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Trading Blog Wednesday (night), March 29, 2017

3/29/2017

MARKETS UPDATE (10:30 pm EDT)

In Sunday's blog I mentioned the possibility of the broad stock market forming a medium-term cycle bottom this week and then rallying into the next critical reversal zone coming up around the second week of April. The DOW, S&P 500 and NASDAQ all made new weekly lows on Monday and have rallied a bit from there. We are watching this carefully, but there are no technical signals (so far) that point to a significant cycle bottom here. The fact that all three indices made new lows on Monday (i.e no intermarket bullish divergence) suggests weak upward momentum so this market could still be headed down into mid-April. Let's continue to hold our short position in the broad stock market for now.

Gold and silver both made new weekly highs on Monday. Gold prices retreated back a bit Tuesday and today while silver prices pushed a little higher. It is still not clear if these metals will rise into early April's reversal date or if they will fall into it. Both metals are now approaching their February highs ($1,263.59 on Feb. 27 for gold and $18.53 on Feb. 24 for silver). An ideal set-up to sell short would see one metal break above its February high while the other does not (intermarket bearish divergence), ideally in the first two weeks of April. We will watch for this. If prices instead fall into early April, we may be looking to buy a low in the reversal zone. Still on the sidelines of gold and silver.

On Sunday and Monday, the U.S. Dollar Index fell below its low from Feb. 1 as directional momentum changed from mixed bullish and bearish to nearly 100% bearish. This is suggesting that Feb. 1 was not the start of a new medium-term cycle (as we had been thinking) and that an older cycle is still in the process of bottoming. The next major reversal zone for the dollar would be in the second or third week of April so that would be a good time to expect a bottom. This scenario would support the idea of precious metal prices rising into early April as described above.

Crude oil prices made a low last week at $47 (May contract chart) and had been flat until today when prices jumped to $49.50. It is possible last week's low was a medium-term cycle bottom, but next week is a major reversal zone for crude, and it would be better from a technical point of view for the low to happen in that time frame. Since directional momentum in this market is still nearly 100% bearish, a new low next week is possible. We will stay on the sidelines of crude as we watch how prices move into late this week and next week.

Trading Blog Sunday (late night), March 26, 2017

3/26/2017

MARKETS UPDATE (11:30 pm EDT)

After taking a steep dive last Tuesday, the broad stock market stabilized and did not move much for the rest of the week (although the NASDAQ seemed to make a little upward progress on Friday). The current medium-term cycles in the DOW, S&P 500 and NASDAQ are nearly completed, and the final corrective bottoms to these cycles are expected any time over the next few weeks. The most likely time for these bottoms to happen would be during the next major reversal zone, and that is coming up in the middle of April. Although less likely, there is a small chance that these cycles are bottoming now. Aging baby boomers may still be funding their retirement accounts into April 15, and this (along with Wall Street's ongoing approval of President Trump) could still buoy equity markets for several more weeks. If that happens, we might see the mid-April reversal become a top instead of a bottom. In that scenario, any bottom forming now would be the start of a new medium-term cycle, and we could see this market quickly race up to new all-time highs in April. That would set up yet another shorting opportunity as that mid-April reversal could easily kick-start a very severe longer-term correction in the broad stock market. For now, however, we will assume that this market is falling into mid-April until we see more technical evidence of a bottom forming this week. Holding my short position in the broad stock market.

Gold and silver prices continue to edge higher but still seem reluctant to rally strongly. As with the broad stock market, the current medium-term cycles in these metals are now coming to an end so we can expect prices to turn down soon and make their final corrective bottoms. The trick here is calling the top before this correction. There are some technical signals suggesting a top could happen now (this week). If that happens, prices would fall into the first two weeks of April (the next reversal zone for the precious metals) and gold and silver would make their cycle bottoms then. Those bottoms would be a good spot to buy. On the other hand, if prices push higher this week (and next week) we could see a good shorting opportunity in early April as gold and silver make their final cycle highs in a strong reversal zone. If we see intermarket bearish divergence this week (where one metal makes a new high but the other does not) then I will consider selling short. Otherwise, it may be best to just remain on the sidelines and watch how prices move into the early April reversal zone.

Crude oil may have formed its medium-term cycle bottom last Wednesday at $47.01 (May contract chart), but it would be better if it formed in the first week of April (crude's next reversal zone). Let's wait and see if prices can move lower into late this week or the following week and look to buy then. Out of crude oil for now.

