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Trading Blog Thursday, April 27, 2017

4/27/2017

MARKETS UPDATE (4:15 pm EDT)

We appear to be on track (so far) with our bullish interpretation of the broad stock market and the idea of a new medium-term cycle starting in all three major indices (from the DOW's low of 20,379 last week and the S&P 500 and NASDAQ lows of 2,322 and 5,769, respectively, on March 27). These indices are rallying strongly from those bottoms, but now the DOW and S&P 500 are approaching and testing their all-time highs from March 1 (the NASDAQ is already making new all-time highs) so we will soon see if this market is truly bullish. There is resistance for the DOW and S&P 500 at those highs (21,169 in the DOW and 2,400 in the S&P 500), and it would be normal now to see these markets back down a bit after this week's strong rally. Nevertheless, we need to see the DOW and S&P 500 break through those highs soon or we will have another case of intermarket bearish divergence (as the NASDAQ has already broken through its all-time high from early March). Directional momentum in all three indices is now nearly 100% bullish so I am fairly confident in the bullish scenario. What we don't want to see is both the DOW and S&P 500 break below those cycle bottoms mentioned above. The breaking of those lows may still be used as a stop loss for our current long position in this market. Holding my long position in the broad stock market.

Gold and silver are still hard to call right now. Silver is falling sharply this week and appears to be headed down to its major cycle bottom as prices approach last month's low near $16.84. Gold prices are also down this week but not as steeply, and gold's correction so far has been very minimal. Directional momentum in both gold and silver metal charts is nearly 100% bullish; however, gold and silver stock price indices (HUI, XAU, GDX) are all 100% bearish. Precious metal stock prices often lead precious metal prices so it seems like this market wants to head lower, but directional momentum could give us some short-term rallies. It is probably best to remain on the sidelines of this market for now. Any rally with intermarket bearish divergence (i.e. gold making a new high but not silver) might be a good spot to sell short if it happens. If it doesn't, we may have to wait for both cycles to bottom and look to buy then. On the sidelines of gold and silver.

In Monday's blog on crude oil I wrote:

"...crude prices dropped to $49.20 (June contract chart) which is a bit below our target for this correction, but more importantly, directional momentum in some crude charts changed from mixed bullish and bearish to 100% bearish. This is making me reluctant to go long now. We are moving out of a reversal zone for crude, but there is another one coming up in the second week of May. It is possible for this correction to continue down and bottom in that time period. If prices break below the start of this cycle on March 22 ($47.58), the cycle trend would likely be turning bearish, and we might switch our trading strategy to selling short the top of any short-term rally."

Crude prices dropped to $48.20 early this morning so it is getting very close to the start of the current cycle, and directional momentum in crude charts is still nearly 100% bearish. This correction could continue down into the next reversal zone in the second week of May, but prices snapped back up today from that $48.20 low to close at $49.25. That is bullish behavior. If that was a bottom and crude prices now rise into the next reversal zone, we may have a top to sell short instead of a bottom to buy. Still on the sidelines of crude oil.

Trading Blog (#2) Monday (late night), April 24, 2017

4/24/2017

MARKETS UPDATE and COMMENT ON THE FRENCH PRESIDENTIAL ELECTION (11:30 pm EDT)

Part of the thrust for today's strong rally in the broad stock market came from France's presidential election and the edging ahead of centrist Emmanuel Macron over far-right leader Marine Le Pen. Equity markets had been fearing the election of Le Pen and her campaign against globalization which many think could collapse the European Union. Investor's fears may be justified. Last summer's Brexit vote caused the DOW to drop nearly 1000 points in two days, and although the DOW recovered quickly, investors could see a Le Pen victory as a continuation of anti-EU sentiment that is closer to the heart of the EU and thus more serious. The final vote for either Macron or Le Pen will come in two weeks (May 7th). It appears that Macron is ahead now, and equity markets are happy, but if Le Pen pulls off a surprise victory (as Trump did in November's U.S. election), the markets could panic and sell off (at least short-term). We will have to wait and see how this unfolds.

