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Trading Blog Wednesday, April 27, 2022

4/27/2022

NEW UPDATE ON THE U.S. DOLLAR INDEX (3:00 pm EDST).

We are at an important turning point in our analysis of the U.S. Dollar Index. Please refer to my blog post from earlier this month (April 9) on the U.S. Dollar.

Today the U.S. dollar is testing and challenging it's two "double-top" highs (103.82 from Jan. 2017 and 102.99 from March 2020). It rose to 103.28 earlier today, and is closing a bit below 103. As I explained in my April 9 blog, those two earlier highs could have been the final tops to a long-term 15-16 year cycle in the dollar that started with the low of 70.69 on March 2008. Today's high may be creating a "triple-top" to this cycle. If so, the dollar is ready to take a very steep fall to the final cycle bottom which is due anytime over the next two years (we are 14 years from that 2008 low).

But as I mentioned in my April 9 blog, there's also the possibility that the greenback is not following a normal 15-16 year cycle and is instead following a "political cycle" related to which political party is currently in the U.S. White House. The dollar tends to rise during a Democrat administration, and indeed, it has been rising sharply since Jan. 2021. It's still possible an older "normal" cycle is in place and is ready to fall from this "triple-top". However, if this index breaks clearly above $104 and continues to rise, we may have to assume the political cycle is taking over, and we will have to relabel the cycle as a younger, bullish one.

Although a bullish dollar seems to contradict current inflation, the dollar may be viewed right now as a "safe haven" from a potential stock market crash (as it was in 2008-2009). As I wrote in my April 9 blog:

"It will be interesting to see which cycle (the regular 15-16 year cycle or the political cycle) prevails here. The current rise in the U.S. Dollar Index seems to contradict current rising inflation, but fears of a crash in equity markets could be driving investors into the greenback as a safe haven hedge, just as it did during the 2008-2009 "crash". We will keep a close eye on that 104 level for the rest of this year. If the U.S. dollar can't break above there, and especially if it starts closing below 88, we will stay with the idea of a bearish dollar falling into the 55 - 60 range into 2023 - 2025."

Let's keep our eyes on that 104 level.

Trading Blog Wednesday (early AM), April 27, 2022

4/26/2022

MARKETS UPDATE (5:00 am EDST)

Let me repeat my statement on the broad stock market from April 7 that I posted last Thursday:

"We are now pretty certain that all three of our broad stock market indices (DOW, S&P 500, NASDAQ) are new (young) medium-term cycles that started with the Feb. 24 lows of the DOW and S&P 500, and the Feb. 24 and March 14 (double-bottom) lows in the NASDAQ. Because these cycles are in their early stage, they could be quite bullish now and ready to rally and test new all-time highs. But there's also a chance they could peak early and then turn down dramatically for a long bearish ride down to their final bottoms."

It's looking like the possibility of peaking early could be valid as all three of our indices (DOW, S&P 500, and NASDAQ) are falling steeply this week and are now retesting their Feb. 24 lows.

I also wrote on Thursday:

"My thoughts here are that these sub-cycle corrections want to go lower, perhaps into our rather weak reversal zone coming up next week (April 26 - May 8). If they do go lower, we may get another opportunity to buy for a potential rally to challenge the all-time highs over the next several weeks. But if these indices fall below their Feb. 24 lows, that would be bearish, and we would probably be on track for a much deeper correction."

We are now entering that reversal zone (April 26 - May 4), and the market is indeed falling strongly into it. Yesterday the NASDAQ closed below its "double-bottom" lows of 12,598 from Feb. 24 and 12,555 from March 14 (the close was 12,490). That is a bearish sign. However, the DOW closed at 33,239 and the S&P 500 closed at 4,175, both significantly ABOVE their Feb. 24 lows. This gives us a strong BULLISH divergence signal as we enter this new reversal zone. That means a significant sub-cycle bottom could be forming here with a new rally about to start. If these indices stabilize over the next several days and maintain their bearish divergence, we might consider going long for another rally to challenge this market's all-time highs. But if the market continues to fall (especially past next Wednesday), and the DOW and S&P 500 also break below their Feb. 24 lows (that would be 32,383 and 4,116 in the DOW and S&P 500, respectively), then we will abandon any short-term bullish strategy and instead start to focus on short-selling this market again. We are still on the sidelines of this market.

