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Trading Blog Monday, April 30, 2018

4/30/2018

IMPORTANT UPDATE ON GOLD and SILVER (7:00 pm EST)

Last Thursday I discussed the rather sudden bullish "breakout" of the U.S. Dollar Index and its bearish implications for gold and silver prices. This could mean lower prices for these metals for several months as the dollar strengthens. It looks like the U.S. dollar started a new medium-term cycle with its low of 89 on March 26 which means it is still very early in this cycle, and the early stage of any cycle is usually very bullish. OK, that is not good news for the precious metals, possibly through the summer, but what about the longer-term picture for gold and silver? Gold and silver "bugs" can take heart in the fact that the bigger technical picture for these metals is still looking very bullish.

As I have mentioned in past blogs, there are giant inverted "head and shoulders" chart formations in both gold and silver that have been building since 2013. The one for gold is unusually symmetrical and striking. The inverted "head and shoulders" formation is a very bullish chart pattern, and because these have been building over the last four years, they could be heralding a major bull market about to begin in the precious metals. Both formations are near completion. Once complete, both metals could break out above their head and shoulder "necklines" and begin a major rally that could take prices to new all-time highs. (Right now those necklines would be around $1380 in gold and $19 in silver.) That said, it could still take several more months for the final right "shoulder" of these formations to be completed in both metals, and we could see some fluctuations in gold and silver prices before they break above those necklines. If the dollar does edge higher, gold could dip into the $1220 - $1240 range and silver as low as $15 without damaging their head and shoulder patterns.

The bottom line here is that we are still bullish on gold and silver, but we may have to wait for a good spot to buy as the dollar's potentially strong rally pushes prices down. Today both metals made new weekly lows, but there are some short-term signals indicating a possible bounce now. I suspect any bounce won't get too far before turning down again. Gold breaking below $1304 and silver below $16.13 would be a sign of lower prices ahead. We will remain on the sidelines of this market for now as we watch the progress of the U.S. dollar over the next few weeks. There is another reversal zone specifically for gold and silver coming up in the second week of May (May 8 - 17). That may be a significant turning point to trade, but it is too early to tell if it will be a high or a low.

Trading Blog Thursday, April 26, 2018

4/26/2018

MARKETS UPDATE (2:30 pm EST)

On Monday I wrote that the U.S. Dollar Index:

"...is now approaching a strong resistance area around 91. If the dollar can clear that resistance, it will support the idea that a new longer-term cycle started with the low of 89 on March 26, and that could be very bullish."

It looks like the dollar is making a clear break above 91 and therefore could be entering a new bullish phase, at least in the short-term. To avert this, the greenback would have to reverse back down under 91 (and even 90.5) soon. There is still some resistance for the dollar up to 91.5, and then at 92 so a reversal is possible; however, we are not in a reversal zone for any market for another two weeks, and the next reversal zone specifically for currencies is in the third week of May. This is supporting the idea of a bullish dollar now.

A bullish dollar is not good news for precious metals. Although it is possible at times for the dollar and gold and silver prices to rise together, that normally is not the case. Today's dollar rally is pushing gold and silver lower, and both metals are breaking important support levels. Unless the dollar reverses back down soon, the short-term and maybe even medium-term trend in gold and silver could turn bearish. If gold breaks below $1304 it could move as low as $1250 or possibly even lower. Because silver most likely started a new medium-term cycle on March 20, we want to pay special attention to how low its price goes. If silver breaks below the start of its cycle (i.e. $16.13), that would be a very bearish signal and would suggest prices for both metals could be headed down for the next few months. On the sidelines of gold and silver.

We are seeing a relief rally in the broad stock market today after a five day plunge that began last Thursday. As I stated in Monday's blog, there is a small chance that all three market indices (DOW, S&P 500, and NASDAQ) started new cycles with their lows on April 2. If that is the case, yesterday's lows could be the end of a small corrective dip, and this market could be set to rally strongly now. I don't think that will happen, but we should be ready if it does. The DOW and S&P 500 breaking above their highs from last week would be a sign it is happening so we can set a stop loss for our short positions on a break above those highs. That would be 24,859 in the DOW and 2,718 in the S&P 500. If we do trigger those stops, we will break even on the trade as we sold short at those highs on April 18; however, I think it is more likely this market will continue down at least into the second week of May.
Holding my short position in the broad stock market.