For now, a "Frexit" seems less likely (that may change in two weeks), and all is well on Wall Street. At least it was today. The DOW opened over 200 points above Friday's close and maintained that gain into the end of the day. This seems to confirm the idea that the broad stock market is starting a new medium-term cycle (the DOW from its 20,379 low last week and the S&P 500 and NASDAQ from their March 27 lows - 2,322 in the S&P 500 and 5,769 in the NASDAQ). The cycle lows in these indices all occurred within a major reversal zone for equities, and there was intermarket bearish divergence (the DOW made a new low last week while the S&P 500 and NASDAQ did not). For these reasons we entered a long position in the broad stock market today (see earlier blog and trade alert). We are now out of a major reversal zone for this market, but if these indices start to fall again and break below the lows mentioned above, we could see them fall to a new bottom in May or June. That doesn't seem likely at the moment, but if it happens, we might have to relabel the bottoms of these cycles. Right now a rally seems more likely into early May when we will be keeping an eye on the French presidential election results. Holding a long position in the broad stock market.

We are also coming out of a reversal zone for the precious metals. That reversal zone seems to have correlated with a high in both gold and silver on April 16, but so far the correction down has not touched our target areas of $1,200 in gold and $17 in silver. There are technical signals now suggesting that both metals could be very volatile this week (and even into next week), and cycle patterns are showing a possibility of gold pushing higher and maybe even exceeding its April 16 high of $1,295. If this happens and silver does not exceed $18.64, we may have a good signal (bearish divergence) to sell both metals short. If instead prices continue to fall, we will wait for these cycles to bottom over the next few weeks and look to buy closer to those targets mentioned above. On the sidelines of gold and silver for now.

As usual, the U.S. dollar may determine the fate of gold and silver. On Monday last week I wrote:

"The cycle structure of the U.S.Dollar Index is very ambiguous at the moment, i.e. it could be either very bullish or very bearish. A major reversal zone for currencies is ending this week and the dollar is falling. If we get a significant reversal here, that may give us more clues as to the longer-term direction of the dollar. If the dollar starts to break down, we could see precious metal prices take off."

Well, the U.S. Dollar Index made a new monthly low yesterday (Sunday) which was within its reversal zone, and it is now up a bit from that low. We could therefore see a rally now, but that rally may not get very far before turning down again. The fact that the dollar made a new monthly low is adding weight to the idea of the dollar's trend turning bearish. Directional momentum is also now 100% bearish in the chart of the U.S. Dollar Index. While that could change if this reversal becomes a pivot point for a strong rally, right now it looks like the dollar could be in trouble. The current favoring of pro-EU Macron in the French presidential election is good for the euro, but it is probably weakening the U.S. dollar. (and strengthening gold and silver). On the other hand, if anti-globalist Le Pen can pull off a surprise victory (like Trump) in two weeks, we might see the U.S. dollar recover (as gold and silver prices drop).

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

"Crude oil most likely started a new medium-term cycle from its low in late March and has been rallying strongly from there. From a high of $53.76 (May contract chart) last week (in a reversal zone), crude seems to taking a sub-cycle correction. A normal target for this correction would be in the $50 - $51 area. If we get there this week that might be a good spot to buy."

Today crude prices dropped to $49.20 (June contract chart) which is a bit below our target for this correction, but more importantly, directional momentum in some crude charts changed from mixed bullish and bearish to 100% bearish. This is making me reluctant to go long now. We are moving out of a reversal zone for crude, but there is another one coming up in the second week of May. It is possible for this correction to continue down and bottom in that time period. If prices break below the start of this cycle on March 22 ($47.58), the cycle trend would likely be turning bearish, and we might switch our trading strategy to selling short the top of any short-term rally. Still on the sidelines of crude oil.