Silver prices fell steeply last week, and now silver is well below its March 29 low of $24. This means that silver is approaching the end and bottom of an older medium-term cycle (likely), or it could be falling below the start of a new medium-term cycle that started March 29 (less likely). If the latter is true, then silver is turning VERY bearish. For now, we will assume a final bottom is forming to an older cycle. Our original target for that bottom was $22.50 - $23. Prices aren't quite there yet. We have a new reversal zone specifically for the precious metals coming up next week (May 4 - 12), so that could be a good time for the final cycle bottom. Let's see if prices can get closer to our target range in that time frame. If they do, it might be a good spot to buy.

Gold prices have also been falling, and they are now testing the $1892 low of March 29. This brings into question the idea that March 29 was the start of a new medium-term cycle. If it is a new cycle, and prices break lower, that would mean that the cycle is turning bearish. But if prices go lower, it could also mean the cycle is older and headed towards its final bottom, due anytime over the next 3 weeks. As with silver, we will wait to see how prices move into next week's reversal zone which could be a major turning point for both metals.

We will remain on the sidelines of gold and silver for now.

The U.S. Dollar Index continues to push higher, despite the fact that it is very late in its current medium-term cycle. A top in this cycle is due anytime now to be followed by a sharp correction down. It could happen in this week's general (but weak) reversal zone, but there is another reversal zone specifically for currencies coming up next week (May 5 - 13). That would be a better time for a final cycle top. (If a top happens this week, that reversal zone could end up being the time frame for the final cycle bottom instead.) Any sharp correction down in the greenback could trigger a sharp rally in the precious metals, so we will keep an eye out for that possibility.

It is very likely crude oil began a new medium-term cycle with its low of $92.60 on April 11 (June contract chart). That would make it young and potentially very bullish now and ready to rally strongly. It did rally strongly from that $92.60 low, but it backed down a bit last week and has been stabilizing above a downward sloping trend-line that comes in around $96 today. There is a new reversal zone specifically for crude April 26 - May 4 (same as for the broad stock market). We entered that yesterday, so we could see an isolated low form near that trend-line soon that could be a good spot to buy. We will watch for that now. We are still on the sidelines of crude oil.

Trading Blog Thursday (evening), April 21, 2022

4/21/2022

UPDATE ON GOLD, SILVER, and the BROAD STOCK MARKET (7:30pm EDST)

The broad stock market is giving us mixed signals right now. I wrote on April 7:

"We are now pretty certain that all three of our broad stock market indices (DOW, S&P 500, NASDAQ) are new (young) medium-term cycles that started with the Feb. 24 lows of the DOW and S&P 500, and the Feb. 24 and March 14 (double-bottom) lows in the NASDAQ. Because these cycles are in their early stage, they could be quite bullish now and ready to rally and test new all-time highs. But there's also a chance they could peak early and then turn down dramatically for a long bearish ride down to their final bottoms."

So far these new cycles have been bullish. All three rose steeply from their Feb. 24 lows to significant sub-cycle highs on March 29. They then fell and corrected to sub-cycle lows on April 11 (DOW) and April 18 (S&P 500 and NASDAQ). Those lows were in a reversal zone, and at least for the DOW and S&P 500 they seem to be be turning points for another rally up. The NASDAQ, however, fell sharply today and broke below its April 18 low. The DOW and S&P 500 fell too, but the DOW broke briefly above its March 29 high before falling while the S&P 500 and NASDAQ remained well below their March 29 highs. This gives us a strong intermarket bearish divergence signal. My thoughts here are that these sub-cycle corrections want to go lower, perhaps into our rather weak reversal zone coming up next week (April 26 - May 8). If they do go lower, we may get another opportunity to buy for a potential rally to challenge the all-time highs over the next several weeks. But if these indices fall below their Feb. 24 lows, that would be bearish, and we would probably be on track for a much deeper correction. We will stay on the sidelines for now.

The recent rally in gold and silver seems to have peaked on Monday (with silver breaking above its March 24 high and negating our bearish divergence signal). Both metal prices are falling this week. Despite the canceling of our bearish divergence signal, silver looks like it could be falling into the final bottom of an older medium-term cycle. We didn't get to sell it short, so we will now wait to see how low it goes. A downside target could be around $22.50 - $23.

