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Trading Blog Wednesday, April 30, 2014

4/30/2014

BROAD STOCK MARKET TRADE ALERT and MARKETS UPDATE (7:30 pm EST)

As expected, the Federal Open Market Committee (FOMC) today did not release any surprises to the public in its statement this afternoon summarizing the results of its two day meeting. QE tapering will continue on schedule with another 10 billion dollar bond purchasing reduction, and, most importantly, the Fed made it clear that interest rates are not going to rise any time soon. The text of the FOMC statement says that:

" ...it likely will be appropriate to maintain the current target range (i.e near zero) for the federal funds rate for a considerable time after the asset purchase program ends."

In other words, low interest rates will likely continue past the end of this year when the QE program is supposed to end. The FOMC further states that:

"...even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the long run."

Wall Street cheered the dovish tone of this statement with a 45 point rise in the DOW, but neither the DOW nor the S&P 500 have taken out their all-time April 4 highs yet. Nevertheless, significant bullish signals appeared in the DOW and S&P 500 charts today and directional momentum in both of these indices is now 100% bullish. Because of this (as well as today's thumbs up to Wall Street from the Fed) I am going to cover my short position in the broad stock market for tomorrow. The DOW and S&P 500 closed slightly above where they were last Thursday when I short sold this market so we should be able to get out with minimal or no loss. Even if this market turns down now, I suspect the correction will be minimal and followed by a rally into the third week of May at which time we may see the start of a very significant correction of 10% or more into the summer. Because the markets are closed now, I am going to put an order in tonight to cover my short position at the opening of tomorrow's market. Covering all short positions in the broad stock market for tomorrow morning (Thursday).

Gold and silver dropped significantly today (especially silver) and technical signals in the charts of both metals are looking quite bearish (more so for silver) right now. If prices don't turn up soon, gold and silver could be headed for new lows into the end of May. Directional momentum is currently mixed bullish and bearish for gold but 100% bearish for silver. Still on the sidelines.

Crude oil prices briefly touched $102 yesterday, but crude's 100% bullish directional momentum has made me reluctant to sell this market short (even though cycle analysis is suggesting a significant correction by early June).
There is fairly strong support at the $99 level. $97 is also a very important support level which if broken could send prices quite a bit lower. I would still like to see more bearish momentum in crude charts before committing strongly to a short position. On the sidelines for now.

Trading Blog Tuesday, April 29, 2014

4/29/2014

BRIEF MARKETS UPDATE (5:30 pm EST)

The Federal Reserve ends its two-day April meeting tomorrow (Wednesday) and will release a statement in the afternoon that most analysts feel will not rock the boat of the policy and tone established at last month's meeting.
That would mean continuing the QE taper (i.e. another $10 billion reduction in monthly bond purchases) and, most importantly, a reiteration of the Fed's position that interest rates remain near zero for the foreseeable future. The Fed is very much aware of how sensitive markets are right now to any suggestion of raising short-term interest rates, so they will likely be dovish in their language on this topic for most of this year. As we know from the past, Federal Reserve statements can produce significant reactions in all markets, especially indecisive ones like we have now, so we will be carefully watching the directions of markets tomorrow afternoon.

The broad stock market has rallied back up to the point where we sold it short last Thursday so we are in our stop-loss area. If the Fed's statement has a bullish effect on equities we may have to bail out of this short position. However, the DOW and S&P 500 still have not exceeded their highs from last week, let alone their all-time April 4 highs, and NASDAQ charts remain strongly bearish. This market, therefore, still has the potential to turn down. Maintaining that short position for now.

Some short-term signals in gold and silver charts are turning bearish today. The precious metals really look like they want to go lower short-term, but a strong reaction to the Fed's statement tomorrow could possibly kick-start a strong rally, especially if gold can break above the $1330 area and close above there for the week. We will have to wait and see how this plays out over the next few days. Still on the sidelines here.