Trading Blog Monday, April 24, 2017

4/24/2017

BROAD STOCK MARKET TRADE ALERT (3:30 pm EDT)

Last Wednesday we unloaded our short positions in the broad stock market for a small profit as it appeared that all three major market indices (DOW, S&P 500 and NASDAQ) had made or were making their final medium-term cycle bottoms. This was happening in a major reversal zone for equity markets which we are moving out of today. Today's surge in the broad stock market is reinforcing this scenario. It looks like a good time to now go long in these markets. We can set a stop loss on both the DOW and S&P 500 breaking below their recent lows (20,379 in the DOW and 2,322 in the S&P 500). I will comment more on the broad stock market and the other markets later tonight or tomorrow. Going long in the broad stock market today.

Trading Blog Wednesday (night), April 19, 2017

4/19/2017

BROAD STOCK MARKET TRADE ALERT (11:00 pm EDT)

In Monday's blog I wrote:

"This is the last week of a major reversal period for equities. We are watching for signs of a final medium-term cycle bottom which is now due in all three major market indices (DOW, S&P 500, and NASDAQ). That bottom could end up below the March 27 lows of these indices, but if only one or two of these indices (but not all three) break(s) below the March 27 low(s) then we would have an intermarket bullish divergence signal in this reversal zone which could be a good spot to take profits in our short position and maybe even go long. We will watch for that set-up this week."

Today the DOW fell and closed below its low from March 27 while the S&P 500 and NASDAQ remained above their March 27 lows. We are thus getting our intermarket bullish divergence signal, and we are near the end of the current reversal zone for equities (this Friday). We could see the final bottom in the broad stock market's current medium-term cycle over the next two days and the start of a new one with a new, bullish rally in all three indices. For this reason I am now going to cover my short position in the broad stock market. We entered this position back on February 28 and have a small profit in the DOW and S&P 500. Those trading the NASDAQ are just about breaking even. This has been a disappointing trade as we had expected these markets to fall further (they usually fall more steeply to their cycle bottoms) so it seems like "Trumphoria" and pre-tax-day contributions to baby boomer retirement plans may have buoyed the markets and averted a deeper correction. I am setting up this trade tonight for tomorrow's market open. The DOW may reverse back up from here or may fall lower over the next two days, but since we are at the end of the reversal zone, a cycle bottom should be imminent. I may consider entering a long position in the broad stock market tomorrow or Friday. Stay tuned. Unloading (covering) my short position in the broad stock market at Thursday's market open.

Trading Blog Monday, April 17, 2017

4/17/2017

MARKETS UPDATE (5:30 pm EDT)

Not much has changed since my last two blog posts. Several financial markets still seem poised to make a decisive directional move, but also seem reluctant to do so. The Easter holiday on Sunday in the U.S. and today in Canada is probably contributing to market sluggishness so we could see more action in tomorrow's markets.

The broad stock market is up a bit today. This is the last week of a major reversal period for equities. We are watching for signs of a final medium-term cycle bottom which is now due in all three major market indices (DOW, S&P 500, and NASDAQ). That bottom could end up below the March 27 lows of these indices, but if only one or two of these indices (but not all three) break(s) below the March 27 low(s) then we would have an intermarket bullish divergence signal in this reversal zone which could be a good spot to take profits in our short position and maybe even go long. We will watch for that set-up this week. Holding my short position in the broad stock market for now.

We were stopped out of our gold and silver long positions last week, and we may have been the victims of a "whipsaw" rally that got us out prematurely. Both metals still look poised for a correction down to their final medium-term cycle bottoms. Directional momentum, however, is now nearly 100% bullish in gold and silver charts so prices could still push higher. We are now moving out of a reversal zone for the precious metals, and if we are going to get a reversal these prices need to top out over the next few days. Both metals are already exceeding last week's highs so we won't have any intermarket bearish divergence this week. This makes me very reluctant to sell short now. I am going to stay on the sidelines for now. If we miss selling short this correction, we may just have to wait to buy the bottom of the medium-term cycle if and when it comes.