Gold may be a new medium-term cycle that started with its low of $1892 on March 29. If so, it may be taking its first sub-cycle correction now. That correction seems much weaker than silver's correction suggesting it could rally again to new highs. If silver finds a bottom in the target zone stated above ($22.50 - $23) and gold stays above $1892, we may get a good set-up to buy both metals as silver would be starting a new medium-term cycle and gold may be poised to challenge its all-time high of $2070. If $2070 cannot be exceeded, however, we want to be ready to sell this market short soon. Let's stay on the sidelines of both gold and silver for now.

Trading Blog Thursday, April 14, 2022

4/14/2022

UPDATE ON THE BROAD STOCK MARKET AND CRUDE OIL (4:00 pm EDST)

Tomorrow (Good Friday) is a holiday, and the markets will be closed. Today the DOW surged up early in the morning, but it lost that gain as trading came to a close. The S&P 500 and NASDAQ are also closing the day with significant losses. Both the NASDAQ and S&P 500 had "gap downs" on Monday, and they haven't been able to rise and close those gaps this week. All of this is bearish and suggests that the market may push lower next week. If we get new lows early next week with bullish divergence (i.e. one or two, but not all three indices making a new low) near our target areas (34,000 in the DOW, 4,300 - 4,400 in the S&P 500, and 13,500 in the NASDAQ), then we could see a sub-cycle bottom and another rally to follow into the first week of May. Of course, in these volatile times, a sell-off is also possible. If the broad stock market continues to fall after Wednesday of next week (the end of the current reversal zone), then these indices could be headed south to take out their Feb.24 lows. That would be VERY bearish and would suggest that a major long-term correction in equities is still in progress. We will stay on the sidelines of the broad stock market for now, but we may look for a sub-cycle bottom and a spot to go long early next week for a possible rally into May.

Crude oil is closing today around $106 which is just above a downward sloping trend line at $105. This is confirming the idea that crude started a new medium-term cycle with its low of $92.93 (May contract chart) on Monday. I don't like to chase steep rallies, especially in highly volatile markets like this one (crude has risen over $10 over the last four days), so we will stay out of this market for now. A corrective dip that finds support near that trend line might entice me to buy. Let's see if that happens next week.

Trading Blog Wednesday, April 13, 2022

4/13/2022

MARKETS UPDATE (4:00 pm EDST)

Today equity markets seem to be snapping back from yesterday's down-slope, but we note that the DOW made a new weekly low yesterday along with the S&P 500 and NASDAQ, so the intermarket bullish divergence signal from earlier in the week has been negated. We are in the center of a general reversal zone (April 4 - 20), but it is a wide one and will last through Wednesday of next week. This market could turn back up now, but it would be better to see another low early next week with another bearish divergence signal. The hard reality of record inflation and the ongoing Russia/Ukraine conflict is undoubtedly weighing heavily on the minds of traders/investors and could trigger more selling. Let's remain on the sidelines of the broad stock market for now.

Gold may have started a new medium-term cycle (likely) on March 29 at $1892, but there's a chance it could still be completing and older medium-term cycle with its final low due anytime now over the next few weeks (below $1892). Even if gold is a new, young cycle, there's a good chance it will peak early and turn bearish. We are therefore looking to sell short any significant top that forms now, regardless of which cycle (old or new) is playing out. It would take a break and close above the March 8 high of $2066 to negate this bearish view. We are currently in the center of a reversal zone specifically for gold and silver (April 12 - 20), and both metals are rising into it. Gold continues to make new weekly highs above its March 24 high, but silver is still just below its March 24 high. Thus we still have a bearish divergence signal. I am going to refrain from selling short right now with the idea that silver may negate that bearish divergence signal tomorrow or Friday. If gold is a new, young cycle, I would also like to see it push a little higher before turning down.

Silver is likely completing an older medium-term cycle that is due for its final bottom anytime over the next three weeks. But yes, it's also possible that silver, like gold, could have started a new cycle with its low of $24 on March 29. Unlike gold, however, if silver IS a new, young cycle, it is probably very bullish and won't necessarily top out early (like gold). This possibility makes me even more reluctant to go short in silver at the moment. If silver's bearish divergence to gold (see discussion of gold above) persists this week, or if we get another bearish divergence signal early next week with the price remaining below $26.83, I will consider going short.

We are staying on the sidelines of both gold and silver for now.

