Blog Archives

Trading Blog Wednesday, March 28, 2018

3/28/2018

UPDATES on GOLD, SILVER, the U.S. DOLLAR and CRUDE OIL (1:00 pm EST)

In Monday's blog I wrote that the U.S. Dollar Index:

"...is now at a support level centered just above 89. This week's reversal zone is targeted at currencies so we could see a bounce from this support this week or next. Such a bounce could push down gold and silver prices, but this would likely be very short-term."

The dollar has rallied sharply from Monday's low as gold and silver prices fall, but the greenback is now encountering (again) that heavy resistance zone from 90 -91. It would take a lot of bullish momentum to push through that resistance, and current directional momentum in the U. S. dollar chart is almost 100% bearish. This supports the idea that this rally will not get far and could turn down again soon. If silver makes a new weekly low this week or early next week with gold staying above $1304, that would also be a bullish sign (bullish divergence) and would further support our bullish view of these metals. Holding my long position in gold and out of silver for now.

Crude oil has been falling from its Monday high of $66.55 (May contract chart). I believe crude is taking its cues from the broad stock market right now. If equity markets stabilize around their Feb. 9 lows and rally again, I think crude could push to new highs near $69; however, if the DOW, S&P 500 and NASDAQ all break below their Feb. 9 lows then crude's cycle high may be in (at Monday's $66.55), and prices could be headed lower to the end of the medium-term cycle which would be anytime within the next seven weeks. Let's stay on the sidelines of crude for now.

Trading Blog Wednesday (early AM), March 28, 2018

3/27/2018

BRIEF COMMENT ON THE BROAD STOCK MARKET (1:00 am EST)

Wow! The broad stock market took a very wild ride yesterday. The DOW rose 200 points in the morning, fell 200 points early afternoon and then plunged another 350 points in the final hour of trading (3-4 pm). I posted a trade alert to sell short around 2:30 pm just before that final plunge so anyone who took that trade was able to net a little profit. My call was based on the DOW and S&P 500 approaching good target levels for a sub-cycle top, but I didn't think these indices would fall so quickly! Both indices are now well below the stop loss levels that I suggested in the trade alert so traders who did not have time to sell short should stay on the sidelines for now. Because the current reversal zone extends into next Monday, it is possible for the DOW, S&P 500 and NASDAQ to make another bottom near their Feb. 9 lows over the next several days, and possibly with a bullish divergence signal [i.e. one or two but not all three breaking those low(s)]. If that happens, we may take a quick (and small) profit on our short position as the market could rally again. If all three indices break below their Feb. 9 lows then we will likely hold our short position, and those not short could also consider going short for a fall that would last at least into the second week of April.

Trading Blog Tuesday, March 27, 2018

3/27/2018

BROAD STOCK MARKET TRADE ALERT (2:30 pm EST)

All three major stock indices (DOW, S&P 500 and NASDAQ) rallied strongly yesterday without first breaking their Feb. 9 lows so we are not getting the bullish divergence signal we had hoped to see. Nevertheless, the DOW and S&P 500 are rising up close to ideal targets for a sub-cycle peak (these targets would be around 24,350 in the DOW and 2,700 in the S&P 500) and we are near the center of the current reversal zone. I am going to sell short here with close stop loss points just above those targets; say, a close above 24,600 for the DOW and a close above 2,730 for the S&P 500 (for those trading ETFs, a DOW fund would be less risk at the moment).
Entering a short position in the broad stock market today with stop loss parameters as stated above.

Trading Blog Monday, March 26, 2018

3/26/2018

UPDATE on PRECIOUS METALS and CRUDE OIL (1:00 pm EST)

Gold and silver rallied strongly last week. There is a possibility that gold started a new medium-term cycle on March 1 at $1304 and that silver started a new medium-term cycle with last week's low of $16.13 (March 20). If so, both metals could be very bullish now and ready to rally to new highs. I would like to see gold close above $1366 fairly soon to support this bullish scenario. As I mentioned last week, a concern we have this week is the fact that this market is rallying into this week's reversal zone. Although this reversal is not specifically targeted at the precious metals, it could have some influence on them so we could see a dip in prices. We won't worry too much about this as long as gold holds above $1320. If we do see a dip, it may give us a good opportunity to go long in silver. Holding my long position in gold but still out of silver.

The U.S. Dollar Index has been falling and is now at a support level centered just above 89. This week's reversal zone is targeted at currencies so we could see a bounce from this support this week or next. Such a bounce could push down gold and silver prices, but this would likely be very short-term. Last week directional momentum in the dollar chart turned 100% bearish. The greenback may soon be headed towards a serious breakdown, especially if it breaks below 88. If that happens, it could drive a major rally in the precious metals.

