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Trading Blog Monday, March 30, 2020

3/30/2020

MY CURRENT "LONGER-TERM" VIEW OF THE BROAD STOCK MARKET (3:00 pm EDST)

When financial markets are highly volatile and that volatility is being driven by unpredictable variables such as the COVID-19 epidemic and the fear/panic accompanying it, it's very easy to get lost in short-term crashes and surges
and lose sight of the longer-term market picture. My recent updates on the broad stock market have been focusing on potential short-term reversals (up and down) so let me just make a few statements on what I feel is the long-term picture at this time.

The "crash" so far has been 38% on the DOW (from the 29,568 all-time high on Feb. 12 to the 18,213 low on March 23). The market is now rallying off that 18,213 low. This may be the start of a very significant rally into the summer and maybe even into the November election OR we may soon make another lower low and then start that significant rally. In both cases, however, I don't think the market will make new all-time highs, and I think it will turn down again before the year is over and make new lows with a loss greater than 38% (possibly MUCH greater). In other words, although we may now see a bullish short to medium-term rally in equities, the longer-term picture is still bearish, and we certainly want to watch carefully for the top of this next significant rally to sell short at that top.

This is my longer-term projection at the moment, but please note that we are in unusual times and things could change suddenly. Please follow my blog posts for regular updates and any important changes that may arise.

Trading Blog Sunday (late night), March 29, 2020

3/29/2020

MARKETS UPDATE (11:00 pm EDST)

A current analysis of the broad stock market medium-term cycle pattern shows several different possibilities, and it will likely be at least several more weeks before this ambiguity is resolved. The lack of a definitive cycle position is preventing us from making a long-term trade, but we can still make short-term trades based on sub-cycle timing within our reversal zone time frames. Even this, however, is being hampered by the market's extreme volatility due to coronavirus fears.

Last week equities made a significant low on Monday and then rallied sharply into Thursday (before backing off a bit on Friday). Monday's low was early in our current reversal zone ( March 20 - April 6), and that reversal zone extends into all of this week. It's possible for markets to drop back to that bottom (or lower) this week for a new bottom (or a double bottom). We may even see that with intermarket bullish divergence (which we didn't get last Monday). If that happens, we will look for a buying opportunity. But if this market continues to rally this week, we could instead see a significant top in this reversal zone (especially if one or two - not all three - market indices - DOW, S&P 500, NASDAQ - make new highs - i.e. intermarket BEARISH divergence). That could give us a shorting opportunity. At the moment, I would say it is quite dangerous and risky to be long in this market. That could change, however, once we identify with more certainty the start of a new medium-term cycle. As I mentioned in my previous blog, we could see a very significant "snap back" rally into the summer (although I don't think the market will make new all-time highs before turning back down for a more severe correction). We are still on the sidelines of the broad stock market.

Gold and silver prices are also rising into the current reversal zone. Many technical signals are suggesting this market is getting ready to roll over and head down again. In other words, it looks at least short-term bearish. We need to note here that gold could still be longer-term bullish as long as the recent low around $1450 holds. Silver also looks bearish right now, and if it turns back down now, it could fall back to the $12 level. We will consider buying both metals if we see a reversal and those support levels hold. On the sidelines of gold and silver for now.

The precious metal rally last week was certainly helped by a steep fall in the U.S. Dollar Index. That decline in the greenback was the result of the Fed's announcement of unlimited QE (combined with its previously declared near zero benchmark interest rate). Needless to say, printing money "out of thin air" is not good for the greenback's value. But the Fed has now exhausted its bag of tricks. Interest rates cannot go lower (unless they turn negative) so the dollar may snap back and make another attempt to break through its Jan. 2017 high of 103.82. If it can do that, the greenback could become very bullish. Note that if this happens, it won't necessarily spell doom for gold and silver prices. Under certain circumstances, the U.S. dollar and the precious metals can rise together.

Last week crude oil prices held just above $20 (may contract chart), but tonight prices seem to be edging lower and making new lows. We are still in a reversal zone this week. If prices go lower (say to $16) but remain above $15, we may look for a spot to buy. Still on the sidelines of crude oil.

Trading Blog Wednesday, March 25, 2020

3/25/2020

MARKETS UPDATE (3:30 pm EDST)

A combination of the Fed's "unlimited" QE announced Monday, the recent lowering of benchmark interest rates to zero, and the imminent passing of a massive coronavirus bailout package has been like rocket fuel for equity markets. The DOW gained over 2000 points yesterday, and at the time of this writing (3:00 pm EDST) it's up another 1000 points. But is there enough bullish fuel here to propel the broad stock market back into orbit (i.e. can it recover its 38% loss from the last 4 weeks and start to make new all-time highs)? That's a good question. I think there's good reason to think this "fuel" could run out before those Feb. all-time highs can be exceeded, and we could see this rocket heading back towards earth sooner than most people would like.