The high so far in the current medium-term cycle for crude oil was $69.55 (June contract chart) on April 19. This market looks bullish so I think prices could go higher over the next several weeks. There are two reversal zones for crude coming up in May - one centered around May 11 and the other around May 29. Either one of these could turn out to be the final high for the current medium-term cycle. In the meantime, however, we can see that the April 19 high was in a major reversal zone for crude, and prices have been taking a corrective dip. If prices fall to the $64 area, it may be a good place to buy (especially if that happens close to May 11). Otherwise, we will be watching for the final cycle high some time in May for a good place to sell short (possibly in the $72 - $75 area). On the sidelines of crude oil for now.

Trading Blog Monday, April 23, 2018

4/23/2018

MARKETS UPDATE (4:30 pm EST)

Our timing was good last week when we sold short the broad stock market on Wednesday as it made a peak before falling on Thursday and Friday. It looks like we could be on track for the final correction to the bottom of the medium-term cycle that began on Feb. 9 in all three stock market indices (DOW, S&P 500, and NASDAQ). The final lows for these cycles will most likely be below 23,300 in the DOW and below 2,550 in the S&P 500 and could happen anytime between May and June. All of this assumes the current cycle is bearish, which it looks to be. Nevertheless, we can't rule out the possibility of the trend suddenly turning bullish due to the unstable and volatile trading (and geopolitical) environment we have been in recently. There is a small chance that all three market indices already bottomed with their lows on April 2 and started new medium-term cycles then. If that is the case, this market could be very bullish now. Any break above 25,800 in the DOW and 2,807 in the S&P 500 would support that idea. Right now, however, we are well below those highs and will stick to the bearish idea of a final cycle bottom due in May or June. Holding my short position in the broad stock market.

Last week (April 16), the U.S. Dollar Index made a new monthly low (89.37) near the center of a reversal zone specifically relevant to currencies. That could have been a significant turning point as the greenback is rallying strongly from there and is now approaching a strong resistance area around 91. If the dollar can clear that resistance, it will support the idea that a new longer-term cycle started with the low of 89 on March 26, and that could be very bullish. As readers may know, over the last several months I have been very bearish on the U.S. dollar as technical charts were showing that a final support level around 88 was in danger of breaking and leading to a steep plunge to the next support level around 80. All of this was dependent on the dollar remaining below a very strong band of resistance at 90 - 91 which now seems like it could be surmounted. We need to watch this very closely as a major trend change in the U.S. dollar would affect our longer-term view of the precious metals.

Speaking of precious metals, our timing was also good last week in this market as we unloaded our long positions in both gold and silver for a decent profit (especially in silver) near the peak of both metals on Thursday before prices started falling on Friday. We got out in the nick of time as gold and silver are plummeting today in response to the dollar rally discussed above. The potential bullishness of the dollar now is threatening our bullish view of the precious metals, at least in the short to medium term. If gold can stay above $1304 and silver above $16.13 then our bullish view is still valid, but if the price plunge continues below those levels we may see a trend change in the precious metals from bullish to bearish. As I stated above, the key thing to watch now is the dollar and whether or not it can "break out" and clear that resistance at 91. On the sidelines of gold and silver.

The cycle structure of crude oil is still ambiguous. We may have seen a cycle peak last Thursday at $69.55 (June contract chart) in a reversal zone specifically for crude, but we are now out of that reversal period. If prices can edge higher this week, we may not see a top to this cycle until mid-May. Like many of the other financial markets, this market recently seems to be manifesting a significant trend change. In this case from mixed bullish and bearish to mostly bullish. Out of crude oil for now.

Trading Blog Thursday, April 19, 2018

4/19/2018

GOLD AND SILVER TRADE ALERT (1:30 pm EST)

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

"...this week we have unique technical signals that point to a possible strong rally in both gold and silver that could start on Monday and continue into the following week. It all depends on whether gold and/or silver started new cycle(s) recently or if they are still completing older cycles. A new cycle would be bullish, but an older cycle means that lower prices are still ahead until the cycle makes its final bottom."

