay on the sidelines of both metals for now.

After falling for most of this week, crude oil prices seem to have found support at $74 (April contract chart) and are rising a bit today. The cycle (new or old) and short-term trend (bullish or bearish) in this market is still not clear. Prices seem to be in congestion between $74 and $80, so we will stay on the sidelines of crude until prices can break under or over this range. A clear break below $70.86 would be (short-term) bearish, and a clear break above $82.89 would be very bullish.

Trading Blog Wednesday, Feb. 22, 2023

2/21/2023

MARKETS UPDATE (3:00 pm EST)

Our decision to short sell the broad stock market last Thursday was a good one. As I wrote in Thursday's blog:

"This week's rally could peak now and then head down sharply for several weeks to the final medium-term cycle bottoms of the DOW and S&P 500 (probably in our next strong reversal zone coming up March 14 - 23)."

After peaking last Tuesday (DOW and S&P 500) and last Wednesday (NASDAQ), all three market indices (DOW, S&P 500, NASDAQ) have been falling steeply. A weak general reversal zone ends today, so It's possible we could see a bottom here, but I think it's more likely this market will continue down lower into March as it moves down to the final medium-term cycle bottom for these indices. A good target range for the cycle bottoms would be around 30,500 - 32,500 for the DOW and 3,600 - 3,900 for the SP 500. Our next next reversal zone (a strong one) is coming up in mid-March (March 14 - 23). That would be a good time for the cycle bottoms. Let's hold our short position for now with the expectation of final bottoms next month in the above mentioned ranges. We already have a profit on this trade so we can keep our stop loss based on all three indices breaking back above last week's highs.

Gold's current medium-term cycle final bottom is due anytime now over the next 5 weeks and in the price range of $1770 - $1810. The bottom MAY have happened with last week's low at $1819, but that low was not in our target range, and we had no bearish divergence signal between gold and silver. I think gold prices can push lower and into our target range. If that happens this week without silver making a new weekly low, we may have a good spot to buy. There is a weak reversal zone for the precious metals this week (silver on Wednesday and gold on Friday), but there is a much stronger reversal zone for gold and silver coming up March 13 - 21. If gold prices don't bottom this week, we will look for the final medium-term cycle bottom in mid-March. We are currently on the sidelines of gold.

Unlike gold, silver's final medium-term cycle bottom is overdue (which means its cycle is expanding), and it may have already happened with last week's low at $21.19. That low was in our range for a final cycle bottom ($20- - $22), and it was inside a weak reversal zone. If that low can hold this week and if gold can make a new weekly low, we would have a bearish divergence signal and possibly a good spot to buy both metals. While gold's next rally may not get above $1959, silver has the potential to rally back up to $30, so we are definitely on the lookout to buy this metal. We are still on the sidelines of silver for now.

After breaking a tad above $80 last week, crude oil prices have been falling again, and today they are approaching a strong support line near $74. If this support holds and prices start to rally again, it will support the idea that a new medium-term cycle started with the low of $70.86 on Dec. 9. If that's the case, another rally could be bullish and finally break clear through the $80 level, but prices would also have to break and close above $83 to make the cycle truly bullish. This is my favored scenario now, but it would be negated if prices continue to fall and break below $70. In that case, we would likely be looking at an older medium-term cycle making its final bottom sometime in mid-March in a target range of $60 - $65. If that happens, that bottom would also likely be the end of a longer-term 3-year cycle (and start of a new one) and would be an excellent buy spot.

On the other hand, if our preferred bullish scenario (medium-term cycle starting on Dec. 9) plays out, we will assume the new 3-year cycle started on Dec. 9 and the market will be very bullish with prices soon getting back up to the $92 - $94 area. If crude can get past $100, it will verify that a new 3-year cycle is in progress, and we might see prices as high as $140 - $145 by the end of the year ! For now, however, we need to stay on the sidelines as we wait for confirmation of either an older cycle or a new, younger one.

Trading Blog Thursday (late night), February 16, 2023

2/14/2023

BROAD STOCK MARKET TRADE ALERT and MARKETS UPDATE (10:00 pm EST)

We are now at the center of this week's "minor" reversal zone (Feb. 13 - 21), and the broad stock market. We may have just seen a top with Tuesday's highs in the DOW and S&P 500 and Wednesday's high in the NASDAQ, although this market still seems buoyant and reluctant to fall (so far). It is very late in the medium-term cycles of the DOW and S&P 500. This means their final medium-term cycle highs are PROBABLY in (that would be the Dec. 13, 2022 high for the DOW at 34,712 and the Feb. 2, 2023 high for the S&P 500 at 4,195).