We need to realize that the Fed has now thrown everything it has at this market - unlimited QE and interest rates that can't be lowered anymore (unless they go for negative rates). If the market starts to fall again, they really have nothing left in their arsenal to stop it. Also, the coronavirus bailout package is exciting the market now, but once it passes it may become yesterday's news (especially if people are disappointed with it). And remember, the coronavirus epidemic probably has not reached its peak yet. OK, I may be wrong about this. We could see a new wave of "Trumphoria" propel equity markets up into the election, but even that may not be enough for a full recovery and new market highs.

My main point is that this market's trend has already turned bearish, and there's a good chance we could see a "second wave" up that does not exceed those Feb. highs before it turns down again to make new lows. That said, a second wave up could be quite substantial (20% - 35% or possibly more) so it would be worth buying into such a rally. BUT...notice how volatile this market is right now - it is panic driven. Yes, it's possible a major market rebound has already started from Monday's lows, but we are still in the current reversal zone (March 20 - April 6) all through this week and next week so this crazy market roller coaster has plenty of time to head back down to new lows in this time frame. (Remember, we didn't get any bullish divergence signal with Monday's lows so that may not be the bottom). If we do get new lows next week with a bullish divergence signal, we will want to buy. In the meantime, this market's volatility in response to the coronavirus as well as the Fed and government stimulus is keeping me on the sidelines.

Gold and silver prices have rallied strongly this week, but they may be leveling off now as we move into the center of our reversal zone. We will watch for a top and some sort of correction which could happen this week or next week. We are still on the sidelines of both metals.

Crude oil prices have stabilized just above $20 (May contract chart) but might push lower into the current reversal zone this week or next. If they do, and they stay above $15 then we may look to buy as it might be the end of the current medium-term cycle and the start of a new one. Currently on the sidelines of crude.

Trading Blog Monday, March 23, 2020

3/23/2020

UPDATE ON THE BROAD STOCK MARKET and PRECIOUS METALS (5:30 pm EDST)

Today the U.S. Federal Reserve declared:

"The Federal Reserve is committed to using its full range of tools to support households, businesses, and the U.S. economy overall in this challenging time...The coronavirus pandemic is causing tremendous hardship across the United States and around the world...Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.”

In an historic effort to rescue the economy, the Fed announced today that it will buy unlimited amounts of Treasury bonds, and purchase corporate and municipal debt for the first time. Essentially, the Fed is ushering in unlimited QE (Quantitative Easing). This, combined with the Fed's emergency lowering of interest rates to zero just last week, shows the Fed is desperately deploying its full arsenal to thwart a major economic collapse. These measures are even more severe than those used in the 2008-2009 financial crisis (limited QE and ZIRP -Zero Interest Rate Policy). But will this Herculean effort by the Fed, along with a fiscal stimulus package from the Trump Administration, be enough to ease the current panic on Wall Street?

The broad stock market fluctuated wildly today, and despite the Fed's efforts, the DOW closed with a 582 point loss. We will have to wait a few days to see if the Fed's actions can ease coronavirus fears, but it is significant that we are in a reversal zone this week. A rebound in equities could be imminent. All three market indices made new lows today so we will not have an intermarket bullish signal this week. The S&P 500 closed a bit below our target level of 2,250, but the DOW remained above our target of 17,900. Let's stay on the sidelines for now.

In yesterday's blog on the precious metals I stated:

"There are some technical signals this week suggesting a possible sharp rally now in these prices; however, it's also possible for prices to drop lower into this week's reversal zone."

Well, it looks like those bullish technical signals were spot on today as spot gold surged and closed over $50 above Friday's price. Silver prices also jumped up. Perhaps frightened investors are starting to recognize the "safe haven" value of these metals in an equity crisis. If so, a strong rally could be starting. But if equity markets stabilize, we could see interest in the precious metals diminish. We will stay on the sidelines of gold and silver for now.