The cycle structure of the U.S.Dollar Index is very ambiguous at the moment, i.e. it could be either very bullish or very bearish. A major reversal zone for currencies is ending this week and the dollar is falling. If we get a significant reversal here, that may give us more clues as to the longer-term direction of the dollar. If the dollar starts to break down, we could see precious metal prices take off.

Crude oil most likely started a new medium-term cycle from its low in late March and has been rallying strongly from there. From a high of $53.76 (May contract chart) last week (in a reversal zone), crude seems to taking a sub-cycle correction. A normal target for this correction would be in the $50 - $51 area. If we get there this week that might be a good spot to buy. On the sidelines of crude oil.

Trading Blog Thursday, April 13, 2017

4/13/2017

GOLD and SILVER TRADE ALERT and BROAD STOCK MARKET UPDATE (2:45 pm EDT)

The last few days have shown how cycles, timing, and technical charts can sometimes be overridden (or at least temporarily distorted) by major geopolitical events in the news. Technical signals pointing to a correction in gold and silver are abundant everywhere right now (including COT charts, which are rarely wrong), and we could still see that correction; however, recent U.S. military strikes on Syria and increasing tensions between the U.S. and North Korea have been propelling precious metal (as well as crude oil) prices to new highs. On Tuesday gold made a new cycle high, and today silver followed suit and broke just above its Feb. 24 high of $18.54. Our stop loss for our short position in both metals has been triggered. These stop losses were triggered automatically in my own investments, and I am now wondering if I have been "whipsawed" out prematurely. If investor reaction to current geopolitical tensions subsides, we could still see gold and silver prices reverse and fall to a corrective cycle bottom. Otherwise, we may have to revise the labeling of the current medium-term cycles. Friday could be a very volatile day for these metals, and that could mean a surge up in prices or a surge down. I am going to stay on the sidelines of gold and silver for now. We covered (unloaded) our short position trades in both gold and silver today

Current geopolitical tensions may have foiled our short trade in gold and silver, but it seems to be favoring our short position in the broad stock market as equities continue to push lower (though reluctantly). The current reversal zone for equity markets could extend well into next week so there is still time for the DOW, S&P 500 and NASDAQ to test or break below their March 27 lows. We will watch for this as a possible signal to take profits in our short position. Holding my short position in the broad stock market.

We are living in volatile times, and unfortunately, this will likely translate into some volatile financial markets for the rest of this year (and most likely longer).

Trading Blog Tuesday, April 11, 2017

4/11/2017

GOLD and SILVER and BROAD STOCK MARKET UPDATE (3:15 pm EDT)

It looks like gold and silver are thumbing their noses at my decision to sell these metals short on Monday. The price of gold soared up today and edged a little above last Friday's high of $1,270.50 to make a new monthly high at $1,272.65. Please note, however, that we are still in the center of a strong reversal zone for the precious metals (it ends Friday but could extend a bit into early next week) and that silver is not making a new high today. We therefore have another case of bearish divergence in a reversal zone. A significant turn down is still likely here because the bottom of the current medium-term cycle in both metals is due sometime over the few several weeks. Commitments of Traders (COT) charts are also currently suggesting a downturn in gold and especially silver. In Monday's blog I suggested a stop loss for our short position in gold and silver based on both metals making new cycle highs. Gold did this today, but silver still has to exceed $18.54 for the bearish divergence signal to be negated. I am going to stay bearish (short) in both metals until silver exceeds that high.

The broad stock market still can't seem to decide whether it wants to go up or down. We are waiting for a significant low this week or next to cover our short position and possibly go long. That drop could be steep, but it doesn't have to be. If one or two (but not all three) of the three major stock indices (DOW, S&P 500, NASDAQ) make(s) a new low below their March 27th low (20,412 in the DOW, 2,322 in the S&P 500, and 5,769 in the NASDAQ) this week or next then we would have a bullish intermarket divergence signal that may be a good buy spot. Of course, if the market decides to push higher before testing those lows, we would likely stay with our short position (unless stopped out) and watch for a top this week or next to be followed by a reversal down. Right now either scenario is possible, but a bottom seems more likely. Holding my short position in the broad stock market.