Trading Blog Tuesday, March 21, 2017

3/21/2017

BROAD STOCK MARKET and CRUDE OIL UPDATE (11:15 pm EDT)

It looks like the broad stock market may be finally starting that significant correction we have been anticipating since early this month. For the last three weeks, the DOW, S&P 500 and NASDAQ have not been able to exceed their highs from March 1 (which was a major reversal zone), but today the NASDAQ did exceed its March 1 high and then all three indices immediately plunged in a dramatic example of intermarket bearish divergence. These indices are now likely falling to their medium-term cycle bottoms which are due sometime over the next few weeks and most likely around mid-April which is the next reversal zone for this market. The DOW could go as low as 20,000. We are still holding our short position in this market and will likely stay short as we ride this correction down to a final cycle low in all three indices.

Like the broad stock market, crude oil's medium-term cycle is coming to an end, and the bottom is due any time over the next four weeks. Ideally it will be in the first week of April as that is the next reversal zone for crude. We probably missed our chance to sell this market short at last week's high of $49.62 so our strategy now will be to wait for the bottom of the cycle to buy (which could be around $45). Still on the sidelines of crude oil.

Trading Blog Tuesday, March 21, 2017

3/21/2017

GOLD TRADE ALERT (2:45 pm EDT)

I am going to cover (unload) my gold short position today. We are close to breaking through our stop loss of $1,245, but more importantly, it appears that the U.S. Dollar Index could be turning bearish (at least short-term) and could break below its low from early February. This development could give a short-term boost to precious metal prices. I should point out here that we are still anticipating a significant correction in gold (and silver) soon, but it looks like it could come from a higher price level (possibly $1,264 or higher) so it seems prudent to step aside now as our loss at this point is only 1%. Unloading my short position in gold today.

I will comment on the other markets later today.

Trading Blog Sunday, March 19, 2017

3/19/2017

BRIEF UPDATE ON GOLD (11:30 pm EDT)

Last week week we entered a short position in gold and I suggested a stop loss on a close above $1,230. Friday's market closed with gold around $1,229. I am going to raise the stop loss for our short position to a close above $1,245.

Trading Blog Wednesday (night), March 15, 2017

3/15/2017

MARKETS UPDATE and GOLD TRADE ALERT (10:00 pm EDT)

The Fed raised interest rates today and also hinted at two more rate raises for this year. Most analysts were expecting today's rate hike, and investors most likely had already factored it in to the market as evidenced by today's rally in equities immediately following the Fed's 2:00 PM announcement. The market had been falling since early March so this seems to be a classic case of "sell the rumor, buy the news". Some financial analysts had expected the Fed to be a bit more hawkish and were anticipating the announcement of a faster pace of rate increases moving forward, but this was not forthcoming. For this reason, some interpreted today's "on course, no policy change" rhetoric as the Fed being somewhat dovish (which would be bullish for equity markets).

Despite the Fed's (arguably) "dovish" tone, today's rally could just be a temporary "buy the news" reaction to the rate hike. The all-time highs of early March (a strong reversal zone) in the DOW, S&P 500 and NASDAQ still haven't been broken (although the NASDAQ came very close today) so we could still see a correction into mid-April, but these indices do need to turn down now. If those highs are exceeded, mid-April may turn out to be another top (possibly a "blow-off top) instead of a cycle bottom. I am still holding my short position in the broad stock market, but we need to be prepared to cover this position if those March 1st highs are breached.

The U.S. Dollar Index would normally be strengthened by a Fed rate hike, but it fell today, most likely due to disappointment that the Fed was not more hawkish in its policy statement (i.e. did not show a desire to increase the pace of rate increases). The dollar broke below 101 today, but there is strong support in the 100 area so it could turn back up soon. Directional momentum is now mixed bullish and bearish in this index.

The dollar's plunge today boosted gold and silver prices. In Monday's blog I wrote:

" It looks like the current cycle is turning bearish so we should probably be looking to sell short any short-term rallies now....There is a small possibility that the bottom in gold last week (or this week) is the start of a new medium-term cycle. If that is the case, we could see prices exceed $1,240 soon and the market turn bullish. For now, however, the market looks bearish, and we may look to sell short the top of any rally to the $1,220 - $1,230 area in gold."

Today's dollar drop may be giving a little more weight to the idea that we are starting a new (bullish) cycle, but the precious metals market still looks very bearish (see previous blogs), and today gold prices pushed into our target for a top to sell short. There is also resistance at the $1,225 - $1,230 area. What we can do here is go short with a stop loss on a close above $1,230 (very close to the current price for a minimal loss if triggered). I am going to enter a short position in gold for tomorrow's market open. Let's stay on the sidelines of silver for now.

Crude oil prices were also lifted today by the drop in the dollar, but this rally may also be short-lived. We are still watching for a top to sell short here. On the sidelines for now.