It is getting late in crude oil's current medium-term cycle which means we should be soon seeing a cycle high followed by a significant correction down to the bottom of the cycle. Today crude prices seem to be making a double top to the Jan. 26 high of $66 (May contract chart), and this week's reversal zone could also affect crude. We could therefore be seeing that cycle high now. A normal target for this high would be around $69. If the broad stock market bounces this week (see yesterday's blog), crude could follow it up a bit closer to that target price. We will watch to see how this unfolds. An approach to that $69 price may give us a good opportunity to sell short. On the sidelines of crude for now.

Trading Blog Sunday (night), March 25, 2018

3/25/2018

UPDATE ON THE BROAD STOCK MARKET (10:30 pm EST)

Shortly after posting my blog on Friday at 2:30 pm EST, the broad stock market, which had appeared to be stabilizing earlier in the day after Thursday's steep fall, took another dive into the final closing bell. This final plunge took the DOW down to 23,533 and the S&P 500 to 2,588. Such a steep drop at the end of the week is a very bearish signal. Both the DOW and S&P 500 are still above their Feb. 9 lows (23,360 and 2,532, respectively), but they are very close and could easily break those lows next week. I am going to assume that this market is now turning bearish, which means it will most likely continue lower for at least another month and will make a final low probably sometime in May. The DOW could fall as low as 21,000, but it doesn't have to go that far. We can anticipate a bottom anywhere between 21,000 and 23,000. (No, this is most likely not "the big one" - i.e. major crash).

Even though this market is likely turning bearish, it is now falling into the center of a reversal zone this week so there is a good chance it will stabilize here, and we could see a short-term "relief rally" from a low next week. An especially good setup for a rally would be to see only one or two (but not all three) of the major stock indices (DOW, S&P 500, NASDAQ) break below their Feb. 9 low(s) as that would give us an intermarket bullish divergence signal. If this happens, we may go long for a short-term rally, but we would especially want to sell short at the top of that rally to ride this longer-term cycle correction down into May. Stay tuned for possible trading calls next week. Still on the sidelines of the broad stock market.

Trading Blog Friday, March 23, 2018

3/23/2018

MARKETS UPDATE (2:30 pm EST)

Yesterday's plunge in the broad stock market was not a big surprise for us as we had been expecting this market to fall into our next reversal zone (which begins today and runs through April 2). The talk of pushing up the interest hike rate path in 2019 - 2020 at yesterday's Fed meeting combined with the widespread belief that the new Fed Chairman Jerome Powell will be a bit more hawkish than previous Chairwoman Janet Yellen was perhaps enough to spook this severely overbought market into a tumble. But there are also plenty of other things going on in the news these days (possible trade wars with China, a new cold war with Russia that could turn "hot" if Putin loses his patience with the West, instability in the Middle-East, etc.) to disrupt the stability of equities (as well as other financial markets). The big question right now is how far this "tumble" will go. Fortunately, our cycle and technical analysis can help us draw some parameters around this correction.

It is highly likely we will see this correction find at least a temporary bottom in this new reversal zone, most likely next week. The DOW and S&P 500 are now challenging the lows that should hold if this market is going to stay bullish (around 24,100 in the DOW and 2,650 in the S&P 500), but the real line in the sand for these indices would be their Feb. 9 lows ( 23,360 in the DOW and 2,532 in the S&P 500) because those are the lows that started the current medium-term cycle. If those lows are breached, the broad stock market will likely continue lower for many more weeks, if not months. (Note that even if that happens, there could still be a bottom in this reversal zone followed by a weak short-term rally and then a resumption of the correction.) Our trading strategy is still to buy a bottom, probably next week, above those Feb. 9 lows. I should mention here that it is always possible (but low probability) for a reversal zone to coincide with a breakdown (or breakout if the market is rising into it) where these indices would just "meltdown" and bypass any reversal. I don't think this will happen here, but given the highly volatile economic and geopolitical environment we are currently in, we should be aware of that possibility. The two things to watch are those Feb. 9 cycle lows in the DOW and S&P 500. If they break, the market could be in trouble. Still on the sidelines of the broad stock market.

Gold is continuing its strong rally today, which is good news for our long positions, and silver is also rallying, though not as strongly. One concern is that these metals are rallying into next week's reversal zone. Also, gold is now breaking above its high from last week while silver is not so we are getting an intermarket bearish divergence signal in a reversal zone. Both metals could take a dip here, but I don't think it will be that serious, especially for gold whose directional momentum just turned 100% bullish. If silver takes a correction next week and makes a new weekly low and gold stays above this week's low, that would be a very strong buy signal and a good opportunity for us to buy silver. Currently out of silver and holding my long position in gold.