Trading Blog Monday, April 28, 2014

4/28/2014

MARKETS UPDATE (2:15 pm EST)

My decision to short sell the broad stock market last Thursday seems to be a good one so far as the market dropped sharply on Friday and is down a bit more today at the time of this writing (2:00 pm EST). Not surprisingly the NASDAQ is making the steepest drop (about 2.5%) as its directional momentum has been nearly 100% bearish since April 15. The DOW and S&P 500 remain mixed bullish and bearish. Cycle analysis and timing factors are suggesting that this market will continue to fall into the second half of May with the DOW possibly reaching the 15,600 area. Unfortunately these days we can never underestimate the possibility of market manipulation undermining the normal flow of "free" markets. The U.S. government and the Federal Reserve's "Plunge Protection Team" are constantly working to thwart panic selling in the broad stock market. This is why there has not been any serious corrections in equity markets since the crash of 2008-2009. (Even minor corrections over the last several years seem to be frequently truncated and tend to fall short of technical expectations). My point here is not to backpedal my decision to sell short but to recognize that market manipulation is a "wild card" factor we have to deal with now when trading equity markets (and sometimes commodity markets as we saw with last October's manipulation of gold prices). The most overt form of equity market manipulation over the last several years has, of course, been quantitative easing or QE. But as we all know, QE is now being "tapered" (ie. the Fed is slowing down their program of bond buying with money created out of thin air) so markets are very jittery now and hanging onto hopes that the reportedly dovish Fed chairwoman Janet Yellen will at least keep interest rates low for some time. This uneasy balance between bearish cycle and technical indicators and a Fed that wants to be bullish requires us to be "cautiously bearish" with our trading strategy now.

Considering all the above, I think it is safe to stay short in the broad stock market unless the DOW breaks clearly above last week's high at 16,565. This will be my stop-loss point for now. A clear break of the DOW and S&P 500 above their all-time highs of April 4 would also be a bullish development and could lead to more rallying into the second half of May. (The currently very bearish NASDAQ makes this seem unlikely.) Maintaining short positions in the broad stock market for now.

Like the broad stock market, gold and silver prices could go either way right now. My bias is bearish at the moment and I think these metals could go lower before a major rally gets underway. Supporting this view is the price chart for silver which turned nearly 100% bearish last week. Gold's chart is still mixed bullish and bearish. There are, however, some short-term bullish signals now that could drive a small rally. If gold prices can clear and close above the recent high around $1330, I may have to change my bearish view as a major rally could be starting and we would want to go long. Still on the sidelines of gold and silver.

Despite increasing tensions in Ukraine (the mayor of a major city in East Ukraine was shot today) crude oil prices have been stable and hovering above $100 over the last few days. It looks like a significant top may have formed on April 16 around $104, and if so, prices could be down into the second half of May. We just missed selling crude short near that top due to its volatile move down on April 22, but if prices rise back above the $102 area I will consider shorting it again. Out of this market for now.

Trading Blog Thursday, April 24, 2014

4/24/2014

BROAD STOCK MARKET TRADE ALERT and MARKETS UPDATE (2:45 pm EST)

We are seeing a good set up right now for short selling the broad stock market. The rising DOW seems reluctant to break above its recent all-time high of 16,631 on April 4, and we have come to the end of a timing window for a significant directional reversal in this market. In other words, if the market is going to turn down it needs to do so now, and since the DOW is currently very close to that all-time high, we can use that as our stop-loss level with a favorable reward/risk ratio for the trade. I am therefore going to go short in the broad stock market today with a stop-loss based on the DOW and S&P 500 both clearly breaking above their April 4 highs (16,631 in the DOW and 1897 in the S&P).

Crude oil prices fell sharply on Tuesday supposedly because investors decided they had been overreacting to rising tensions in Ukraine and pushing the price up excessively over the last several weeks. Even if this is true we shouldn't underestimate the effect of the geopolitics of that region on oil prices going forward. Crude prices did not clear that $104 - $105 resistance area before falling suddenly so we may have missed a good shorting opportunity due to the volatile dive. Crude may continue to fall, though, into a deeper correction, and I will watch short-term technical signals for signs of another opportunity to go short. Still out of this market.

