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Trading Blog Thursday, April 29, 2021

4/29/2021

MARKETS UPDATE (3:30 pm EDST)

On Monday - the center of our current strong reversal zone (April 20 - 29) - we entered a short position in the broad stock market based on multiple bearish divergence signals between our three major indices (DOW, S&P 500, NASDAQ). I wrote:

"...All of these bearish divergence signals in the center of a strong reversal zone is creating a good spot for us to sell short. We can do this with a close stop loss based on ALL THREE indices making new ALL-TIME highs. That would mean the DOW breaking above 34,257, the S&P 500 above 4,195, and the NASDAQ above 14,168. "

Since Monday, the S&P 500 and NASDAQ have edged a bit higher to make new all-time highs, but, significantly, the DOW has not. This means we still have a strong bearish divergence signal (until that high in the DOW is broken). We are now at the end of our reversal zone, which we will extend into Friday. If the S&P 500 and/or the NASDAQ edge higher tomorrow with the DOW remaining below 34,257, we will maintain our short position. Holding my short position in the broad stock market for now.

Gold and silver prices have been relatively flat this week. This lack of directional trend doesn't tell us much about whether or not we are dealing with new medium-term cycles in these metals (silver made a weekly high AND low today), but if the cycles are new, prices should be rallying, and they are not. Let's remain on the sidelines of this market for now as we focus more on the broad stock market.

It looks like crude oil made a significant high ($64.38 - June contract chart) on April 20 in the first day of our April 20 - 29 reversal zone. Two days later it made an isolated low at $60.61 (also within the reversal zone). Today crude is rising to a new weekly high of $65.45 (the last day of the reversal zone). There are several ways to interpret this. If crude started a new medium-term cycle on March 23, the April 20 high and April 22 low could be the first sub-cycle peak and corrective dip in the new cycle. If so, prices should rally strongly now above today's high. But, of course, today's high is still in the reversal zone (which we will extend into Friday), and another significant peak could be forming here. It's a bit late to be chasing this rally, so we will remain on the sidelines and wait to see if another corrective dip is forthcoming.

The U.S. Dollar Index has been falling steeply over the last several weeks. I refer readers to my April 20 blog where I discussed the longer-term cycle of the U.S. dollar. In that post I wrote:

" We may be at a crossroads right now as to which pattern.....will unfold in the U.S. Dollar Index. This index is currently testing the 91 level. A definitive and sustained break below 90 would probably validate the idea of the greenback bottoming in 2024 - 2025 [in the 53 - 87 range] . If that doesn't happen, we should watch for a rally to test and possibly exceed the 103 -104 level over the next several years."

Well, the 91 level has broken, and the greenback seems to be headed down to test the strong support at 90. We are now in the last day of a reversal zone specifically for currencies (April 20 - 29, same as for equities). We will extend this into Friday. We may see a bottom and reversal back up today or tomorrow as there is very strong support for the dollar in this 90 - 91 area. Such a move could put downward pressure on precious metal prices. If instead we have a "breakdown" (also possible, but less likely, in a reversal zone), where the dollar breaks clearly below 90, that would be very bearish for the dollar and would support the idea of the greenback moving lower over the next several years as stated above.

Trading Blog Monday, April 26, 2021

4/26/2021

BROAD STOCK MARKET TRADE ALERT (2:30 pm EDST)

We are now at the dead center of our current strong reversal zone for equities (April 20 - 29), and we are seeing a lot of bearish divergence signals in the broad stock market. The DOW made an all-time high on April 16, but it was not able to exceed that last week. Today the DOW peaked just short of last week's high and is now falling sharply into "red" territory. The S&P 500 did make a new all-time high on Friday, but today it peaked just short of that high and, like the DOW, may be falling from there. The NASDAQ is clearly the most bullish index today as it makes a strong new weekly high, yet it is still below its all-time high from Feb. 16 (14,167).

All of these bearish divergence signals in the center of a strong reversal zone is creating a good spot for us to sell short. We can do this with a close stop loss based on ALL THREE indices making new ALL-TIME highs. That would mean the DOW breaking above 34,257, the S&P 500 above 4,195, and the NASDAQ above 14,168.

