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Trading Blog Wednesday (late night), March 25, 2021

3/24/2021

BROAD STOCK MARKET UPDATE (11:30 pm EDST)

The cycle patterns in all three of our broad stock market indices (DOW, S&P 500, NASDAQ) are, unfortunately, still not clear. It seems most likely that all three medium-term cycles are in their young and bullish phase, but we still can't completely rule out the possibility that one or more are still completing an older cycle and ready to drop steeply to a final cycle bottom soon. (We still have an intact bearish divergence signal as the DOW and S&P 500 made new all-time highs last week and the NASDAQ is still well below its all-time high from February). This ambiguity in the charts is not surprising considering the Fed's policy statement last week delivered mixed signals to Wall Street. Because we are now outside any strong reversal zones for equities until late April, we shouldn't expect any MAJOR turning points until then. We might, however, see sub-cycle tops and bottoms. At this juncture, I am not really interested in trading short-term sub-cycles as our primary focus is to identify a major longer-term cycle top to sell short in all three indices. Right now, it looks like we might get that top later in April. As I've mentioned in previous blogs, I would like to see the S&P 500 clear the 4,000 mark before considering a short position. Let's remain on the sidelines and wait to see if these cycles become more clear over the next week or two. A dramatic move in either direction could clarify things quickly.

Trading Blog Thursday (night), March 18, 2021

3/18/2021

MARKETS UPDATE (10:00 pm EDST)

The Federal Reserve's statement released yesterday afternoon at the conclusion of this month's FOMC meeting was pretty much in line with the predictions of Wall Street analysts. It looks like benchmark interest rates will remain near zero probably through 2023, and the Fed will continue its monthly purchase of $120 billion in bonds. Almost in a contradiction to this dovish stance, the Fed also expressed a very optimistic view of an accelerating economy with upgraded forecasts for growth and inflation. This is causing some Fed officials to foresee a rate hike in 2023 and maybe even as early as 2022. These kinds of mixed signals from the Fed are not unusual.

Ambiguous messages from the Fed always make Wall Street nervous. All three broad stock market indices (DOW, S&P 500, NASDAQ) rallied a bit after yesterday's Fed meeting, but the S&P 500 and especially the NASDAQ were down strongly today. The DOW managed to make a new high this morning, but it too closed with a loss at the end of the day. We are now out of our reversal zone, so some kind of top might be in, and this could be the start of a significant correction. We note, however, that the S&P 500 never cleared our 4,000 target and is still well above 3,760, so I am not so sure the equity rally is over. We will remain on the sidelines and wait to see if this corrective "dip" gains any legs as investors and traders mull over the Fed's rhetoric.

Gold and silver charts are also looking ambiguous. The cycle labeling for both metals is still not clear (old or newer cycles). Prices for both are rallying weakly this week as they move into a reversal zone specifically relevant to the precious metals (March 17 - 26), and both made a new weekly high today. If we see a top soon, a correction could follow that might take prices down to an older cycle bottom and a good spot to buy (especially in gold). Let's stay on the sidelines for now.

Crude oil prices took a big drop today which probably confirms that the $67.98 high (April contract chart) on March 8 was the final medium-term cycle top (it is late in this cycle), and prices are now falling to the final cycle bottom. That bottom could happen next week, and if this market is still bullish (it does look that way), the corrective drop should not go too far and may give us a good buying opportunity (the start of a new cycle). Let's remain on the sidelines for now.

Trading Blog Tuesday, March 16, 2021

3/16/2021

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

This month's two day Federal Reserve meeting started today and ends tomorrow afternoon at 2:00 pm EST. Most analysts are expecting the Fed to maintain their dovish stand on interest rates (i.e keeping them near zero) to help sustain equity markets during the ongoing COVID-19 pandemic. If they do this, Wall Street should be happy, and the current rally in the broad stock market should maintain its momentum. If the Fed hints at economic recovery and future interest rate raises, however, the market could respond with a downturn. Even without hawkish rhetoric, the market, already anticipating no foreseeable increase in rates, could take a corrective dip after the announcement in a "buy the rumor, sell the news" scenario.