This week's strong rally in crude oil is finding resistance at $66 (its high from Jan. 25), but crude is also most likely pausing because of yesterday's plunge in the broad stock market. Crude's strength right now is supporting our bullish view of the broad stock market; however, its strength may be coming from the recent increasingly aggressive rhetoric between the U.S. and Russia which exacerbates instability in the Middle-East (i.e Syria, and possibly Iran and Saudi Arabia). If that is the case then it would be possible for us to see the stock market crash and oil prices soar at the same time. Instability in the Middle-East is always a "wildcard' factor in analyzing the movement of crude prices. If equity markets stabilize now and start to rally again, crude would have two potentially bullish forces to push it higher. We may consider going long in crude oil next week if this happens. Out of crude oil for now.

Trading Blog Wednesday (night), March 21, 2018

3/21/2018

MARKETS UPDATE (11:30 pm EST)

The conclusion of this week's Federal Reserve meeting was watched with special interest as it was the first for new Fed Chairman Jerome Powell. Investors and financial analysts were all paying careful attention to Mr. Powell's post-meeting statements to ascertain his attitude toward current domestic and global economic conditions. Many analysts have characterized him as generally dovish and accommodating; however, he is thought to be a bit more hawkish than former Chairwoman Janet Yellen. As anticipated, the Fed raised interest rates on schedule by a quarter percentage point, but Mr. Powell stated that the Fed would stick to its original plan of only three hikes this year and avoided sending any overtly hawkish messages. Financial markets did respond to the Fed meeting today, but we will have to wait a few more days to see if this response is just a "flash in the pan" of an already highly volatile market.

The broad stock market rallied a bit into the 2pm Fed statement but then fell immediately after and closed the day with a slight loss. Perhaps Wall Street didn't like the fact that central bankers did push up their expected interest hike rate path for 2019 and 2020. If so, this just adds more downward pressure to a market that seems to be headed towards a low into next week's reversal zone. We are still hoping for a good spot to buy as long as the correction doesn't go to deep. Still on the sidelines of this market.

In contrast to the broad stock market's nervousness over a faster rate path in 2019-2020, the U.S. Dollar Index seemed to find the Fed's "stay the course" (at least for 2018) rhetoric too dovish. The dollar fell sharply after 2 pm and closed the day below 90. This in turn greatly boosted gold and silver prices and lifted our long position in gold significantly. Yesterday silver broke below its March 1st low while gold did not (bullish divergence) so this may be a turning point for these metals and the start of a significant rally. We will have to wait and see if this reaction to the Fed will last more than a day or two. Holding our long position in gold but still out of silver.

Along with gold, crude oil prices also soared today as crude broke and closed well above its Feb. 26 high of $64. This is a bullish sign, but crude still faces resistance at its Jan. high of $66 (May contract chart). If the broad stock market finds a bottom next week and starts to rally again, we could see crude overcome that resistance soon. On the sidelines of crude oil for now.

Trading Blog Tuesday, March 20, 2018

3/20/2018

MARKETS UPDATE (12:30 pm EST)

The broad stock market is most likely now falling into the first significant sub-cycle correction of its new medium-term cycle which should bottom in the upcoming reversal zone of March 22 - April 2. The depth of this correction will determine the longer-term trend of this market for the next several months. To stay bullish, the DOW should hold above 24,100, and especially above 23,360. Any break below 23,360 would turn this market bearish and it would be headed down for at least 7 more weeks. For the S&P 500 to stay bullish, we would expect a correction into the 2,650 - 2,700 range. We don't want to see it break below 2,532 as that would be very bearish. Right now I am favoring the bullish view so we will watch for a bottom near the end of this week or into next week to buy above 23,360 in the DOW and above 2,532 in the S&P 500. Still on the sidelines.

Gold and silver prices are still holding above support levels just above $1300 in gold and $16 in silver. The U.S. Dollar Index seems to be attempting another rally into that 90 - 91 resistance zone, and we are now entering another reversal zone specifically for currencies (March 20 - April 2). The greenback could make a new high here, but if it can't break above 91 it will likely fall again. Any short-term rally in the dollar will depress gold and silver prices so we are watching this situation carefully in case we need to bail out of our current long position in gold. Right now the longer-term charts for gold and silver still look very bullish, and the long-term chart for the U.S. dollar is very bearish. Holding my long position in gold but still out of silver.

Crude oil prices are up strongly today and are close to testing the $64.24 high of Feb. 26 (April contract chart). As I stated in Sunday's blog, if crude can exceed that high then the trend could turn bullish and push prices above $70 soon; however, if prices stay below that high and back down again then the market could turn bearish (especially if prices break below $57.90). We remain on the sidelines as we watch how this unfolds.

