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Trading Blog Friday, May 31, 2013

5/31/2013

MARKETS UPDATE (2:45 pm EST)

A significant development in crude oil took place this week with a major bearish momentum signal appearing in the price charts of crude towards the end of the week. On Thursday prices dropped to $91.65 intraday before snapping back up to close above $93.  Although that was short-term bullish behavior for the day, the plunge was enough to generate a strong bearish momentum signal, and today the price plunged again and is closing the day below $92 which is bearish. Based on overall momentum we now have to declare this market bearish again. This is not so surprising because the bottom that began this new cycle in crude on April 18 was lower than the start of the previous cycle in early November and this generally indicates that the price is trending down. The reason we have been contemplating a long position (with caution) over the last three weeks is because a strong rally from
April 18 generated a medium term bullish momentum signal in early May. That signal has now been negated, so we are back to a bearish view. I know this is a little confusing if you are not following the cycles closely, but I am not flip-flopping here - the market is !   We always follow the predominant cycle and technical indicators of market direction even if high volatility changes them more frequently than we would like. We are out of this market for now, but because of this new bearish momentum we will be looking for an opportunity to go short.

The present bearishness of crude oil may have negative implications for the broad stock market as both of these markets tend to move together. The DOW still appears to be correcting off its high of May 22 and closed the week down (dropping over 200 points today) with several short-term technical indicators looking bearish, so we will continue to stand aside and wait to see if it will move lower.

Gold this week broke temporarily above a resistance level at $1400 but then closed the week just below it at $1385 (bearish behavior) while silver continued to hover just above $22.  Many precious metal analysts agree that gold and silver prices are now at or close to a major bottom from which a major uptrend will begin, but the big question at the moment is whether or not they will reverse to the upside immediately or move back down to make a double bottom to the recent crash lows ($1321 in gold and now near $20 in silver) or even establish lower lows before rising again. Note that in both these scenarios a "golden opportunity" is setting up here because we are likely witnessing the start of a new cycle in the precious metals that could be bullish for at least several more years. For the moment, however, momentum indicators are still strongly bearish in both gold and silver so we will remain on the sidelines.

Trading Blog Tuesday, May 28, 2013

5/28/2013

MARKETS UPDATE (7:00 pm EST)

The broad stock market continues to look toppy as it surged up this morning but then started a steady slide down into the afternoon. There is a chance that last Thursday's low at 15,180 could have been the small correction we've been anticipating. This is an unusually small correction in terms of time (only one day after the peak) and depth (a little over 2%), but considering this market's strongly bullish momentum it is possible. I am still being cautious here and am going to wait for a deeper correction to buy (closer to 15,000). Note that if we do establish a long position it will probably be short-term as there could be a much more severe correction of the broad stock market later in the summer. Still on the sidelines of this market.

Both Gold and silver dropped a bit today and generated a few more short-term bearish momentum signals. We will therefore stay on the sidelines of this market until we get a stronger indication that the bottom of this major correction is in. Because we are likely watching the bottoming of a major long-term cycle in gold and silver, it may take at least several weeks before we can be reasonably certain the bottom is in. I would like to emphasize here that this unfolding bottom is a major opportunity to buy gold and silver at relatively low prices before another major uptrend begins. Despite the presently bearish momentum in the gold and silver charts, the long-term (over the next several years or more) technical and cycle picture for the precious metals continues to be very bullish.

Crude oil continues to dodge our attempts to buy it by refusing to drop into the $91 price area we would like to see for a correction. As with the broad stock market, last Thursday's low (near $92) may have been the extent of the correction (a shallow one). We will have to wait and see how the price moves this week to be sure of this. Momentum in crude oil is much more bearish than the broad stock market at the moment so the price could still move back down towards that $91 area. On the sidelines for now.

Trading Blog Friday, May 24, 2013

5/24/2013

MARKETS UPDATE (2:00 pm EST)

On Wednesday of this week U.S. Federal Reserve Chairman Ben Bernanke spoke before Congress and basically indicated that he would continue the Fed's low interest rate policies for the time being; however, he also stated that the Fed "...actively seeks economic conditions consistent with sustainably higher interest rates...", hinting that this near zero interest rate policy cannot go on forever. Even a slight mention of the possibility of raising interest rates seems to be enough to spook the stock market as the DOW rose to a high of 15,542 on Wednesday morning just before Bernanke's speech but then fell steeply after his address to close the day just above 15,300. People who are bullish on the stock market sometimes ask me what could cause another crash similar to the one we had in 2008-2009. In the currently fragile global economy there are many things that could do this, but in the U.S. the raising of interest rates has to be high on the list of factors that could easily trigger panic selling in the market. This is just one of many reasons to be cautious with the broad stock market at this time.