Trading Blog Sunday (night), March 22, 2020

3/22/2020

MARKETS UPDATE (10:00 pm EDST)

We entered our new reversal zone (March 20 - April 6) on Friday, but the most likely turning point for any reversals would center around the mid-point of this time frame, and that would be this Friday through the following Monday. Besides focusing our attention on that time frame, another thing to watch for this week or the following week in the broad stock market would be one or two (but not all three) major stock indices (DOW, S&P 500, NASDAQ) making a new low (intermarket bullish divergence). That bullish signal could indicate that a final bottom to the current medium-term cycle is forming, and it could be a good spot to buy. We will watch for it. A good target now for the DOW would be around 17,900 and for the S&P 500 around 2,250. The NASDAQ may have already made its low last Wednesday at 6,686, but that was not in a reversal zone so it could go lower this week. On the sidelines now but we may be looking to go long this week or next.

Last week's lows in gold and silver (gold's $1453 low on Monday and silver's $11.70 low on Wednesday) may have been significant bottoms. There are some technical signals this week suggesting a possible sharp rally now in these prices; however, it's also possible for prices to drop lower into this week's reversal zone. If they do move lower, we may look for a spot to buy. We should note here that any rallies now may be short-lived as it appears this market has turned bearish. We are on the sidelines for now.

The strong and steep rally in the U.S. Dollar Index over the last two weeks seems to be topping out at a little over 102. This is happening as we enter our strong reversal zone this week so there is a good chance the greenback will turn down now. That could stimulate a rally in the precious metals, but again, that rally may not get very far before the dollar turns back up and puts pressure on gold and silver to move lower.

Last Wednesday crude oil made a new low at $20.52 (May contract chart). That could be a significant bottom, but as with the broad stock market and precious metals, crude could also push lower into next week's reversal zone. This market has turned very bearish so we will remain on the sidelines.

Trading Blog Thursday, March 19, 2020

3/19/2020

MARKETS UPDATE (2:30 pm EDST)

"CRASH" UPDATE
After a close approach to 19,000 this morning, the DOW seems to be recovering a bit at the time of this writing (2:00 pm EDST) and pushing above the 20,000 mark. The S&P 500 dipped briefly below 2,300 but is now back near 2,400. We designated 20,000 and 2,300 as general support levels in last Thursday's blog. If they hold tomorrow, we may be seeing a baseline that could be a platform for a significant rebound rally. We enter a new strong reversal zone tomorrow (March 20 - April 6). This wide time band gives this market plenty of time to find a bottom for a reversal up. It could be as early as tomorrow, but it could also push lower into next week. We'll stay on the sidelines of the broad stock market for now.

Gold and especially silver prices have dropped significantly this week. Surprisingly, prices are fairly stable today in spite of a dramatic spike in the U.S. dollar. This could indicate that a significant bottom is imminent in the precious metals. That bottom could easily come in the reversal zone mentioned above. Let's remain on the sidelines of gold and silver for now.

Speaking of that spike in the greenback, the U.S. Dollar Index has surged to 102.60 at the time of this writing. It is getting awfully close to its Jan. 2017 high of 103.82. If this index can break and close above that 2017 high, we could see a strong rally that could take it as high as 120. This bullish U.S. dollar is being fueled by a flight of capital from equities into the "safe haven" greenback as traders and investors panic over the coronavirus epidemic. As in the 2008 - 2009 financial crisis, investors seem to be choosing the U.S. dollar for safety and bypassing (even liquidating) the precious metals (at least for now). We should remember here that precious metal prices took off like a rocket from the bottom of the 2008-2009 crash - they recovered within a few months and quickly surged to dramatic new highs. This tells us that even if gold and silver prices are dragged lower by a plunging equity market, the final bottom should be a "golden opportunity" to buy these metals - especially as that bottom will likely be the start of a new 23 year cycle in gold (see GOLD UPDATE 9/2/19 on the Homepage). Thus, despite gold's recent bearish turn, "goldbugs" can still be looking forward to that time to buy (though it may be a few years down the road).

Crude oil prices touched $20 (April contract chart) yesterday. Today prices are rebounding a bit from that "round number" low, which is to be expected. But as with the other markets, it's possible prices could push lower into next week's reversal zone. It is still possible that crude began a new medium-term cycle on Feb.4 at $49.50. If that's the case, this market is VERY bearish and prices could be down for many more weeks (even months). Let's remain on the sidelines of crude.

Trading Blog Tuesday, March 17, 2020

3/17/2020

MARKETS UPDATE (3:30 pm EDST)

"CRASH" UPDATE
The Fed's massive full point interest rate cut announced Sunday night seemed to have the opposite effect of its intent to stabilize equity markets. The broad stock market experienced a record-breaking plunge on Monday with the DOW losing over 3000 points. It seems the timing of this announcement was bad as most were expecting a rate cut to be announced after this week's FOMC meeting (now cancelled), which is normal Fed protocol. The "emergency" announcement of a full point cut on Sunday apparently alarmed many traders and investors (already spooked by the ongoing coronavirus crisis) and triggered the massive sell-off on Monday, Markets are more stable today, calmed by the White House backing a 850 billion Federal stimulus plan and a mid-day press briefing from the White House outlining a coronavirus bill to be passed around the middle of this week to help financially stressed Americans dealing with the effects of this epidemic. The DOW is up 800 points at the moment (3:30 pm EDST).