Trading Blog Sunday (evening), March 18, 2018

3/18/2018

MARKETS UPDATE (9:30 pm EST)

Last Tuesday I wrote on the broad stock market:

"...the cycle timing is just about right for these indices to be making their first significant sub-cycle high followed by a significant correction. If the DOW and S&P 500 cannot break above their Jan. 26 all-time highs (26,617 and 2,873, respectively) as the NASDAQ continues to soar above its Jan. 26 all-time high (7,501) this week then we will have a very strong intermarket bearish divergence signal and possibly that first sub-cycle top."

Last week neither the DOW nor S&P 500 exceeded their all-time Jan. 26 highs while the NASDAQ remained above its all-time high so our intermaket bearish divergence signal is still in effect. It is likely these indices made significant tops early last week and are now falling into a sub-cycle correction that will bottom later this week or in the following week (i.e. our next reversal zone March 22 - April 2). If this is the case, it's a bit late to sell short so we will just wait for the bottom to buy (as long as the correction doesn't go too low). If instead of falling, equities start rallying again and make a high into this reversal zone, we will look to sell short from that high. Still on the sidelines of the broad stock market.

Gold and silver are breaking their support lines at $1320 and $16.40 respectively, but gold is still above our stop loss point of $1304, and silver is still above $16.18, both important lows in the current cycle. This is a tricky trading situation. If both those lows break this week, we will want to bail out of our long gold position, but if only one metal breaks its low and not the other (bullish divergence signal) then we will likely stay long in gold (and maybe even go long in silver) - especially if this happens later in the week. Currently long in gold but out of silver.

Last week crude oil's support at $60 held and prices rallied a bit. Crude's overall chart, however, does not look bullish enough for us to go long. The current rally may only test the Feb. 26 high of $64.24 (April contract chart) before turning down again which (if it happens) would suggest crude's trend is turning bearish. If that high breaks, however, we could be back on track for a bullish rally that could push above $70. We will stay on the sidelines of crude for now.

Trading Blog Tuesday, March 13, 2018

3/12/2018

MARKETS UPDATE (3:30 pm EST)

It's getting a little late for the DOW and S&P 500 to make a double bottom to the lows that started their new medium-term cycles on Feb. 9 (23,360 in the DOW and 2,532 in the S&P 500), although that is still possible, but the cycle timing is just about right for these indices to be making their first significant sub-cycle high followed by a significant correction. If the DOW and S&P 500 cannot break above their Jan. 26 all-time highs (26,617 and 2,873, respectively) as the NASDAQ continues to soar above its Jan. 26 all-time high (7,501) this week then we will have a very strong intermarket bearish divergence signal and possibly that first sub-cycle top. We will watch for this and a possible opportunity to sell short. Should both the DOW and S&P 500 break their all-time highs this week, however, that bearish divergence signal would be negated, and equities could rally into the end of the month before making any correction. In the longer-term, if we do get a correction down from a top this week and it holds above those Feb. 9 lows then we will likely see it followed by another rally to new all-time highs over the next several months (we would go long then). If those Feb. 9 lows break, however, we could see the opposite happen, i.e. a mulit-month sell-off in equities (and we would stay short). I realize all of these possibilities are a bit confusing, but I will identify any appropriate trading opportunities when they arise. Still on the sidelines of the broad stock market.

The short-term picture for gold and silver is still hard to call right now (the longer-term trend is still bullish). Today is the last day of the reversal zone and neither metal has made a new weekly low so we are not getting the bullish divergence signal we were hoping for. But there are also no strong bearish signals. Gold seems to be finding a line of support around $1320 and silver around $16.40. Both metals could now rally from those supports. If those supports start to break, and especially if gold breaks below $1304 and silver breaks below $16.18, we could see prices move lower into the end of the month or even into the first two weeks of April. For now I'm going to bet on these supports holding and stay with my long position in gold. (Let's base our stop loss for this trade on a close below $1304). We will remain on the sidelines of silver for now.

Last Thursday and Friday the U.S. Dollar Index attempted another assault on that strong band of resistance in the 90 - 91 area and backed down again. Because Friday was the center of a reversal zone for currencies, that could be a significant peak and this index could turn bearish now. There is another currency reversal zone coming up in the last week of this month, however, so we can't rule out the dollar attempting another charge on that resistance. As I've said several times before on this blog, if the dollar can't break above 91 soon, it could go into a severe decline. This bearish view of the dollar is supporting our longer-term bullish view of gold and silver.

Like the precious metals, crude oil (black gold) has been finding a line of support over the last two weeks (around $60 - April contract chart). We are now leaving crude's reversal zone (it end's today) so if prices start breaking below this support (and especially if crude breaks below $57.90), this market could be turning bearish and prices could be down for another three to seven weeks. If the broad stock market turns south now, it could take crude down with it. Staying on the sidelines of crude for now.

<<Previous

Archives

LEGAL and DISCLAIMER