As mentioned in the last blog, I am expecting some correction now in the broad stock market, and that drop on Wednesday may be the start of it. There is a good chance this correction will be small (maybe only to the 15000 level) and we will look to buy it. As always, we will watch carefully for any change in momentum that could indicate a more serious correction. The current momentum in the DOW, S&P 500 and NASDAQ is still strongly bullish. Still on the sidelines here and waiting to go long.

Gold and silver seem to have paused this week as if they are trying to decide what direction to take at this juncture -down to make secondary crash lows or up in a rally away from the already established bottom. The market analysts I follow are a little divided on this. Although there are several cycle and technical indicators pointing to a strong rally now, there are also some bearish indicators. After breaking down through its crash low of $22 last Sunday and then quickly rising above it (bullish behavior), silver now seems stuck just above this price. Gold was a little more active than silver this week, but prices also appear to be stuck in a narrow range between $1350 and $1400 (there is some resistance in the $1400 area). Overall momentum indicators are still mostly bearish for both metals. I am going to remain on the sidelines for now with a close eye on momentum signals. Even though this market appears to be setting up for a rally, I don't want to jump the gun before I see stronger bullish momentum.

Crude oil remains unchanged over the last few days. Crude seems to be taking its cues from the broad stock market and, as in that market, I am expecting a correction in crude as well. This market is also now in the center of a timing window that makes a price reversal more likely, so it could turn down here (or perhaps rise a bit more over the next few days and then drop). Momentum in this market is at the moment mostly bullish, so any corrections now could be small and we would look to buy them. Still out of this market.

Trading Blog Wednesday, May 22, 2013

5/22/2013

MARKETS UPDATE (3:30 pm EST)

It is highly likely that we are seeing the bottom to the recent crash in gold and silver forming now. Over the last few days I am seeing the beginning signs of a change in momentum from bearish to bullish in both these precious metals, but the bullish signals are not yet strong enough to make me want to jump in. After briefly breaking below its crash low of $22 earlier this week, silver now seems to be holding just above that level (bullish behavior) while gold seems paused between $1350 and $1400. I am being cautious here because there is a possibility of both metals turning down again and forming new lows. The more likely scenario, however, is that we are seeing the bottom now and can expect a strong rally to begin shortly. We will therefore wait for that bullish momentum signal with the idea of going long in both metals as soon as it appears.   Still standing aside gold and silver and waiting to go long.

Amazingly, the broad stock market continues to edge up higher with virtually no significant corrections. This market is very overbought right now, and there is also some resistance around the 15,500 level. Today the market rose to 15,542 intraday but then dropped and closed at 15,300 near the bottom of the day's range.  This is bearish behavior and may be signaling the start of the correction we've been expecting. Because overall momentum is still very bullish in the broad stock market, any corrections now may be relatively small and we will probably want to buy them. Still on the sidelines here.

The recent rally in crude oil may be leveling off and, like the broad stock market, crude could be ready to take a correction. We are now entering a timing window where a reversal is likely in both these markets.  We will continue to stand aside and wait to see how this correction unfolds.  As long as short-term momentum remains bullish, we will probably be looking to buy. Out of this market for now.

Trading Blog Monday, May 20, 2013

5/20/2013

GOLD TRADE ALERT (1:45 pm EST)

The time has come to cover our short position in gold. Gold is up strongly today and has flashed an upward momentum signal which may be indicating the bottom to the correction is in. We are getting out with a decent 5-6% profit since our short sell alert on 4/29. Silver is also rising strongly today. Note that silver broke below its $22 crash low on Sunday and earlier today before rising towards $23, but gold did not break below its $1321 crash low before surging. This is another strong bullish signal in the precious metals today. We will now be looking to go long in gold and silver, possibly over the next few days, but I would like to see a little more follow through with this reversal before doing so. We are therefore taking profits today in our gold short positions and standing aside gold and silver with the intention of going long in both metals soon.