Well, both metals have rallied, but silver has rallied much more than gold. It is possible that silver started a new cycle on March 20 while gold may still be completing an older cycle. Silver made a new monthly high yesterday and today, but gold is not even making a new weekly high. This gives us a strong case of intermarket bearish divergence. We expected this week's rally to be sharp and short-term. While it could continue into next week, we are getting many short-term signals suggesting a peak now. For this reason, I am going to take profits in both silver gold long positions today. Note that once this rally tops and takes a corrective dip, we will be looking to get long again as gold and especially silver are still looking very bullish in the longer-term. Selling my gold and silver long positions today.

Trading Blog Wednesday, April 18, 2018

4/18/2018

BROAD STOCK MARKET TRADE ALERT (3:15 pm EST)

We are now in the dead center of this week's reversal zone and the broad stock market is rallying into it. Yesterday's rally was strong, but today equities seem to be losing some of their steam and could be ready to roll over. All three market indices (DOW, S&P 500, NASDAQ) are making new weekly highs (i.e. no weekly bearish divergence signal), but today the S&P 500 and NASDAQ made new highs while the DOW (at the time of this writing) appears to want to stay below yesterday's high, which is a bearish sign. The S&P 500 is at our target level for a top (2,700), and the DOW is very close to our target of 25,000.

I am going to enter a short position in this market now. We can set a stop loss for this trade at 25,400 in the DOW and at 2,770 for the S&P 500. The main risk here is if the current cycle turns bullish. For that to happen, the DOW and S&P 500 would have to break above their current cycle highs. That would be 25,800 in the DOW and 2,807 in the S&P 500. These highs can also be used as stop loss points for those willing to take more risk with this trade.

Trading Blog Monday, April 16, 2018

4/16/2018

SILVER TRADE ALERT (2:00 pm EST)

I would like to make a correction to Sunday's blog on gold and silver:

"...We may look to buy silver on Monday if we see intermarket bearish divergence..." - should read "bullish divergence".

Neither gold nor silver are making new weekly lows today so we are not getting a bullish divergence signal. Nevertheless, there is a good chance we could see a strong rally this week from last Thursday's isolated low in gold ($1334) and Friday's isolated low in silver ($16.45). If prices move below those lows after today (Monday), that will negate any potential rally. We are already long in gold so let's stay long in that metal for now. I am now going to enter a long position in silver with a stop loss based on prices breaking below that $16.45 low from Friday (that would be a loss of about 2.5%). Very bullish COT (Commitment of Traders) charts are supporting an imminent rally in silver.

Trading Blog Sunday (evening), April 15, 2018

4/15/2018

MARKETS UPDATE (9:35 pm EST)

Current cycle analysis of the broad stock market still shows that a new medium-term cycle started with the lows on Feb. 9 in all three market indices (DOW, S&P 500, and NASDAQ). These indices then rallied into mid-March and fell to a sub-cycle low on April 2. Because the DOW fell a bit below the Feb. 9 low that started its cycle, there is a good chance that this market is going to be pointed down until the end of the current cycle (i.e. at least several more weeks but possibly much longer). Shorter-term, however, we are now seeing a sub-cycle rally off those April 2 lows, and there is a very good chance that we will see the top to that rally in this week's reversal zone centered on April 18 (Wednesday). It is possible the rally topped out on Friday, but we didn't see any bearish divergence, and we were a bit short of our ideal targets (25,000 in the DOW and 2,700 in the S&P 500). Let's watch for these signals next week for an opportunity to sell short. On the sidelines of the broad stock market.

Interestingly, the U.S. military chose to strike Syria on Friday evening. This, of course, was to avoid panicking financial markets and to cause the least amount of alarm to U.S. citizens (people's interest in the news is usually at a weekly low on Friday night). Traders have now had time to digest this news and speculate on what will happen next. The damage inflicted by the strikes was very minimal and resulted in no civilian casualties and no significant damage to president Assad's military capabilities. It seems that the missile strikes were designed to be a symbolic display of strength as well as a demonstration of the West taking a moral stand against the use of chemical weapons. Despite the heated rhetoric leading up to the air strikes, Russia appears to be exercising restraint towards any military counter-strike. Equity markets do not like uncertainty, and now that the strikes are over there is a good chance the broad stock market will experience a relief rally early next week. This could push equities to a top as described above to be followed by a significant correction.