Gold and silver prices dropped sharply early in the day with both making new lows for the month. Although both metals have now recovered sharply and are closing higher for the day, a strong bear signal is manifesting in the the silver charts which makes directional momentum in this metal now 100% bearish. This will have to be negated before I will feel comfortable going long in the precious metals. In other words, the final bottoms in gold and silver may not be in yet. Still on the sidelines.

Trading Blog Monday, April 21, 2014

4/21/2014

MARKETS UPDATE (5:30 pm EST)

This week is the last timing window for major market reversals in the volatile month of April, and we need to be especially alert for the possibility of significant directional changes in all markets. (The next time period with a high probability for major reversals will be in late May).

Overall directional momentum in the broad stock market is now mixed bullish and bearish, but it is leaning a little more to the bearish side at the moment. Cycle and timing patterns are suggesting an imminent significant short-term correction if the DOW cannot exceed and close above its recent April 4th all-time high (16,631) by the end of this week. Based on this I will be looking to sell the market short sometime this week for what could be a sharp move down. If the DOW turns bullish, however, and does break through and close above its April 4th high along with the S&P 500 and the NASDAQ (its high was on April 2), then we may have to wait until late May for any significant correction. On the sidelines for now.

Like the broad stock market, the precious metals market's overall directional momentum is mixed bullish and bearish right now, but short-term technical signals are suggesting more bearishness. This market is a bit tricky to call at the moment. If gold can hold above the $1270 level this week we could see a reversal to the upside and the start of a significant rally. Until we see more bullish signals in directional momentum, however, it seems more likely that gold and silver will move lower and prices may be headed for new lows sometime next month. Still on the sidelines here.

The behavior of the U.S. Dollar Index over the next few weeks may help us predict the direction of precious metals (as they usually move in opposite directions). The dollar index has been range-bound between 79 and 81.5 since last October, and many financial analysts feel a break out of this range could happen soon. There is strong support at 78-79, so a clear break below 78 would be bad news for the dollar but would likely kick-start a strong rally in gold and silver. On the other hand, if the dollar breaks clearly above 81.5, it could send precious metal prices considerably lower. (There is also significant resistance for the dollar around 80.6 which could turn any rally in this index back down and minimize damage to gold and silver prices). We will be keeping a watchful eye on the U.S. Dollar Index to help clarify the directional trend of precious metals over the next several weeks.

We may have seen a significant top in crude oil prices last Wednesday at $105, but prices could still go higher before the end of this week. Directional momentum is 100% bullish, but cycle and timing factors are suggesting a peak and correction now. If prices fail to exceed last week's high by Friday I may consider a short position as this could mean the market's momentum is about to turn bearish. On the geopolitical front tensions between Russia and Ukraine do not appear to be subsiding and this may drive oil prices to new highs over the next several days. Still out of this market.

Trading Blog Wednesday, April 16, 2014

4/16/2014

MARKETS UPDATE (4:45 pm EST)

We are approaching a holiday week-end (Good Friday and Easter Sunday) so it will be a short trading week.

The broad stock market tends to be optimistic into holiday week-ends and we have been seeing this bullish mood in a rally over the last three days. If the DOW continues to rise into early next week we may have a good setup to sell short. As I mentioned in my last blog, I am expecting a significant correction (short-term) in equity markets to begin sometime before the end of May. The cash chart for the NASDAQ recently turned 100% bearish (contract NASDAQ charts have remained mixed bullish and bearish as have all DOW and S&P 500 charts) so we are seeing some evidence suggestive of these markets turning back down. The NASDAQ has been more bearish than the DOW and S&P 500 over the last month or so and this may be telling us something. Still on the sidelines.

We missed our anticipated short-sell opportunity in gold and silver as both metals plunged dramatically yesterday (this is the problem with trading volatile markets). While prices could go lower, they are now close enough to some support levels ($1270- $1280 in gold and $19.00- $19.20 in silver) to make short selling less appealing at the moment. I will continue to watch for signs of the final long-term cycle bottom in precious metals that should be in by June.
I am expecting this bottom to be a major opportunity to go long in both gold and silver. On the sidelines of precious metals for now.