Trading Blog Friday, May 17, 2013

5/17/2013

MARKETS UPDATE (3:30 pm EST)

Gold and silver continued dropping today with silver nearly touching its $22 crash low and gold rapidly approaching its $1321 crash bottom (dropping to $1360 intraday).   If these crash bottoms hold, we may see a significant rally that could mark the start of a new long-term cycle in the precious metals, which would be a very bullish development.
Bearish momentum, however, is still very strong in both metals right now and we want to see some sign of upward momentum before going long. We are still holding our short position in gold (which is doing well) and will stay with this for now. A recent development that does not bode well for gold and silver is the strong breakout of the U.S. Dollar from a chart pattern that was looking very bearish but is now quite the opposite. This sudden rise in the U.S. Dollar is likely due to global funds fleeing the current chaos of Japanese and European economies, with U.S. currency being perceived as a better alternative to the rapidly disintegrating financial systems of those countries. (This dollar surge is what forced us to bail out of our recent long positions in the Swiss Franc.)    A rising dollar usually forces the price of precious metals down, so if this dollar rally continues to gain strength, it's possible we could see the recent crash lows in gold and silver eventually break. This is all speculation at the moment and our present short-term strategy is anticipating a bounce soon in the precious metals when we will switch out of our short gold position and go long gold or silver (or both). The critical thing to watch are those lows at $22 in silver and $1321 in gold which, if they hold, will serve as stop loss points for any long positions we establish. Still holding our short gold position and out of silver for now.

The broad stock market refuses to give us a corrective entry point to go long, but it seems to be leveling off a bit and there are still several factors pointing to some sort of imminent correction. We will stay on the sidelines for now.

Crude oil seems to be taking its bullish cues from the stock market and is rising steeply from its near $92 low on Wednesday. That $92 price was not low enough to buy into as it was too far above our $89 stop loss support for my taste (or risk tolerance).   If the broad stock market makes a correction here, crude would likely follow and if so it may move back down to that $90 area again where we will consider going long. Still out of this market.

Trading Blog Wednesday, May 15, 2013

5/15/2013

MARKETS UPDATE (2:30 pm EST)

Gold and silver continue to show strong bearish momentum, and today the price of both metals dropped sharply. This is looking good for our short position in gold. (We bailed out of our short silver position last week to avoid being too heavily short in the precious metals as there are also strong bullish indicators in this market right now). As mentioned in previous blogs, there are support levels around the recent "crash" lows at $1321 in gold and $22 in silver. (There is also some support around $1400 in gold). Today gold closed at $1395 and silver at $22.75 so we are very close to those supports. We will watch carefully now for any bullish change in momentum that might indicate the bottom is in. There are many technical factors pointing to a strong rally in precious metals once this correction is over, and we need to be ready to go long when that happens (which could be soon). We will maintain our short position in gold for today (still out of silver) and will now watch for signs of a bottom to this correction.

The broad stock market continues to be incredibly bullish, but it is very overbought right now, and there are several technical indicators pointing to at least a small correction now which we will probably look to buy. Because all three major indices that we follow (DOW, S&P 500, NASDAQ) have now broken out to new all time highs, it is possible that the broad stock market is moving into a "blow-off" mode, that is, a period of accelerated price gains fueled by "irrational exuberance" (to quote former Federal Reserve Board Chairman Alan Greenspan), and if this is the case we could see much higher prices within a relatively short-term period of time. It is important to note, however, that blow-off tops are always followed by severe crashes. Calling the top of a blow-off market is difficult if not impossible to do, and it is usually best to be prudent and take profits sooner than later if such a surge develops. This is another reason we are being cautious with the current bull market. Still on the sidelines here and waiting for a correction (probably small) to buy into.

The price of crude oil plunged intraday and nearly touched $92 but then snapped back up and closed the day over $94. This is bullish behavior, but there are are other short-term bearish signals in the oil charts today so we will stay on the sidelines for now. If the price drops closer to $90 we may go long with a stop loss around $89.

Trading Blog Sunday (night), May 12, 2013

5/13/2013

SWISS FRANC TRADE ALERT and
MARKETS UPDATE (11:15pm EST)

When we went long in the Swiss Franc on April 3rd I stated that, "...a good stop loss and support price for the Swiss Franc would be its March 14 low at 1.0463." Unfortunately, this currency broke through that price last Friday and closed the week just below it. A strong bearish momentum signal also appeared in the Swiss Franc price chart late last week which confirms that this market has now turned bearish. Because of this, I am going to exit long positions in the Swiss Franc on Monday. (Currency conversion is often delayed a day which may allow the price to recover a bit from last week's steep fall.) This sudden downturn in directional momentum so early in a new cycle is a little unusual and is not surprisingly occurring as the U.S. Dollar seems to be breaking out of a strongly bearish chart pattern that had been developing over the last several months. A strong dollar rally will drive down the Swiss Franc. I normally try to avoid trading the Swiss Franc short-term (see Alternative Investor Strategy page), but the technical signals here are indicating a potentially strong downturn that would be too risky to "ride out". This is yet another market that seems to be getting more volatile these days and thus more difficult to trade. If this dollar breakout succeeds, it could also push precious metal prices down again as these two markets usually move in opposite directions.