The reason I am suggesting these possible reversals is because we are coming to the end of a reversal zone (March 9 - 18) that technically ends on Thursday, and equities have been rallying strongly into it. Therefore, our cycle and technical analysis is also predicting a possible reversal down from a top, The big question here is how serious could that correction be. Sure, this market is ripe for a serious correction any time now; but as I have noted in my previous blog, the current medium-term cycles in our three indices (DOW, S&P 500, NASDAQ) are probably young and bullish and may not be ready to top out just yet. Both the DOW and S&P 500 are making new all-time highs this week, so any bearish divergence between them is now negated. The NASDAQ, however, is still well below its all-time high (as we thought it would be this week), and that does give us a bearish divergence signal against the other two indices. We therefore have mixed signals in this current market.

I am going to remain on the sidelines and refrain from trading around the potential volatility surrounding a Fed meeting. My guess is that we could see a minor correction after the Fed's statement, and then a resumption of the rally. There is a target around 4,000 in the S&P 500 that I would like to see before considering any short selling. If we don't get there and the market turns down, we might also consider selling short if the S&P 500 breaks below 3,760. Staying on the sidelines of the broad stock market for now.

Trading Blog Thursday, March 11, 2021

3/11/2021

MARKETS UPDATE (8:00 pm EST)

I would ask any readers to please review my last blog on the broad stock market (Monday 3/8) to better understand today's analysis, as most of that analysis is still applicable with some changes that I will explain below.

Equity markets have been strong this week with substantial rallies in all three market indices (DOW, S&P 500, NASDAQ). The DOW's rally seems the strongest and is reinforcing our belief that it started a new medium-term cycle on Jan. 29 and is relatively young. In this labeling, last Thursday's low at 30,547 was probably the first sub-cycle correction, and this index is now quite bullish as it rallies to another sub-cycle peak. While it is a bit early for that peak, we are now inside a reversal zone for equities (March 9 - 18), so it could happen in this time frame.

In Monday's blog I wrote that the S&P 500 might also be in a new medium-term cycle:

" [The S&P 500]...could be a new and young medium-term cycle that started with last Thursday's low of 3,723. That, along with the young DOW cycle, would be a bullish sign and would suggest that a final top isn't here just yet. But if this index can't clear 3,950, it would be a bearish sign..."

Well, this index did break above 3,950 today, but it closed a bit below there. Although it looks like a new medium-term cycle has started in this index as of last Thursday, we can't be certain until there's a clear break above that 3,950 high from mid-February.

Last Friday's low in the NASDAQ (12,397) is holding, and this index has rallied strongly from there suggesting that the NASDAQ has also started a new medium-term cycle from that bottom. That would mean this index is bullish...BUT...we need to pay attention to the reversal zone we are now in through at least next Thursday (and possibly a bit longer). A significant top could form anytime in this time frame.

So to sum up the current situation in the broad stock market, it appears that all three market indices have likely started new medium-term cycles recently. Cycles are usually bullish in their early stage as all three of these seem to be (for now). Despite this bullishness, the market is rising strongly into our current reversal zone, and this suggests that some sort of top is imminent. We also still have a strong bearish divergence signal as the DOW and S&P 500 have made new all-time highs this week, but the NASDAQ has not. I doubt the NASDAQ will make a new high tomorrow (as it would have to rise over 600 points to do so). I am tempted to sell short here because of the bearish divergence signal, but if our labeling is correct, it is VERY early in the new S&P 500 and NASDAQ cycles, and also very early in the DOW's new sub-cycle rally. I think I will wait to see if this bearish divergence between the NASDAQ and the other two indices can hold into next week, and especially into the end of our current reversal zone (next Thursday). If so, we might have an excellent spot to sell short. But if the NASDAQ manages to break above 14,167, we may need to wait even longer for a significant top to sell. Let's stay on the sidelines for now.