It looks like the DOW may be leading this correction, but shorting any one of these indices with an index fund should work as this could be a major turning point in the market. I am selling short the broad stock market today with a stop loss based on ALL THREE indices (DOW, S&P 500, NASDAQ) making new ALL-TIME HIGHS as stated above.

Trading Blog Tuesday, April 20, 2021

4/20/2021

MARKETS UPDATE and an IMPORTANT UPDATE and ANALYSIS OF THE U.S. DOLLAR (3:30 pm EDST)

In last week's blog I posted:

"...I don't think the cycle will turn bearish as long as the DOW stays above 32,000 (and especially 30,000) and the S&P 500 remains above 3,800. We also don't want to see the NASDAQ fall below 12,397 as that would be a bearish sign. I am still anticipating a significant top in these indices in our next reversal zone coming up April 20 - 29 which could turn out to be an ideal spot to sell this market short."

We are now in the first day of that April 20 - 29 reversal zone, and it looks like all three broad stock market indices (DOW, S&P 500, NASDAQ) are moving down from last Friday's highs. Those highs from Friday were new weekly highs for all three indices, but were only new all-time highs for the DOW and S&P 500. The NASDAQ has yet to break above its all-time high from February 16 (14,167), and thus it still has strong intermarket bearish divergence to the other two indices. That could mean that last week's highs were a significant top, and a significant correction could be starting now...BUT (yes, there is usually a "but" in our analyses)...last week's tops were just outside our reversal zone, and we prefer to see significant tops and bottoms closer to the center of our reversal time frames. If this turns out to be just a small corrective dip, there is plenty of time for these indices to push a bit higher into this reversal zone and form another top. We are still well above those support areas (32,000 in the DOW, 3,800 in the S&P 500, and 12,397 in the NASDAQ). I am not going to get TOO concerned about this correction until we are close to breaking those levels. We will stay on the sidelines for now and see if this "dip" turns more serious over the next several days. If it doesn't, we will watch for a high to sell short this week or next.

Crude oil did not make a significant low or high in its last reversal zone (April 8 - 16), but it is now making a new weekly high as we enter the April 20 - 29 reversal zone (applicable to all markets). It is still possible crude started a new medium-term cycle with its low of $57.25 on March 23 (May contract chart). If so, it should be rallying strongly now. Because it is not doing that (yet), the new cycle could be turning very bearish or this is an older cycle still moving down to its final bottom. This ambiguity will keep us on the sidelines of crude for now.

Although the cycle labeling of gold and silver is still unclear, it is starting to look like both metals may have started new cycles recently and are not completing older cycles. That could mean both metals are bullish. But even if that's the case, prices have been rising, and we are now entering our April 20 - 29 reversal zone for all markets, and we are close to another reversal zone specifically for precious metals coming up this Thursday (April 22 - 30). If prices rally strongly now, they could be turned back down quickly from a top in one of these time frames. We will therefore remain on the sidelines until it is a little more clear whether or not new cycles have started.

I haven't written much about the U.S. Dollar Index for awhile, but the greenback may be at a turning point right now, so it's probably a good time to post an update. The U.S. Dollar Index is most likely approaching the end of a long-term 16.5 year cycle that began in March 2008 around 70.69 and likely peaked with the "double-top" highs of 103.82 in Jan. 2017 and 102.99 in March 2020. If this is valid, the dollar should now be headed down to its final cycle bottom which should happen around 2024 - 2025. There are several possible targets for this bottom which could be around 87, 77, or even as low as 53. We are not that far from 87 now, so my guess is that the bottom will be lower.

One interesting aspect of this 16.5 year cycle in the U.S. Dollar Index is that it frequently correlates to political party cycles in the U.S. presidential elections. More specifically, since 1984 the crest of the 16.5 year cycle has always corresponded to a Republican president while the trough has always corresponded to a Democrat president. This means the dollar usually rises (from a trough) after the election of a Democrat, and falls (from a peak) following the election of a Republican. (Please note that this is not a political discussion and is not meant to criticize any party. I am simply describing observable cycle patterns.)