This week's rally could peak now and then head down sharply for several weeks to the final medium-term cycle bottoms of the DOW and S&P 500 (probably in our next strong reversal zone coming up March 14 - 23). Supporting this idea is the fact that we are seeing a strong bearish divergence signal this week as the DOW made a new weekly high but not the S&P 500 or NASDAQ (yet). We also still have a bearish divergence signal based on the S&P 500 and NASDAQ exceeding their Dec. 13 highs with the DOW still below its Dec. 13 high. Today we saw all three indices close at the bottom of their ranges for the day - yet another bearish signal in this reversal zone. I am going to enter a short position in this market (DOW or S&P 500) for tomorrow's market open. We can place an initial stop loss for this trade based on all three indices (DOW, S&P 500, NASDAQ) making new weekly highs.

Gold prices continue to push lower this week. It is very late in the current medium-term cycle of gold, and prices have been falling steeply from the Feb. 2 high at $1959. I am going to assume that was the final top in this cycle and that prices are now falling to the final bottom of the cycle due anytime over the next six weeks (possibly in mid-March).
A good range for this final medium-term cycle bottom would be $1770 - $1810. We may look to buy there for a short-term rally, but I don't expect that rally to exceed the previous high of $1959. The next medium-term cycle will likely peak early and become very bearish as it falls to its final bottom - a bottom that could also correspond to the final bottom of a longer-term 23-year cycle (that started with the double-bottom lows of 1999 and 2002 around $280). This 23-year cycle low is now due (overdue) sometime in 2023 - 2024, at a price level that could get close to $1000. This is our preferred scenario at the moment, but there is an alternate scenario.

There is a small possibility (not likely, but possible) that a new 23-year cycle started with the low of $1046 in December 2015. If that's the case, this cycle would be young ( 7 years old) and bullish and would be on its way to challenge and likely exceed the $2070 high from August 2020. A good trading strategy now is to wait for the final medium-term cycle bottom in the range mentioned above ($1770-$1810). We will look to buy that bottom for a short-term rally and then sell short at a presumed top under $1959. If the rally exceeds $1959, it would start to support the idea of a young (bullish) 23-yr cycle and we would then hold (or re-buy) our long position. We are on the sidelines of gold for now.

Silver's current medium-term cycle is now due (overdue), and prices are still moving lower. The price of this metal is now in the upper part of our target range for a cycle bottom ($20 - $22), but gold is not, which suggests silver may fall lower until gold reaches its target, Our general reversal zone extends into next Tuesday, and there may be a "pivot point" for silver on Wednesday. It would be nice to see bearish divergence (silver or gold, but not both, make a new weekly low) at the bottom of these cycles before buying, and we are not getting that this week. Let's see if it happens next week - closer to gold's target range - for a possible buying opportunity. We are still on the sidelines of silver.

The U.S. Dollar Index looks quite bullish at the moment. If it continues to rally, it will put more downward pressure on the precious metals.

It's still not clear if we are dealing with a new or old medium-term cycle in crude oil. A close above $83 (March contract chart) would suggest a new cycle, but a close below $72 would suggest an older one (or a newer one that is turning bearish). Let's stay out of this market until the cycle and trend is more clearly established.

Trading Blog Thursday (late night), February 9, 2023

2/9/2023

MARKETS UPDATE (11:00 pm EST)

The broad stock market has been relatively flat and stable (so far) this week, but momentum may be turning down today. Not one of our three indices (DOW, S&P 500, NASDAQ) has made a new weekly high, and we still have an intermarket bearish divergence signal carrying over from last week (when the S&P 500 and NASDAQ exceeded their Dec. 13 highs and the DOW did not). It is late in the medium-term cycles of these indices, so a final top could happen anytime now. We are now out of our weak reversal zone (although there may be a "pivot point" for this market today and tomorrow), but there is another weak reversal zone coming up next week (Feb. 13 - 21). This market could make a significant high or low then - it is unclear at the moment which is more likely. Any high could be a shorting opportunity, but any low might be a good place to buy (as long as it isn't TOO low). We will stay on the sidelines for now.

Over the last three days gold and silver prices have been flat, but today they are moving down, and both are breaking below their lows from last week. A sub-cycle bottom is overdue in gold, and a final medium-term full cycle bottom is overdue in silver. We are expecting gold's bottom to be between its 15-day and 45-day day moving averages. Right now, the 15-day average ($1910) is above the 45-day average ($1863), and prices are testing the lower one. We want to see silver's bottom in the $20 - $22 range, and today silver is breaking slightly below $22. It would be nice to have a bullish divergence signal at these bottoms (i.e. gold or silver making a new low without the other), but we're not going to get that this week (both are making new lows). We are not in any reversal zone this week, but next week we have that weak reversal zone mentioned above as well as possible "pivot points" for gold on Monday, and for gold and silver on Tuesday - Wednesday. Let's watch for these bottoms in those time frames with a possible bullish divergence signal and perhaps an opportunity to buy both metals. We will remain on the sidelines of gold and silver for now.