So far, the general support levels I mentioned in last Thursday's blog (20,000 in the DOW and 2,300 in the S&P 500) are holding. We could see a rebound from here; however, all three indices (DOW, S&P 500, NASDAQ) made new lows yesterday (i.e. no intermarket bullish divergence this week). We generally like to see bullish divergence at a significant low. Also, yesterday's lows did not happen in a reversal zone, but we are entering another strong one later this week (March 20 - April 6). I would prefer to see a significant low in that time frame. Let's wait and see how this market moves into Friday. Still on the sidelines of the broad stock market for now.

I should mention here that any significant rally in equities at this point will most likely not make new all-time highs. I had previously thought that a strong rally into the summer or early fall would lead to new all-time highs (and possibly a "blow-off" top) before a very strong downturn and severe correction. That seems very unlikely now. If the Fed and the Trump Administration's stimulus efforts do turn this market around temporarily, we could get some significant rallies into the summer. But, again, these rallies (or rally) will likely not make new highs and will reverse and eventually lead to lows even lower than what we've seen so far (possibly a lot lower). With this in mind, we should be on the lookout for opportunities to sell short. There may also be opportunities to buy at cycle or sub-cycle bottoms, but these will likely be shorter-term trades.

Crude oil is making a new low today ($26.71 - April contract chart), which may not bode well for the broad stock market. Gold and silver prices are bouncing a bit off yesterday's new lows. We may see some rallying here, but I am inclined to think prices will move lower into our next reversal zone (March 20 - April 6). Let's stay on the sidelines of all these commodities.

Trading Blog Sunday (late night), March 15, 2020

3/15/2020

BRIEF COMMENT ON THE FED'S EMERGENCY RATE CUT (11:00 pm EDST)

The Federal Reserve tonight announced an emergency interest rate cut of a full percentage point to NEAR ZERO in an attempt to support the economy and calm fears over the rapidly spreading COVID-19 virus. The Fed also said it would buy hundreds of billions of dollars in government debt to offset the current financial crisis. We are seeing here a repeat of the same strategies the Fed used in the 2008-2009 crash, i.e. ZIRP and (a new form of) QE. Will they work this time? We will have to wait and see. At the moment, the overnight markets do not seem to be responding that well, but that may change tomorrow morning.

As I mentioned in my last blog, we are now watching for a bottom and some sort of rebound in equities.That may have started already with last Thursday's low and Friday's bounce. But if the Fed's emergency "rescue" fails to impress Wall Street investors and doesn't calm their fears of the coronavirus epidemic, we could see this market move even lower into the end of this month and into our next strong reversal zone (March 24 - April 1). We are still on the sidelines of the broad stock market.

Trading Blog Thursday, March 12, 2020

3/12/2020

IMPORTANT UPDATES ON ALL MARKETS (10:00 pm EDST)

Wow! This is turning into one heck of a week for financial markets. I have been deliberately silent and on the sidelines over the last few days just taking in the chaos and observing the various moving parts to make some sense of what's going on and to try and decide how we should respond as traders and investors.

Needless to say, coronavirus epidemic fear is the primary trigger for this market collapse. It seems to be the "Black Swan" or the pin that has broken the equity bubble. But last week's crude oil "price war" between Russia and Saudi Arabia has also contributed to the broad stock market's tanking (as well as crude's dramatic plunge - see further below).More panic was generated yesterday when the WHO (World Health Organization) gave the coronavirus epidemic official "pandemic" status which pushed stock markets even lower (after a brief and weak bounce on Tuesday). Today the DOW lost a whopping 2,352 points.

The severity of this global equity market crash is prompting draconian measures from central banks. The U.S. Fed recently (March 3rd) declared an emergency interest rate cut, and yesterday the Bank of England did the same. Analysts were expecting the European Central Bank to cut rates today, but it did not. The ECB did, however, expand its asset purchase program. Some economists are predicting that the U.S. Fed will soon bring interest rates down to zero in an emergency response to the current market panic. In the meantime, the Fed is aggressively injecting 1.5 trillion into short-term funding markets (asset purchases that some are referring to as a "new QE" - quantitative easing) to further calm and stabilize financial markets. Only time will tell if any of these measures will have any significant impact on our current equity (and commodity) sell-off.