We are now nearing the end of a reversal zone specifically for crude oil (April 7 - 15). There is a good chance that crude ended its old medium-term cycle and began a new one with Monday's low of $92.93 (May contract chart) - a bullish "double-bottom" to the $92.20 low on March 15. These lows are significantly above our target for a cycle bottom ($85 - $90), but that could be expected if this market is very bullish (which it appears to be). There is still time for crude to fall lower Thursday and Friday, but prices seem to be taking off and confirming Monday as the cycle bottom. If crude has a weekly close above $105, it will probably confirm the start of a new cycle and give us good reason to go long in crude. We will remain on the sidelines for now.

Trading Blog Tuesday, April 12, 2022

4/12/2022

MARKETS UPDATE (5:00 pm EDST)

Today the Bureau of Labor Statistics released its inflation data for March. The 8.5% rise in prices compared to a year ago (the largest annual increase since Dec. 1981) was alarming, but not unexpected. Equity markets showed their displeasure by falling steadily (after a brief morning surge) into the end of the day. Has a sell-off been triggered or will the this market get over its tantrum over the next few days and rally up again? Either scenario is possible, so we will have to wait and see. We are close to our corrective targets in all three broad stock market indices (DOW, S&P 500, NASDAQ), so we could see some support forming for another rally. We will stay on the sidelines for now.

Not surprisingly, gold and silver prices surged up with the inflation data. Gold is rising above its recent March 24 high, but silver is still below its March 24 high. This is creating an intermarket bearish divergence signal, and we are now within the reversal zone for the precious metals (April 12 - 20). A correction back down could be imminent. As I stated in my last blog, it's possible (probably more so now) that gold and/or silver started new medium-term cycles from their recent March 29 lows. If so, they could be very bullish. This makes me a bit reluctant to sell short here. If silver stays below $25.82 over the next day or two, I may consider it. Otherwise, we may be on track for another rally for gold to again test its all-time high of $2070. We will remain on the sidelines of both metals for now.

The U.S. Dollar Index could be peaking now as we enter a reversal zone specifically for currencies (April 12 - 20, same as for the precious metals). The greenback made a new high for the year today, breaking and closing just above 100. Any corrective drop in this index could boost gold and silver prices, so we will watch for this now.

Trading Blog Saturday, April 9, 2022

4/9/2022

IMPORTANT UPDATE ON THE U.S. DOLLAR (6:00 pm EDST)

The U.S. Dollar Index may be approaching a significant turning point right now in its long-term 15-16 year cycle. As I've mentioned in previous blogs, this cycle began with the low of 70.69 in March 2008. From there it rose bullishly to 103.82 in Jan. 2017 and to 102.99 in March 2020. These two high points likely represent the final "double-top" to the 15-16 year cycle which would mean that the U.S. dollar is now in the process of falling to its final 15-16 year cycle low. We are 14 years into this 15-16 year cycle, so it is clear that the bottom is due soon. If this analysis is correct, we should expect a bottom that could end up in the 55 - 60 range sometime between 2023 - 2025. (Yes, long-term cycle corrections are usually quite steep - especially if the cycle has been bullish, as this one has.)

There is an interesting twist, however, to this current 15-16 year cycle in the U.S. dollar. Some financial analysts have noted for many years a strong correlation between a rising or falling dollar and which political party, Democrat or Republican is occupying the White House. It seems that under a Democrat administration, the dollar usually rises into its 15-16 year cycle crest, and under a Republican administration it usually falls into its 15-16 year cycle low. (This is not a political statement but simply an observation of the data). The problem here is that it is still early in the current Democrat administration, so the dollar should be rising to its 15-16 year crest. But as I stated in the first paragraph above, the current cycle pattern strongly suggests the long-term cycle crest is in, and that the dollar is now falling to its final long-term cycle bottom.

So which scenario is correct? Well, the dollar has been rising steadily since the 2020 election, so it would appear that the political cycle is manifesting and playing out (so far). For this to be confirmed, however, the U.S. Dollar Index would have to break clearly above those double-top highs from 2017 and 2020 (i.e above 104). Yesterday (Friday) the dollar broke briefly above 100 and closed the day at 99.80. We are thus getting close to that double-top. But the current medium-term cycle (not the long-term cycle) is also very old and due for its final correction anytime now. We are in a general reversal zone, and we enter another reversal zone specifically for currencies next week (April 12 - 20). A significant top could be forming now, and a major correction could follow that might get us back on track with the idea of the U.S. Dollar falling to its long-term (15-16 year) cycle bottom due in 2023 - 2025 (despite the presence of a Democrat administration).