Trading Blog Monday (late night), March 13, 2017

3/13/2017

MARKETS UPDATE (11:30 pm EDT)

I apologize for this late post. (On Friday I promised an update for Saturday or Sunday). I was not able to properly analyze the markets until late this morning.

It still looks like the broad stock market peaked on March 1st (the DOW, S&P 500, and NASDAQ all made record highs that day) within a major reversal zone. It is also late in the medium-term cycles of all three of these indices so a significant correction could now be underway. The only problem is that "Trumphoria" and fiscal year-end contributions to baby boomer retirement plans are likely exerting a bullish counterforce to this correction. If this bullish influence can push these indices back above their March 1st highs then we may see the current cycle distort in a parabolic acceleration towards a final cycle top in mid-April (the next strong reversal zone). On the bearish side, however, the Fed may announce another interest rate hike on Wednesday this week which could be the trigger for some heavy selling. We should also note that the NASDAQ made a new weekly high today while the DOW and S&P 500 did not. We thus have an intermarket bearish divergence signal (until the DOW and S&P 500 make new highs). I am going to hold my short position in this market for now. If we do see those March 1st highs exceeded this week, we may have to cover this short position and wait until mid-April for another opportunity to sell short.

In last Monday's gold and silver blog I wrote:

"The picture for precious metals is still a bit unclear although it looks like gold did make a significant sub-cycle high last Monday at $1,263 and is now falling to the bottom of that sub-cycle which is due this week or next. ... If gold can stay above $1,200 this week then we could see another rally to new highs (above $1,263) soon. If instead prices break below $1,200 (say, to the $1,180 - $1,190 area) then any subsequent rally may not make new highs, and this market could turn quite bearish."

Gold prices fell to $1,195 on Friday. It looks like the current cycle is turning bearish so we should probably be looking to sell short any short-term rallies now. A sub-cycle bottom may have formed on Friday, but we may see a lower bottom form this week. There is a small possibility that the bottom in gold last week (or this week) is the start of a new medium-term cycle. If that is the case, we could see prices exceed $1,240 soon and the market turn bullish. For now, however, the market looks bearish, and we may look to sell short the top of any rally to the $1,220 - $1,230 area in gold. We may also attempt to short sell the top of any modest rally in silver. On the sidelines of precious metals for now.

The U.S. Dollar Index has been trapped in a narrow range between 101-102 over the last several weeks. That may change on Wednesday if the Fed raises interest rates. This could strengthen the dollar and kick it above 102. On the other hand, if the Fed does the unexpected and holds back a rate hike, we could see the dollar fall. A stronger dollar would likely push precious metal prices lower. If the metals rally into Wednesday and the Fed does the expected (i.e. raises rates) then that may be a good top to sell short gold and silver.

In last Monday's blog on crude oil I wrote:

"Speaking of COT (Commitment of Traders) charts, those for crude oil are also looking strongly bearish (i,e. heavy short positions by Commercial traders). This is not a good sign and suggests an imminent and significant drop in price. We are still in a reversal zone for crude through most of this week so it is possible for prices to fall to new lows and then reverse back up ... A support area to watch is $51 - $52. If prices break below there, we could see a very steep drop follow. The COT charts are supporting this scenario."

This bearish scenario is unfolding as crude prices plunged in the second half of last week from $53 to $48 (April contract chart). Prices may bounce back a bit now as we move out of last week's reversal zone, but directional momentum in this market is now nearly 100% bearish as the cycle trend turns down. As with the precious metals, we will watch for a short-term rally and top to sell short in this market. On the sidelines of crude oil.

Trading Blog Friday, March 10, 2017

3/10/2017

BRIEF MARKETS UPDATE (1:30 pm EST)

I am traveling today so I'm posting a very brief market update here. I will post a longer blog sometime this week-end.

The broad stock market hasn't fallen much this week, and we are now about to move out of a strong reversal zone. The correction we've been waiting for could have started from last week's highs, but if we see new highs in this market next week, the cycle may be distorting, and we may need to wait several more weeks to sell short from a "blow-off" top. Holding my short position here for now.

Precious metal prices are plunging this week but could find some support at current levels for a relief rally. The trend in this market is likely turning bearish so we may look to sell short the top of any rally from here. Still on the sidelines of gold and silver.

Crude oil prices are also plummeting this week. As with the precious metals, this market's trend has suddenly turned bearish, and we may look to sell short the top of any short-term bounce from the low forming now. On the sidelines of crude.