What's especially interesting this year is that the election of Joe Biden (a Democrat) seems to be breaking the pattern. Donald Trump (a Republican) took the presidential office in 2017, seemingly at the peak of the 16.5 year cycle. For the pattern to be valid, a Republican SHOULD have been elected in 2020 to correlate with the dollar falling to its final cycle low in 2024 - 2025. The election of President Biden, however, suggests that the U.S. dollar will now rally over the next four years. This contradicts the idea that the greenback will sink lower and bottom in 2024 - 2025.

This current contradiction between the cycle of political parties and the normal 16.5 year cycle in the dollar may upset the prediction of a 16.5 year cycle bottom in 2024- 2025. If the policies of President Biden's administration drive the dollar up, we could see the 16.5 year cycle be erased (or restructured) and a new high (instead of a low) around 2024 - 2025, possibly in the 108 -116 range.

We may be at a crossroads right now as to which pattern (bearish 16.5 year cycle or bullish political party cycle) will unfold in the U.S. Dollar Index. This index is currently testing the 91 level. A definitive and sustained break below 90 would probably validate the idea of the greenback bottoming in 2024 - 2025. If that doesn't happen, we should watch for a rally to test and possibly exceed the 103 -104 level over the next several years.

Trading Blog Tuesday (evening), April 13, 2021

4/13/2021

In last Wednesday's blog on the broad stock market I wrote:

"...I don't think the cycle will turn bearish as long as the DOW stays above 32,000 (and especially 30,000) and the S&P 500 remains above 3,800. We also don't want to see the NASDAQ fall below 12,397 as that would be a bearish sign. I am still anticipating a significant top in these indices in our next reversal zone coming up April 20 - 29 which could turn out to be an ideal spot to sell this market short."

Those support levels are holding as the market continues to rally this week. Today the S&P 500 and NASDAQ both made new weekly highs while the DOW didn't. This is a bearish divergence signal unless the DOW can push above last week's high of 33,811 over the next few days (it is very close). We still have a longer-term bearish divergence signal in place as the NASDAQ is still below its Feb. 16 all-time high of 14,167. We might see a modest short-term correction this week, but I am still going with the idea of a bullish rally into our next reversal zone coming up next week (April 20 - 29). We will remain on the sidelines of this market for now.

Gold and silver are rallying a bit this week, but not strongly. Last week gold got briefly above our resistance level of $1754, but is now back below it. This reluctance to rally strongly suggests that both metals are still completing older cycles and will move lower to their final bottoms soon. Our next reversal zone specifically for the precious metals is coming up April 22 - 30 and overlaps with our reversal zone for equities April 20 -29. If we don't see prices rally strongly soon, we will assume that reversal zone will coincide with a significant cycle bottom and a possible spot to buy. We are still on the sidelines of both metals.

We are now at the center of a reversal zone specifically for crude oil (April 7 -16). It is still possible that crude started a new medium-term cycle with its March 23 low of $57.25 (May contract chart), but new cycles usually rally strongly, and this one has remained relatively flat (so far). There is still time for the cycle to go lower (or make a double bottom), but it has to do so by Friday to be within the current reversal zone (unless it pushes into next week's reversal zone for equities and the precious metals). If the broad stock market takes a corrective dip this week, crude may follow and give us another bottom and potential spot to buy. Let's remain on the sidelines for now.

Trading Blog Wednesday (early AM), April 7, 2021

4/6/2021

MARKETS UPDATE (4:00 am EDST)

All three of our broad stock market indices (DOW, S&P 500, NASDAQ) are making new weekly highs this week. That reinforces the idea that they are relatively young medium-term cycles (as I suggested in my last blog). The NASDAQ is still below its all-time high of 14,167 from February, however, which does give us a bearish divergence signal as the DOW and S&P 500 continue to make new all-time highs this week. Could equities top out and roll over here? Yes, that is possible, but we are still not inside a major reversal zone, and that is what we like to see at a major turning point in the cycle. We may get a sharp sub-cycle corrective dip as the timing is right for that, but I don't think the cycle will turn bearish as long as the DOW stays above 32,000 (and especially 30,000) and the S&P 500 remains above 3,800. We also don't want to see the NASDAQ fall below 12,397 as that would be a bearish sign. I am still anticipating a significant top in these indices in our next reversal zone coming up April 20 - 29 which could turn out to be an ideal spot to sell this market short. For now, we will remain on the sidelines and keep an eye on the depth of any corrective dips.