Gold prices rallied a bit this week but not that strongly, and they may be rolling over now. There is a possibility that gold started a new medium-term cycle with Monday's low at $1677, but it needs to rally strongly now to confirm that. If gold turns back down and breaks below $1677, it means an older cycle is still finding a bottom. If that is the case, we could see that bottom in the next reversal zone for the precious metals coming up March 17 - 26, and it could be a good spot to buy.

Silver also rallied this week, but like gold, prices may turn back down in our current reversal zone. It is still not clear if silver started a new medium-term cycle from its low on Jan.18 ($24.28) or is still completing a much older cycle from its low way back on Sept. 24 ($21.75). If prices move below $24.28, we will go with the older cycle and look to buy its final bottom. As with gold, that might happen ideally in the upcoming March 17 - 26 reversal zone.

We are staying on the sidelines of both metals for now.

Crude oil's medium-term cycle may have made its final top on Monday at $67.98 (April contract chart). Monday, however, was just outside our current reversal zone for equities (also applicable to crude) - March 9 - 18. We are in the center of that reversal zone now as crude prices are pushing up again, so it is possible Monday's high could be exceeded. Let's see if that happens. If it does this by next Thursday, we may attempt to go short in crude. On the sidelines of crude for now.

Trading Blog Monday, March 8, 2021

3/8/2021

MARKETS UPDATE (8:30 pm EST)

As I have been suggesting over the last month or more, I believe the broad stock market is getting very close to the top of a longer-term cycle and is getting ready to take a VERY significant longer-term correction in which it could lose 30% - 50% of its value (or possibly more). This means that our major trading focus right now should be to sell short at this final top. But calling the top of a long-term cycle can be difficult. The easiest way to approach this is to realize that the top of a longer-term cycle will also be the top of the last shorter-term cycle within the longer cycle. In our current broad stock market analysis, we are following the medium-term cycles of the three major market indices: DOW, S&P 500, and NASDAQ. Because we are very close to a long-term top in equities, it is likely this will correlate with the final tops in our CURRENT medium-term cycles in these indices (or possibly the NEXT medium-term cycles that will follow our current ones - but no later than that). So let's look at the current medium-term cycles in the DOW, S&P 500 and NASDAQ.

Right now, it looks like the DOW started a new medium-term cycle with its low of 29.856 on Jan. 29 which means it is relatively young (only one month old - most cycles last 3-6 months). It seems we do have a fairly strong reversal zone for equities this month coming up this week and next (March 9 - 18). The DOW is making a new all-time high today with its strong rally, but the S&P 500 and NASDAQ are not. If this intermarket bearish divergence signal continues into this reversal zone and the DOW rallies some more, we may have a good signal to sell short. That may turn out to be the final long-term top for this index, but even if it's not, it could be a good short-term trade.

The S&P 500 medium-term cycle labeling has changed. It could be an older cycle that started with its low of 3,234 way back on Oct. 30. In that case, it topped out on Feb. 16 (3,950) and is now moving down to its final cycle bottom. But it's rallying today, and if it can rally above that 3,950 high, it could be a new and young medium-term cycle that started with last Thursday's low of 3,723. That, along with the young DOW cycle, would be a bullish sign and would suggest that a final top isn't here just yet. But if this index can't clear 3,950, it would be a bearish sign (bearish divergence with the DOW) and it might be a good short sell.

We have been waiting for the final bottom in an older medium-term cycle in the NASDAQ. That may have happened last week on Friday. But today, this index is falling again. If it falls below Friday's low (12,397) then it is still moving towards its final cycle bottom, maybe into this new reversal zone, and that could give us a good spot to buy. But if Friday's low holds and this index rallies, it too could be starting a bullish new medium-term cycle.

Are you confused yet? Yes, there is lots of ambiguity here. This is why we will remain on the sidelines for now and see how this market moves into this new reversal zone (March 9 - 18). Right now, it looks like we have a strong intermarket bearish divergence between the three indices for this week. While the S&P 500 could make a new high this week, the NASDAQ would have to rally like gangbusters to do the same. We are still on the sidelines of the broad stock market.