The U.S. Dollar Index is now about to leave a reversal zone specifically for currencies (Feb. 1 - 9). The dollar made a significant low Feb. 2 at 100.82 and then rallied strongly. That was probably the reversal, but the greenback has been falling a bit from a high it made on Monday (103.96). That could also be a reversal if downward momentum accelerates from here. My guess is that it won't, or if it does, the dollar won't break below 100.82. If the dollar can rally some more into next week's weak reversal zone, it might help push gold and silver to their final lows. Then a subsequent corrective dip in the dollar could drive another (possibly short-term, but possibly steep) rally in these metals. I am speculating here, of course, but it seems like a plausible scenario that we will look for.

Crude oil prices have been rising steeply this week after making a deep low at $72.25 (March contract chart) on Monday. Today prices were testing the 15-day moving average (after breaking through the 45-day moving average yesterday). If prices start backing down again, we could see an older medium-term cycle move to its final bottom (below $70.56) over the next several weeks. That would be my preferred scenario as it would also most likely correspond to a 3-year cycle bottom and a very good spot to buy. However, if prices break that 15-day moving average and keep rising, we will have to consider the idea of a new medium-term cycle starting from the Dec. 9 low at 71.48, especially if prices start closing above $82.66. We are staying on the sidelines of crude for now.

Trading Blog Monday (night), February 6, 2023

2/6/2023

MARKETS UPDATE (9:00 pm EST)

All three of our broad stock market indices (DOW, S&P 500, NASDAQ) are late in their medium-term cycles, and that means their final tops are imminent to be followed by a final correction down to their final cycle bottoms. All three cycles have been bullish so far, but only the S&P 500 and NASDAQ made new cycle highs last week. The DOW still has not exceeded the 34,712 high it made back on Dec. 13, so it could be turning bearish. This difference creates a bearish divergence signal for the market in general (i.e. for all three indices). It is possible that last week's highs in all three indices (in the center of a weak reversal zone) were final tops and the fall to their medium-term cycle bottoms has begun. But there is another weak reversal zone coming up next week (Feb. 13 - 20), and this market seems to have some buoyancy. We might see more rallying to new tops into next week's reversal window. If we get that with more bearish divergence signals, it might be a good spot to sell short. If the tops are already in, however, we will wait for the final cycle bottoms, and if they don't go too low, we will consider buying for another potentially strong rally. For now, we remain on the sidelines.

Our longer-term view of this market remains unchanged; that is, we are still going with the idea that a very long-term equity cycle topped out with the all-time highs in Jan. 2022 in the DOW and S&P 500, and in Nov. 2021 in the NASDAQ, and that a major long-term corrective drop is in progress. In this view, our current rally (which started in October 2022) is a sub-cycle wave up that should not exceed those all-time highs before turning back down and making much deeper lows. If those highs are exceeded, however, we may have to abandon this idea of a "crash", and the longer-term broad stock market would be considered bullish.

It looks like we did cover our short position in silver a little too early last Tuesday. Although both silver and gold prices shot up on Wednesday, both came crashing back down Thursday and Friday. Silver is now close to our original $20 - $22 price range for a final medium-term cycle bottom which was technically due last week (but the cycle could be expanding). Gold prices are now just above the 45-day moving average and below the 15-day moving average, which was our price target for a sub-cycle correction. That low is due this week. Tomorrow is the last day of our reversal zone specifically for the precious metals, so a significant bottom in both metals could be forming now. If it looks like a bottom is forming over the next few days, we may go long in both metals.

Last Thursday the U.S. Dollar Index found support near 100 and started a significant rally. That was within our reversal zone specifically for currencies (Feb. 1 - 9). Unless the dollar backs down again before Friday, it looks like last week's low at 100.82 was a significant cycle or sub-cycle bottom and more rallying could be ahead. If that's the case, it could put downward pressure on precious metal prices.

Let me again repeat my cycle analysis of crude oil from Jan. 30 as it still applies today:

"The medium-term cycle labeling for crude oil is still not clear, but there are two likely possibilities at this point in time:

1) Crude started a new medium-term cycle with its low of Sept. 28 at $73.28 (March contract chart). This scenario is bearish because prices have already fallen well below the start of the cycle (crude fell to $70.56 on Dec. 9), and the rally from Dec. 9 should turn back down soon with prices falling below $70.56 to the final cycle bottom due anytime now by March 4.

2) Crude started a new medium-term cycle on Dec. 9 at $70.56. This scenario could be bullish or bearish, depending on whether or not prices can stay above $70.56. Prices seem to have overcome resistance at $80 and are holding above there. The next steps in a bullish cycle would be to clear $85, and then $90. If bearish, however, prices will not clear these hurdles before turning down again and breaking below $70.

We are now also looking for the end of a longer-term 3-year cycle in crude which is due anytime now, but ideally around March 7 (or maybe near Feb. 4). If we get new lows then, it may be a very good spot to buy."