It will be interesting to see which cycle (the regular 15-16 year cycle or the political cycle) prevails here. The current rise in the U.S. Dollar Index seems to contradict current rising inflation, but fears of a crash in equity markets could be driving investors into the greenback as a safe haven hedge, just as it did during the 2008-2009 "crash". We will keep a close eye on that 104 level for the rest of this year. If the U.S. dollar can't break above there, and especially if it starts closing below 88, we will stay with the idea of a bearish dollar falling into the 55 - 60 range into 2023 - 2025.

Trading Blog Thursday (evening), April 7, 2022

4/7/2022

MARKETS UPDATE (9:00 pm EDST)

We are now pretty certain that all three of our broad stock market indices (DOW, S&P 500, NASDAQ) are new (young) medium-term cycles that started with the Feb. 24 lows of the DOW and S&P 500, and the Feb. 24 and March 14 (double-bottom) lows in the NASDAQ. Because these cycles are in their early stage, they could be quite bullish now and ready to rally and test new all-time highs. But there's also a chance they could peak early and then turn down dramatically for a long bearish ride down to their final bottoms. We note that since last week this market has been correcting down a bit, and these indices are now falling into the center of our new strong reversal zone (April 4 -20). This means we could see a sub-cycle low and the start of a reversal back up this week or next (unless the market panics and starts to break down). We are still watching for support areas now around 34,000 in the DOW, 4,300 - 4,400 in the S&P 500, and 13,500 in the NASDAQ. We are getting close to those areas, and we may consider going long soon as this market is looking bullish - at least short-term. There may also be some support at the 45-day moving averages, which the DOW and NASDAQ are now testing.

Does all of this mean the danger of a major downturn in equities has been averted? No! We will only consider that possibility if and when ALL THREE of these indices start breaking clearly above their all-time highs (that would be 36,952 in the DOW, 4,819 in the S&P 500, and 16,212 in the NASDAQ). If this market turns back up this week or next, we will watch carefully to see if the rally can challenge those highs (possibly in late April/early May - unless our reversal zone coincides with a break-down instead of a turn back up - very possible in these volatile times). We will stay on the sidelines of the broad stock market for now.

The precious metals (especially gold) have been relatively stable and flat over the last two weeks (with the price of silver trending down just a bit). Unlike the broad stock market, it is late in the medium-term cycles of both gold and silver, so we are now anticipating a correction down to the final bottom of these cycles. There's a small chance that the final cycle lows were last Tuesday (gold at $1892 and silver at $24), but the very weak rally off of those lows and the fact that Tuesday was not in a reversal zone makes that unlikely. We ARE in a general reversal zone now, and next week we enter a reversal zone specifically for the precious metals (April 12 - 20). This means we could see a significant top OR bottom (or even both) anytime now through April 20. We have been watching for a final sub-cycle rally to targets of $2050 in gold and $26.50 in silver. These targets may be too high (assuming prices will rise at all), but If these metals can rally over the next nine trading days and test their highs from March 24 ($1965 in gold and $25.81 in silver) - especially if one metal breaks its high without the other (intermarket bearish divergence in a reversal zone) - we may consider a short sell in both gold and silver. If prices continue to fall, however, we may instead be looking for the final cycle bottoms to buy sometime by April 20. For now, we remain on the sidelines of the precious metals.

Like the precious metals, the U.S. Dollar Index is also approaching the end of its current medium-term cycle. The greenback has been rallying strongly and is today making a new high for the year. It is thus vulnerable to a significant correction in our current general reversal zone. If it can push higher into next week, it could also peak and start falling in another reversal zone specifically for currencies (April 12 - 20, same as for precious metals). Any fall in the dollar could of course trigger a rally in the precious metals. We will watch for this now. We should note, however, that in our current economic times, the normal relationship between the dollar and precious metals (i.e. moving opposite each other) may not apply.

After a brief rise early in the week, crude oil prices are falling again and making new weekly lows. As I stated in last Thursday's blog:

"...we are waiting for the final bottom in crude's current and old medium-term cycle with a target around $85 - $90. That bottom might be a good spot to buy."

Today we enter a reversal zone specifically for crude (April 7 - 15), so we may see the cycle bottom in this reversal zone between now and the end of next week. We will watch for that as a potential buy spot. We are still on the sidelines of crude.

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