Trading Blog Monday, March 6, 2017

3/5/2017

MARKETS UPDATE (3:15 pm EST)

Last week the broad stock market indices (DOW, S&P 500, NASDAQ) all made new highs on Wednesday but closed the week below those highs. Fed Chairwoman Janet Yellen announced on Friday that the next interest rate hike would likely be this month. This news, though not unexpected, most likely curbed investor buying on Friday, and we shall see if that continues into this week. As I outlined in last week's blogs, there are many reasons for equity markets to turn down right now, and a hawkish Fed could be the trigger for this correction. We are still holding our short position in this market. If one or two (but not all three) of these indices make(s) a new high before the end of this week, it will be another sign of an imminent reversal.

The picture for precious metals is still a bit unclear although it looks like gold did make a significant sub-cycle high last Monday at $1,263 and is now falling to the bottom of that sub-cycle which is due this week or next. It is even possible that Friday's low of $1,223 was already the bottom, but I think prices could go lower this week. If gold can stay above $1,200 this week then we could see another rally to new highs (above $1,263) soon. If instead prices break below $1,200 (say, to the $1,180 - $1,190 area) then any subsequent rally may not make new highs, and this market could turn quite bearish. I am concerned here because several respectable analysts that I follow seem to disagree at the moment on whether the precious metals are bullish or bearish. The bearish view is currently being supported by the fact that the COT (Commitment of Traders) chart's Commercial positions (i.e. "smart money") are heavily short in the precious metals. Gold and silver mining company stocks are also very bearish right now, and they are often a bellwether for the metals. Even if these metals rally now and make new highs, those highs could be followed by a severe correction. We are still in a reversal zone for precious metals for the rest of this week so let's see how low gold prices can go over the next several days. If they stay above $1,200, we may consider going long for a short-term rally that could break to new highs. On the sidelines of gold and silver for now.

One thing that could turn precious metal prices down now would be a strong U.S. dollar. If the Fed is turning hawkish (as Yellen's comments on Friday suggested), this should strengthen the dollar. Last week the U.S. Dollar Index broke above a strong resistance at 102. It is now back under that line, but directional momentum is currently bullish, and it could easily launch another assault on that resistance and break through it. It is starting to look like the Feb. 1 low in the U.S. Dollar Index (at 99.5) could be the start of a new medium-term cycle. If that is the case, the dollar could be turning bullish and might soon be challenging its January high at 103.44. I should note here that even though the U.S. dollar and precious metal prices usually move in opposite directions, that is not always the case. If investors start losing faith in the stock market, both the U.S. dollar and precious metals could be perceived as "safe haven" investments, and both could rise at the same time.

Speaking of COT (Commitment of Traders) charts, those for crude oil are also looking strongly bearish (i,e. heavy short positions by Commercial traders). This is not a good sign and suggests an imminent and significant drop in price. We are still in a reversal zone for crude through most of this week so it is possible for prices to fall to new lows and then reverse back up; however, prices could also edge back towards or above $54 (April contract chart) this week and then reverse down. Directional momentum is currently bullish so we have a lot of mixed signals here. A support area to watch is $51 - $52. If prices break below there, we could see a very steep drop follow. The COT charts are supporting this scenario. Let's stay on the sidelines of crude oil for now and see how prices move this week.

Trading Blog Thursday, March 2, 2017

3/2/2017

MARKETS UPDATE (3:15 pm EST)

As I anticipated, the broad stock market is backing down a bit after yesterday's post Trump speech rally, but not by much. The DOW seems to be holding above that psychologically significant 21,000 level it broke through yesterday, yet it seems reluctant to rally. In yesterday's blog I described the cycle and timing factors that point to an imminent reversal. We need to see a top by next Wednesday, however; otherwise the rally could continue into early April as a potential "blow-off" top. Some risk adverse traders who were not stopped out of their short position yesterday may wish to take advantage of today's dip to cover their short position now. I am going to hold my short position today with the idea that yesterday may have been the top. If this market pushes higher into early next week with intermarket bearish divergence between the DOW, S&P 500 and NASDAQ (i.e. one or two, but not all three indices making new highs) that may also be a good time to sell short. Holding my short position in the broad stock market for now.

The precious metals market is still ambiguous and is giving mixed signals for trading. Gold and silver have been down this week, but we are still in a strong reversal zone so prices may find a bottom by early next week. The U.S. Dollar Index appears to be breaking to the upside, but it is surging strongly into a reversal zone and its direction could also change abruptly by next week. This could affect precious metal prices. Still on the sidelines of gold and silver.

Our decision to sell our long position in crude oil on Tuesday seems to be a good one as crude prices fell steeply today. We may consider going long again early next week as that is also another reversal zone specifically for crude. On the sidelines of crude oil.

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