Crude oil prices remain buoyant and are likely being sustained by the increasing tensions between Russia and Ukraine (and the West). Prices, however, seem reluctant to clear the March 3rd high of $104.48 as we approach the center of a timing window for a likely directional reversal in crude on April 21. As I noted in Monday's blog, failure to exceed that March high might indicate this market is turning bearish (momentum is currently 100% bullish). That said, there is still plenty of time for crude to make a new high before the end of next week when the current timing window for a reversal is over. If crude does make a significant new high, I will continue with a bullish trading strategy and will be looking to buy any subsequent correction. Still out of this market.

Trading Blog Monday, April 14, 2014

4/14/2014

MARKETS UPDATE (5:30 pm EST)

All financial markets continue to manifest mixed directional signals and indecisiveness at a time when cycles are suggesting major turning points are imminent in several of these markets. This makes trading difficult and dangerous right now and I am starting to think it may be best to refrain from all medium and long-term trading until the potential volatility of this month has passed. I will, however, continue to watch for any short-term trading opportunities that seem profitable.

Last week strong bearish momentum signals appeared in the DOW and the nearby contract chart for the S&P 500, and so the broad stock market (DOW, S&P 500 and NASDAQ) is now back to being uniformly mixed bullish and bearish in its directional momentum. (The DOW and S&P 500 had been showing more bullish momentum over the last few weeks, but that bullish energy is now subsiding). Technical and cycle studies are pointing to a significant correction in the broad stock market that should begin before the end of May, so the trick here will be to identify the turning point to sell short. If the DOW rallies into next week's reversal zone we may see that turning point then, but if it falls instead we may have to wait for a bounce from the low that forms before a more serious correction begins. Out of the broad stock market for now.

Silver seems poised to turn down any day now, but there are some technical indicators suggesting gold could move higher. While it is possible for gold and silver to diverge a bit from each other short-term, any major moves will be done in unison. If gold can exceed and close above $1360, we may see both metals start to break upside. I think there is more evidence, however, to support the idea that gold and silver will fall lower and perhaps move down to a final cycle low sometime in May. We will have to wait and see. I am reluctant to trade silver right now, even short-term, because of its high volatility, but if we get a sell signal in gold this week I may consider a short-term short position. On the sidelines of both metals.

After falling steeply last week, the U.S. Dollar Index seems to be finding at least temporary support at 79.4 and is now rallying. If this rally continues it will likely push precious metal prices down, but if the dollar turns down again (especially if the index breaks below 79) we could see the metals take off. Directional momentum is now mixed bullish and bearish in this market too, so it could go either way.

In my last blog I noted that directional momentum in crude oil charts had become 100% bullish. This momentum continues as crude attempts to break through its March 3rd high between $104 -$105. Today's crude prices were not able to clear that hurdle. From a cycles point of view it is important for crude to exceed that high to maintain its bullishness. Early next week could be an important turning point for crude, so we want to watch how prices move into that time. If prices back down now (before exceeding the $104 - $105 high) and directional momentum remains bullish, we could see a good buying opportunity at a low next week. Still out of this market.

Trading Blog Wednesday (night), April 9, 2014

4/9/2014

MARKETS UPDATE (11:30 pm EST)

In my March 31st blog I mentioned that, based on cycle and timing factors, the month of April could be a difficult one for traders. This is due to the presence of several timing zones that have a high probability for significant market reversals. Markets are therefore especially prone this month to seesawing up and down in an indecisive manner. We are indeed seeing this now (along with mixed technical signals), and this lack of clear market direction has been keeping me on the sidelines of trading.

Directional momentum in the broad stock market is still conveying an unclear picture. While the DOW and nearby contract chart for the S&P 500 are mostly bullish, the NASDAQ remains stubbornly mixed bullish and bearish, and a strong bearish signal appeared on the cash chart for the S&P 500 on Monday, making its momentum now mixed as well. This ambiguous picture makes me reluctant to trade, but if the DOW rises into Friday or early next week without exceeding last week's high, I may consider a short position. It looks like this market wants to take a significant correction, but if the DOW breaks to a new all-time high soon, that correction may be delayed for several more weeks. Still on the sidelines.