Crude oil has been very bullish over the last several months. Prices have broken through several resistance levels over the last few weeks. Nevertheless, it is very late in crude's medium-term cycle, and a top in the cycle is due soon. Our new reversal zone (March 9 -18) is applicable to crude as well as equities, so we could see a final cycle top in this time frame. We may consider selling short at this top, but since this market is so bullish, it might be better to just wait for a final corrective bottom and then buy the start of the next cycle. We are on the sidelines of crude for now.

The cycle structures in gold and silver are still a little unclear. It does appear that gold's medium-term cycle is fairly mature and may even be ready to make a final corrective low. Today gold made a new low at $1677. If it moves lower into our reversal zone this week, we may see a good buy spot, but there are some short-term technical signals that suggest a possible rally from today's low. Silver did not make a new weekly low today which gives us a bullish divergence signal (which will be negated if it breaks lower this week). Silver's medium-term cycle could be a relatively young cycle that started on Jan. 18 at $24.28. That could be bullish as long as prices don't drop below that $24.28 starting point. But silver could also be near the end of an older cycle with a bottom that could end up below $24. As with all the markets now (except, perhaps, crude oil), there are several possible ways to interpret the cycles. We will stay on the sidelines of the precious metals and watch how prices move into our new reversal zone. There is another reversal zone specifically for gold and silver coming up March 17 - 26, so that will be another time frame to look for a significant top or bottom.

Trading Blog Thursday (late night), March 4, 2021

3/4/2021

UPDATES on the BROAD STOCK MARKET and PRECIOUS METALS (9:30 pm EST)

I have to apologize for not posting recently.There has been a temporary delay in acquiring the normal information from sources that I use for analyzing the markets. That should be rectified by tomorrow.

We are still working with the idea that the DOW and S&P 500 started new medium-term cycles from their Jan. 29 lows and that the NASDAQ is completing a much older medium-term cycle that is moving quickly towards its final bottom. If this is correct, we will probably see the DOW and S&P 500 make sub-cycle bottoms in conjunction with the final bottom of the NASDAQ. This could be happening now as all three indices are pushing lower this week, and the NASDAQ is leading the way with the steepest drop.

We've been anticipating buying that final cycle bottom in the NASDAQ with the idea that the subsequent cycle could rally to challenge and even exceed this index's all-time high from Feb. 16 (14,167). We may yet do that - as long as the final bottom doesn't get too low. If the NASDAQ falls close to or especially below 11,000, it would mean the market could be turning very bearish and would likely be starting a MAJOR longer-term correction. We also need to watch the current corrective drops in the DOW and S&P 500. If these indices drop below their Jan. 29 lows, it would also be a bearish warning that the all-time highs might be in for some time as a longer-term correction gets underway.

What's a little disconcerting here is that there are no major reversal zones in March. Although it's possible to see a major bottom outside a reversal zone, it would be a little unusual. In other words, there is no cycle driven support for any corrective bottom now until April, although it wouldn't be impossible to get one before then.

I should say here that even if we start to see these indices rally to new highs into the Spring, it looks like those highs would likely top out in late April, and then a MAJOR correction would follow from there. The bottom line now is that it is VERY LATE in some of the longer-term cycles of this market, and a MAJOR correction of 30 -50 % (or even more) could be coming soon.
Long-term traders and investors should be getting out of most equity markets now or at the latest in mid-April. We are still on the sidelines of this market with the idea of possibly buying a short-term rally into April, but also anticipating getting out and possibly selling short at a possible top around mid to late April.

Gold and silver prices have been falling dramatically this week. Gold has broken well below our target support of $1767, and silver is now approaching our original target range of $22 - $24. I will analyze the cycles of these two metals over the week-end. If gold is still forming a final bottom in an old medium-term cycle, we may be looking for a buy spot soon. On the other hand, if gold started a new medium-term cycle with its $1761 low on Feb. 19, this market could be turning very bearish. We will remain on the sidelines until this cycle pattern (and that of silver) is more clear.