Gold is rallying a bit so far this week, but it needs to go above $1754 to start looking bullish and possibly like a new medium-term cycle that could have started on March 8. Otherwise, we will assume this is an older cycle that is about to drop lower to its final cycle bottom below $1677. A good time for that bottom would be in the upcoming reversal zone for the precious metals April 22 - 30. If that happens, it would be a good spot to buy. Silver could also be an older cycle ready to bottom, but it needs to break below last week's low ($23.80) to verify that bearish view. If instead prices continue to rally strongly, we may have to label that low as the start of a new cycle, which would be very bullish. Let's stay on the sidelines of both metals for now.

It's possible crude oil started a new medium-term cycle with its March 23 low of $57.25 (May contract chart)...BUT...prices have not been rallying this week as they should if this were a new cycle. We enter a reversal zone tomorrow (April 7 - 16) specifically relevant to crude. This suggests that crude's cycle may not be new and could instead be an older cycle about to complete a bottom in this reversal zone. If prices fall back to $57,25 or go lower, that would probably be the case, and we may see a good opportunity to buy, We remain on the sidelines for now.

Trading Blog Thursday (late night), April 1, 2021

4/1/2021

MARKETS UPDATE (11:00 pm EDST)

It still looks like all three of our broad stock market indices (DOW, S&P 500, NASDAQ) are in the early stages of new medium-term cycles (with a small chance that one or more could be completing an older cycle). Newer cycles would be more bullish, and this market seems bullish at the moment. All three indices have made new weekly highs this week. The DOW and S&P 500 are making new all-time highs, but the NASDAQ is still below its all-time high from February 16 (14,167), which means we still have a bearish divergence signal in effect. That signal may be negated, however, if the NASDAQ breaks that high, and it looks like that could happen. This week's strong rally in the NASDAQ suggests that it started a new medium-term cycle at the 12,397 low on March 5, which would make it very young and bullish. Although a peak and a subsequent major correction is possible any time now, I am favoring the idea that this market is at least short-term bullish and is not ready to do that just yet. The next major reversal zone for this market is two weeks away (April 20 - 29). I am hoping that will be a peak to sell short, but if equities start to fall now, it could turn out to be a significant cycle bottom instead. We will stay alert for both possibilities, but for now I am favoring more bullish short-term rallying. We will remain on the sidelines of the broad stock market for now.

We still can't be sure if gold is completing the bottom of an old medium-term cycle or starting a new one. If the former, prices will drop below the $1677 low of March 8 soon and give us a good bottom to buy. But this week's low (so far) only got to $1678 and prices are now rallying from there. That could be a double bottom and the start of a new cycle, which would be very bullish. Another argument for the bullish new cycle is the fact that silver made a new weekly low yesterday while gold did not (bullish divergence). Nevertheless, we are not in a major reversal zone for any market right now, and we do like to be in one for a major top or bottom.

There are several possibilities for silver's medium-term cycle labeling at the moment, and this makes a trading call for this metal very difficult. Silver could have made a significant bottom with yesterday's low at $23.80, but as I pointed out with gold, we are not in a reversal zone for these metals. Although it is tempting to buy here due to the possibility of a new cycle (or even sub-cycle) starting from yesterday's low, I am staying on the sidelines to see if prices can drop lower.

We remain on the sidelines of both precious metals for now.

Crude oil may have made a final medium-term cycle bottom on March 23 at $57.25, but that was also not in a reversal zone. There IS a reversal zone specifically significant to crude coming up next week (April 7 - 16). We could see a lower bottom (or double bottom) happen then. If that happens, it could be a good place to buy. If not, this market is set to rally strongly now. Let's remain on the sidelines and see how prices move into next week.