Gold and silver are very tricky to call right now. Both metals surged last week and both made new monthly highs in the center of a reversal zone specifically relevant to the precious metals. On cue they reversed down, but this week we have unique technical signals that point to a possible strong rally in both gold and silver that could start on Monday and continue into the following week. It all depends on whether gold and/or silver started new cycle(s) recently or if they are still completing older cycles. A new cycle would be bullish, but an older cycle means that lower prices are still ahead until the cycle makes its final bottom. If prices move lower after Monday, we will likely see the bearish scenario unfold. Let's see what happens on Monday. We will continue to hold our long position in gold as long as prices stay above $1320. We may look to buy silver on Monday if we see intermarket bearish divergence (i.e. one of these metals, but not both, making a new weekly low). Any new lows after Monday in either metal would be a bearish sign.
Currently long in gold and on the sidelines of silver. *Please note that even if these metals are completing older cycles, the bottoms of those cycles are due soon. The longer-term picture for both metals is still bullish so we would be looking to buy at those final cycle bottoms.

Crude oil's cycle structure is a bit ambiguous right now, but prices are rallying strongly into this week's reversal zone which is very relevant to crude so we could easily see a high this week followed by some sort of correction. If prices edge higher this week, we may look for a spot to sell short. We should note here that last week's steep rally in crude was undoubtedly fueled by the anticipation of a military strike in Syria. The strikes are likely over so we may see prices easing back down sometime this week. Out of crude oil for now.

Trading Blog Friday, April 13, 2018

4/13/2018

MARKETS UPDATE (12:30 pm EST)

I am traveling today and will only have time for a brief update here. I will post another blog over the week-end with possible trade suggestions for the opening markets on Monday. (I usually don't like to trade on Fridays anyway unless there is a very clear buy or sell signal).

This week's rally in the broad stock market was a bit of a roller coaster ride, but all three indices (DOW, S&P 500, and NASDAQ) managed to break above their highs from last week so we have no intermarket bearish divergence signal. The DOW and S&P 500 are also a bit short of our targets for this rally (25,000 and 2,700, respectively). Even though we are ending a strong reversal zone today, there is another one coming up next week (mid-point Aug. 18) and the two are overlapping a bit. We are ripe for a top here to be followed by a significant correction depending on where we are in the cycle structure. I will examine this in more detail over the week-end. We may enter a short position on Sunday (for Monday's market open) or I may decide to wait for a possible bearish divergence signal early next week before going short. On the sidelines for now.

Gold and silver prices spiked dramatically on Wednesday (the middle of a reversal zone), but then (as I had suspected they would) prices reversed and plunged back down. We could be getting a set-up now for a strong potential rally from yesterday's lows or from a lower low we could see on Monday. We are already long in gold and will consider going long in silver on Sunday or Monday. Stay tuned for a trade alert.

Trading Blog Tuesday, April 10, 2018

4/10/2018

MARKETS UPDATE (1:30 pm EST)

Last Friday I commented on that day's 600 point drop in the DOW triggered by the Trump administration's announcement of more trade tariffs:

"Considering the roller coaster nature of this market right now, it's hard to tell if today's 600 point drop in the DOW is just another 'knee-jerk" reaction to the news. The DOW, S&P 500, and NASDAQ are not making new lows and are bouncing a bit at the day's close so it could very well be."

And it looks like it was a temporary "knee-jerk" reaction as yesterday's and today's DOW rally is negating that 600 point drop. We are now in the dead center of a strong reversal zone for equities. If this rally can edge higher and exceed last week's highs, it could make a top this week that would be a good point to sell short. The DOW, S&P 500, and NASDAQ are all close to breaking their highs from last week. If one or two of these indices, but not all three, make new highs, then we will have bearish divergence and a good signal for a short sell. A good target for the top of this current rally would be around 25,000 in the DOW and 2,700 in the S&P 500.