Overall momentum in the precious metals markets is still mixed bullish and bearish, and I continue to watch for signs of a final long-term cycle bottom in both gold and silver between now and the end of May. One thing that has me concerned at the moment is what looks like a breakdown in the U.S. Dollar Index. Over the last five days this index has dropped abruptly from a peak at 80.59 on April 4 to today's low at 79.52. There is important support for the dollar at the 79 level. If this level breaks it could kick-start a major rally in gold and silver. Short-term technical and cycle patterns are suggesting that both these metals will move lower, but a dollar collapse could change that. For now, I am going to go with the idea that gold and silver are short-term bearish and keep a close eye on that 79 level in the U.S. Dollar Index. If precious metal prices can rise close to $1330 in gold and $20.50 in silver soon, it may be a good spot to set up short positions (for a short-term trade down). On the sidelines here.

Increased tensions between Ukraine and Russia this week have propelled the price of crude oil upwards. Significantly, directional momentum in this market has now turned 100% bullish. This means I will now adopt a bullish strategy in any trading and will be looking to buy any significant corrections. To maintain a bullish posture it is important for the price of crude to break through its early March high of $104.48. Based on the recent momentum change in crude charts, it seems likely this will happen. There could be a significant turning point for crude oil prices around April 21, so we will watch carefully to see if the market rises or falls into that important time. Still out of this market.

Trading Blog Sunday (night), April 6, 2014

4/6/2014

MARKETS UPDATE (11:15 pm EST)

Friday's jobs and employment report from the U.S. Department of Labor delivered mixed signals to investors. While there was some disappointment that the number of new jobs created fell a little short of expectations (192,000 instead of an expected 200,000 based on a MarketWatch poll of economists), there were some positive data showing a significant increase in the size and participation rate of the labor force. The broad stock market never likes ambiguity, and the DOW reacted to this mixed report with a thumbs down by dropping nearly 160 points by the end of the day. This drop, however, may just be a one day nervous reaction as a major bullish directional signal appeared in the DOW chart on Wednesday, and that index finally broke through its Dec.31st high (16,588) and made a new all-time high at 16,631 on Friday just before its drop. Both the DOW and S&P 500 charts are now nearly 100% bullish. The NASDAQ, though, is maintaining its mixed bullish and bearish momentum, and this index suffered a 2.5% drop on Friday (more severe than the DOW's 1% loss). These indices continue to give us mixed signals. I am remaining on the sidelines of the broad stock market until directional signals are more clear.

Short-term technical signals are suggesting that gold and silver could rise a bit more next week before turning down again. Directional momentum remains mixed bullish and bearish in both metals. I may consider short positions if gold rises towards $1330 and silver towards $20.50. Cycle patterns are indicating that we could see a significant bottom in precious metal prices later this month or sometime in May. As long as gold doesn't break below $1000, this bottom will likely be an excellent point to go long in both gold and silver. On the sidelines for now.

Crude oil's cycle picture continues to be a little unclear and directional momentum is still mixed bullish and bearish. This market could go either way right now; however, if crude prices cannot exceed $105 by the end of this month, we could see a major downturn. Still on the sidelines here.

Trading Blog Friday, April 4, 2014

4/4/2014

BRIEF MARKETS UPDATE (3:40 pm EST)

I am remaining out of all markets today and will analyze reaction to today's Labor Department data over the week-end.

The broad stock market seemed initially unfazed by the slightly disappointing (but not bad) employment and job numbers early in the day, but the DOW started tumbling later in the afternoon and is now (3:38 pm EST) down about 140 points. This is a typically confused, nervous and indecisive stock market and we need to exercise caution in trading.

Gold surged up today, but both gold and silver's directional momentum remain mixed bullish and bearish and their prices are rising into the center of a timing zone for a likely reversal in the precious metals. Another downturn may therefore be imminent.

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