Trading Blog Sunday (night), April 9, 2017

4/9/2017

GOLD and SILVER TRADE ALERT and MARKETS UPDATE (10:30 pm EDT)

In last Thursday's blog on gold and silver I wrote:

" I would still like to see either gold or silver (but not both) exceed their late February highs (that would be $1,263.60 in gold and $18.54 in silver) for a case of intermarket bearish divergence in this reversal zone. That would be a good signal to sell short."

On Friday gold prices rallied to $1,270.50 before falling and closing the day around $1,254. Silver also rallied but did not exceed $18.54 and then closed near $18.00. We thus have a case of intermarket bearish divergence with both metals closing in the lower part of their day's range (also bearish), and it is happening in the center of a reversal zone for precious metals near the end of the medium-term cycles of both gold and silver. It looks like a good time to sell these metals short as it is likely they will now move down to their final medium-term cycle bottoms over the next week or two. Gold could easily fall to the $1,200 area and silver to the $17 area. Lets enter short positions in both gold and silver for tomorrow morning's market open with a stop loss based on both metals making new weekly highs.

In Thursday's blog I made this comment on the broad stock market:

"We are now in a strong reversal zone April 5 - 21 for equities so the question is will this market fall in this time period and make a significant bottom to reverse up or will it push higher to make a significant high and then reverse down?"

Equities fell a bit on Friday so I am still favoring a cycle bottom this week or next (especially as we had a case of bearish divergence between the NASDAQ and the DOW and S&P 500 last week). Even if these indices push higher now, we will still be looking for a significant top to happen this week or next and then a significant correction to follow.
Holding my short position in the broad stock market.

Crude oil most likely started a new medium-term cycle with the $47 double bottom of March 22 and 27. We are early in this new cycle, and that is bullish (unless prices start moving below $47). Last week crude prices peaked near $53. That was in a major reversal zone for crude (which could extend into this Wednesday) so we could now see a correction down. We will look for a target price near $50 for this correction which may be a good spot to buy. On the sidelines of crude oil.

Trading Blog Thursday, April 6, 2017

4/6/2017

BRIEF MARKETS UPDATE (3:15 pm EDT)

Not much has changed since my last blog post on Monday.

The broad stock market has been relatively flat this week. It made a strong attempt to rally yesterday but then pulled back and closed the day in negative territory. We are now in a strong reversal zone April 5 - 21 for equities so the question is will this market fall in this time period and make a significant bottom to reverse up or will it push higher to make a significant high and then reverse down? Either scenario is still possible, but yesterday the NASDAQ made a new all-time high while the DOW and S&P 500 remained below their all-time highs (from March 1). This is a bearish intermarket divergence signal until the DOW and S&P 500 exceed those highs. I am going to hold my short position in the broad stock market for now. Tomorrow's jobs report may influence the direction of this market (and others).

Gold and silver prices also seem indecisive as we move into the center of the reversal zone for precious metals (April 5 - 14). I would still like to see either gold or silver (but not both) exceed their late February highs (that would be $1,263.60 in gold and $18.54 in silver) for a case of intermarket bearish divergence in this reversal zone. That would be a good signal to sell short. But if prices fall sharply now into next week, we may instead see a significant bottom to buy then. Still on the sidelines of gold and silver.

We are now in the center of a reversal zone for crude oil (mostly this week, but it may carry over into the first half of next week). Prices surged to a new weekly high yesterday ($51.88 - May contract chart) so we could see a correction now. Our target for a correction would be in the $48 - $49 area, and we will look to buy if prices can get there. On the sidelines of crude oil.