We are now at a crossroad for crude as prices could not hold above $82 and have come back down to $72.25 (March contract chart). If prices continue down and break below $70, we could be looking at scenario 1 (or the bearish version of scenario 2). But if today's low at $72.25 holds, then it could be a mid-point sub-cycle low for the BULLISH version of scenario 2. I would prefer to see scenario 1 pan out because that would line up better with the end of a longer-term 3-year cycle in early March which would be a VERY good place to buy. Let's wait and see how prices move from here. We will remain on the sidelines of crude for now.

Trading Blog Thursday (evening), February 2, 2023

2/2/2023

COMMENT ON THE FED MEETING and UPDATES ON THE BROAD STOCK MARKET, THE U.S. DOLLAR INDEX, and PRECIOUS METALS (10:00 pm EST)

As expected, the Fed announced at 2 pm yesterday that it would raise the central bank's key interest rate one quarter-point. At the Fed's 2:30 pm press conference, Chairman Jerome Powell sounded upbeat about the chances of a "soft landing" for the U.S. economy, but only slightly less hawkish in his plans to tighten (i.e. raise rates) moving forward. Nevertheless, he did suggest that if inflation and economic data becomes more positive, it could lead to fewer rate hikes down the road. That seemed to be enough to trigger a late day rally in the broad stock market, especially in the S&P 500 and NASDAQ. Earlier in the week, equities were falling, so perhaps we are also seeing an example of "sell the rumor" (of the Fed rate hike) on Monday - Wednesday morning, and then "buy the news" Wednesday afternoon.

Today, the rally followed through strongly in the S&P 500 and NASDAQ (both "gapped" up to new weekly and monthly highs), but the DOW was much less enthusiastic and remained relatively flat (apparently the poor performance of United Health was responsible for pulling down the DOW). Although the DOW now seems bearish compared to its two companion indices, we should note that the DOW already exceeded its August 2022 high back in Nov. 2022, while both the S&P 500 and NASDAQ are still well below their August 2022 highs, so these latter two indices are still catching up. This actually creates a strong bearish divergence signal (until the S&P 500 and NASDAQ can clear those August highs). We also have another shorter-term bearish divergence signal this week if the DOW can't exceed its Jan. 13 high (34,342) tomorrow (Friday). We are now at the center of a weak reversal zone (Jan. 30 - Feb. 7), so a significant top could be imminent (especially with these bearish divergence signals in place). Let's see if Wall Street's optimistic response to this week's Fed meeting can propel the market higher and at least push the DOW above that Jan. 13 high. If not, we may look to sell short or maybe just wait for a corrective low to buy near the final bottoms of the current medium-term cycles (as long as they don't go TOO low) which are coming due soon. We remain on the sidelines of the broad stock market for now.

The U.S. Dollar Index usually benefits from a hawkish Fed, so yesterday's slight softening of Powell's rhetoric on tightening may have pushed the greenback down yesterday and today. The support line at 102 has clearly broken. The next support levels would be around 100, 97-99, 96, and then strong support at 95. We just entered a reversal zone specifically for currencies (Feb. 1 - Feb. 9), so one of these levels could end up being the support line for a reversal back up and the start of another strong rally this week or next. If that happens, it could put downward pressure on gold and silver prices. But as long as the U.S. dollar is trending down, the precious metals will likely have upward momentum.

We are at a crossroads in the longer-term picture of the U.S. dollar. It's highly likely the U.S. Dollar Index started a new long-term 14-year cycle with its low of 89.20 in Jan. 2021. If that is the case, it is very early in this new cycle, and the dollar should be bullish and ready to rise to new highs and probably challenge the 121 high (July 2021) of the last 14-year cycle. There is a chance, however, that we are still in an older 14-year cycle that started with the low of 70.69 in March 2008 and peaked with last year's high of 114.78. In this scenario, the dollar is bearish and is now in the process of falling to its final 14-year cycle low due anytime now. If the U.S. Dollar Index starts closing below 97, it would suggest that this bearish labeling is correct. A close below the 89.20 low would probably confirm it. For now, I am favoring the bullish scenario of a new 14-year cycle.
I will discuss the long-term cycle of the U.S. dollar in more detail at some point in the future.

Not surprisingly, gold and silver prices shot up yesterday as the Fed announcements seemed to weaken the U.S. dollar. Both metals, however, lost all that gain and closed lower today. We may have been premature in covering our short position in silver yesterday if both metals fall and make new lows still within our reversal zone for precious metals (which ends next Tuesday). Let's wait and see how prices move tomorrow and early next week. If silver moves below $22.81, we may have to re-label the start of the new medium-term cycle (and also re-label this week's sub-cycle low in gold from Tuesday). We are now on the sidelines of both gold and silver.