Our current view of the broad stock market (and the medium-term cycles that began Feb. 9 in all three indices) is bearish. In order to stay bearish, any rally now should not exceed 25,800 in the DOW or 2,802 in the S&P 500. As long as we stay below those highs, equities should be pointed down for at least another month and likely longer (possibly into July). Still on the sidelines of the broad stock market.

Gold and silver prices are also rallying today, but they are rising directly into the center (today) of another reversal zone that is specifically relevant to the precious metals. Gold and especially silver prices are now approaching last week's highs. If one metal (probably silver) breaks its high and not the other, we would have a bearish divergence (sell) signal in a reversal zone. Because of this, I am reluctant to buy silver now. If prices do back down with this reversal, it may give us a better spot to buy. (See yesterday's blog on the case for buying silver and gold soon). Holding my long position in gold but still out of silver.

Taking its cues from the broad stock market (and also from recent saber rattling between the U.S. and Syria), crude oil is rallying strongly today. Instability in the Middle East is always a wild card factor in oil price movements.
If tensions between the the U.S., Syria, and of course, Russia start to increase, it could drive a spike in crude prices.
In terms of crude's current medium-term cycle, there is still time for crude to make a final cycle high before falling steeply for a correction into the final cycle bottom. If this rally gains legs, it may do that, but it first has to clear the recent cycle high at $66.55 (May contract chart). There is also a possibility that crude completed its recent cycle with last week's low of $61.81. If that is the case, we are just starting a new medium-term cycle which could be very bullish. I am favoring the first scenario (older cycle that is ready to correct down from a top) right now because this week and next are strong reversal periods for crude. It would fit the cycle pattern better to have a cycle top (and/or bottom) in this time period. We will stay on the sidelines for now but will watch for a significant top or bottom this week or next.

Trading Blog Sunday (late night), April 8, 2018

4/8/2018

IMPORTANT UPDATE on GOLD and SILVER (11:30 pm EST)

Over the last two months we have been contending with erratic short-term price fluctuations in gold and silver as we try to pinpoint the end of an old medium-term cycle and the start of a new one in both of these metals. We don't want to lose sight of the "forest for the trees", however, as the longer-term picture for gold and silver continues to look very bullish. I refer readers to my Jan. 26 and Jan. 28 posts on gold, silver, and the U.S. dollar (especially relevant considering the recent exacerbation of "trade wars") where I state that:

"Gold and silver are both in the final stages of completing massive inverted "head and shoulders" chart formations that have been building since 2013.....This is a very bullish signal that is unlikely to abort as it is very near completion (especially in gold)."

Those inverted "head and shoulders" chart formations are now even closer to completion. The price fluctuations of gold and silver since early February have been confined to a narrow range and seem to be forming a strong baseline which may turn out to be the launching point for a strong rally and a "break out" of these metals to new highs. Gold has been range bound between $1309 and $1360 and silver between $16.2 and $16.8. Gold and especially silver are falling towards the bottom of those ranges as we move into the center of a reversal zone specifically relevant to precious metals (April 5 - April 13, mid-point April 10) so a reversal to the upside could be imminent.

Gold may have started a new medium-term cycle on March 1 (at $1304) and, therefore, as a new cycle could be ready to rally strongly. But even if gold breaks below $1304 to complete the bottom of an older cycle, it would likely not go lower than $1290 and would then be ready to rally strongly from there. This is why we have been holding on to our long positions in gold. If silver breaks below $16.13, it could possibly head down to $15.75, but again, like gold, it would likely be forming its cycle bottom and would be ready to rally strongly from that point.

There are several other technical signals suggesting a strong rally in these metals is imminent. The COT (Commitment of Traders) charts for silver are now very, very bullish (with the Large Specs, i.e. "dumb money", actually shorting silver - a very good sign of a bullish market). The silver/gold price ratio is also approaching a record low which likely points to both metals turning bullish soon.

We are already long in gold so we should now be looking for a good spot to go long in silver. There is a good chance we may see that next week, especially if we see bullish divergence between the two metals (i.e. one metal making a new weekly low but not the other).

Holding my long position in gold and waiting to buy silver soon.

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