Trading Blog Monday, April 3, 2017

4/3/2017

MARKETS UPDATE (5:15 pm EDT)

We are now approaching the next strong reversal zone for the broad stock market (and other markets) late this week. This reversal zone has a wide window (April 5 - 21), and a significant top or bottom (or both) could happen in this time period. We are near the end of a medium-term cycle in the broad stock market so ideally we would like to see equities move down to their final cycle bottoms in this window. Cycle movements, however, are not always "ideal". As I suggested last week, there is a possibility that the DOW and/or S&P 500 made that final cycle bottom with last Monday's low(s). If that was the case then we could see a rally into this upcoming reversal zone as a new cycle begins. (That scenario would likely lead to a top within the next few weeks from which a very severe correction could follow). The argument against a cycle bottom last week is the fact that last Monday's lows were not in a major reversal zone, and the correction was very minimal. Today's downturn in equities also argues against this being a new cycle. Let's hold our short position in the broad stock market for now with the idea of equities going lower over the next week or two for a final cycle bottom. This would involve both the DOW and S&P 500 moving below last Monday's lows. If only one index (DOW or S&P 500) breaks below last Monday's low (and not the other) as we move into the end of this week or into next week, we could have a case of intermarket bullish divergence. If that happens, I may cover my short position and even consider going long as it could indicate the cycle bottom is forming.

We are also approaching the next reversal zone for gold and silver, but it has a narrower window (April 5 - 17) than that for equities. As with equity markets, gold is near the end of its medium-term cycle and is due to take its final corrective drop to complete a cycle bottom. It could do that from yesterday's (Sunday's) high and form the cycle bottom over the next few weeks in the reversal zone, but it could also push higher this week and next to form a top in the reversal zone. Let's watch and see if we get an intermarket bearish divergence signal (i.e. either gold or silver, but not both, taking out last week's high, or even better, gold or silver taking out their last cycle high - $1,263.59 in gold or $18.54 in silver - without the other), and try to sell short. If we miss this trade we will wait for a final cycle bottom to buy in gold over the next week or two. Silver's cycle is a bit more ambiguous than gold's at the moment as silver's medium-term cycle may have bottomed on March 15 at $16.84. Nevertheless, if silver makes a new high with bearish divergence to gold, it could still be a good opportunity to sell short. I realize this is all a bit confusing, but I will clarify any trading opportunities if and when they arise. On the sidelines of gold and silver for now.

What happens to gold and silver could depend on the U.S. dollar, but the chart and cycle pattern of the U.S. Dollar Index is very ambiguous now and open to several interpretations. The dollar could be in the process of completing a medium-term cycle bottom (it is due now) which ideally would lead to that bottom in the upcoming reversal zone for currencies (April 10 - 22). That bottom would test or go below the March 27 low of 99.19. But it is also possible the March 27 low was the bottom already, and this market is turning bullish. A third (very bearish) possibility would place the medium-term cycle bottom on the Feb. 1 low of 99.50. That would be bearish because the dollar has since broken below 99.50 (which would be the start of the new cycle) and would likely continue down for the rest of the cycle (at least four more months). This last scenario would be very bullish for gold and silver. Right now I am favoring the first scenario of the dollar making its final cycle bottom in the April 10 - 22 reversal zone. That bottom in the dollar could coincide with a top in the precious metals followed by a severe correction in gold and silver prices.

Crude oil prices rallied strongly last week and directional momentum in this market has switched from 100% bearish to mixed bullish and bearish. It looks like the two lows at $47 on March 22 and March 27 (May contract chart) was a double bottom and the start of a new medium-term cycle in crude oil (which is bullish). We were expecting that bottom in this week's reversal zone for crude (a better cycle fit), and while it's theoretically possible for prices to plunge to a new low this week, it seems very unlikely that will happen. We will now watch for a modest correction from a high this week (crude already made a new weekly high early today and then closed well below that high), perhaps down to the $48 - $49 area where we will look to buy (with a stop loss on a close below $47). Still on the sidelines of crude oil.

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