The broad stock market has now broken through several support levels which means it has turned bearish and is most likely now headed towards a long-term cycle bottom (which we may not see for some time). Shorter-term, we could see some sort of bottom even now as this is the last day of our current reversal zone. If equities continue lower next week, we may have to wait for our next reversal zone (March 24 - April 1) to see a (temporary) bottom. Calling a target for a short-term bottom is tricky at the moment, but we could see support around 20,000 in the DOW and 2,300 in the S&P 500.

There is now talk from the Trump administration about a forthcoming stimulus package to rescue the financial markets. If this happens, we could see a strong bounce in equities (possibly from those support levels mentioned above), but right now it looks like such a bounce would be short-term and fall short of making new all-time highs before turning back down for a final deeper bottom. We may use such a bounce as an opportunity to sell short, so stay tuned for updates. We will remain on the sidelines for now as we watch for a stable low and possible rebound in equities.

As far as the precious metals markets go, it looks like they are behaving the same way they did in the 2008 - 2009 crash. That is, they are falling with the broad stock market. Traditionally, gold and silver are often recommended as hedges against a fall in equities, and they are usually seen as stable "safe haven" investments. However, during a severe stock market crash, investors will sometimes panic and start liquidating EVERYTHING - including commodities. This is like "throwing the baby out with the bath water" because gold and silver have an intrinsic tangible value and, like they did after the 2009 crash, will snap back and rapidly recover their value once investors and traders recover from the shock of a crash and realize this.

Not surprisingly, the U.S. Dollar Index has been rising steeply this week as panicking investors choose the good old "greenback" as their safe haven investment over the precious metals (at least for now). If you've been reading my blogs, you know I've been anticipating a correction in gold and silver for almost a month now. It looks like we are finally getting one -a big one, but maybe TOO big. If the precious metals are going to follow the broad stock market, they could be turning bearish as well. The cycle patterns of gold and silver are not clear at the moment, but they both may be forming significant bottoms now in this last day of a reversal zone for these metals. In other words, we could see a bounce from here. Because of the current volatile nature of all markets, however, I am not comfortable going long in either metal at the moment. If prices move lower next week, we could easily see them continue lower into the end of the month. In that case, we may have a better opportunity to buy in that time frame. Let's remain on the sidelines of gold and silver for now.

As mentioned at the start of this blog, a crude oil "price war" between Russia and Saudi Arabia has plunged crude way below our price level for a normal correction to the final medium-term cycle bottom we were looking to buy (around $40 - $41, April contract chart). On Monday, crude prices dropped to $27.34, but they are now stabilizing just above $30, which is still very low. As with the other markets, we may see a bounce here, but prices could also break lower. If a new medium-term cycle began on Feb. 4 (that is still a possibility), it means this market is turning VERY bearish and prices will be heading lower for many more weeks. Let's remain on the sidelines of crude oil for now.

Trading Blog Monday, March 9, 2020

3/9/2020

UPDATE ON THE BROAD STOCK MARKET (5:00 pm EDST)

It looks like the coronavirus (or now COVID-19) epidemic is turning out to be the "black swan" event (https://en.wikipedia.org/wiki/Black_swan_theory) many analysts have been speculating about recently that could take down (or at least severely damage) global financial markets. Are we witnessing the start of a major crash? Maybe, but so far the correction is around 18%. If equity markets can stabilize and find support here, we could see another rally begin soon.

All three major market indices (DOW, S&P 500 and NASDAQ) are most likely completing older medium-term cycles and taking their final corrective drops to their final cycle bottoms. Those bottoms could be forming now in our current reversal period (March 4 - 12) or they may continue down into the next strong reversal zone (March 24 - April 1). If forming now (or by this Thursday), and if the DOW can close this week above 25,000 (or even above last week's low of 24,681) then there is s good chance a new medium-term cycle will start and rally for at least several more weeks. But if this plunge continues into next week, it means the market is turning bearish and heading lower to complete its medium-term cycle at the end of this month. That would also suggest that a longer-term cycle is being completed which could lead to a final correction of 25 - 50 % (possibly more) from the all-time high of 29,406 on Feb. 12 into a 2021 - 2023 time frame.

But I am getting ahead of myself here. For now, we will watch for a medium-term cycle bottom this week. If we don't get it, we will look for it in the next reversal zone at the end of this month. We may attempt to go long (with a tight stop loss) if it looks like a bottom is forming, but we are not going to chase any short selling opportunities until it is clear the medium-term cycle bottoms are in. Still on the sidelines of the broad stock market.

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