Even though a dollar breakout has bearish implications for silver and gold, there are also several bullish factors supporting the precious metals market now. These mixed signals are why I abandoned my silver short position last week. I maintained my short position in gold because it was purchased relatively close to $1500 which is strong resistance and a good stop loss point now, and gold may yet fall some more as momentum indicators are still strongly bearish. The precious metals are now trading in a narrow range between resistance around $1500 in gold and $26 in silver and the recent crash lows at $1321 in gold and $22 in silver. Until prices break above or below these levels, the short to medium-term direction of this market will not be easy to call. Still holding short positions in gold but out of silver for now.

The broad stock market did not offer any correction to buy into last week so I am still on the sidelines here. I will continue to wait for a corrective entry point into this market as long as momentum remains bullish.

Crude oil also did not correct to the support level I wanted to see last week (around $91- $92) so I am going to wait here as well before buying into this market.

Trading Blog Wednesday, May 8, 2013

5/8/2013

SILVER TRADE ALERT (2:45 pm EST)

I've decided to unload our silver short positions today as the price of silver is just a little above where we entered, and we can cover these positions with very little loss. As I mentioned in my last blog, silver is looking a little less bearish than gold right now, and there is a chance of it running up towards the $26 area (which is where we originally had intended to short it but were not given the chance). The trading is getting a little tricky here. While it is possible for that $26 resistance to hold and send the price back towards the $22 low, the recent stabilization and strengthening of both gold and silver is increasing the likelihood of a break through $26 sooner than we had expected. Should this breakthrough occur, the loss in our short positions would be too great (remember silver moves faster than gold).
For these reasons I am bailing out of our silver short positions today, but we will maintain our gold short positions for now. We established our gold short positions closer to our stop loss point (at the $1500 resistance) than we did with our silver shorts, so we can afford to wait and see if that resistance holds and turns the price back down towards the $1400 (or lower) area again. Note that momentum signals are still strongly bearish in both gold and silver right now, but there are other technical signals and signs indicating that this could be changing soon.

Trading Blog Monday, May 6, 2013

5/6/2013

MARKETS UPDATE (2:45 pm EST)

Ambiguity and mixed technical signals continue to manifest in the broad stock market, but momentum has recently become very strongly bullish in all three of the major indices we follow (the DOW, NASDAQ, and S&P 500), and cycle analysis is also now indicating the possibility of these markets rallying to considerably higher price levels.
Last Friday's positive news of a drop in the U.S. unemployment rate and an increase in jobs fueled strong rallying in the broad stock market as did comments from Ben Bernanke earlier in the week that short-term interest rates would remain near zero. Positive sentiment is very strong in this market right now, but emotionally driven rallies should be viewed with caution, especially when long-term cycles and technical analyses indicate the potential for major corrections. As discussed in previous blogs, market manipulation is also a factor we cannot afford to ignore in our trading analysis, and this is almost surely another bullish force operating at the moment in these markets. Based on all the above, I am taking a cautiously bullish view of the broad stock market right now and to be nimble will trade it relatively short-term with a watchful eye on any shifts in market direction. For this week we will look to buy in the 14,800 area of the DOW (or 1585 area of the S&P 500) if offered with stop losses just a little below those prices. Still on the sidelines for today.

Even though the momentum in gold and silver is still strongly bearish and prices are not likely to break through their strong resistance areas ($1500 in gold and $26 in silver) right away, there are several factors now indicating the establishment of a stability in both metals that may prevent a secondary breakdown in prices below the recent lows at $1321 in gold and $22 in silver. This development is requiring us to change our strategy here as there is now less chance of a big profit with short selling. A likely scenario at this juncture would be for prices to move back towards those recent lows before rising again and possibly breaking through the upper resistance zones. We will therefore maintain our short positons with the idea of moving out of them somewhere above the recent lows (maybe around the $1400 area in gold and $23 area in silver). Note that silver is looking less bearish than gold at the moment, and though it may fall to that $22 level, we will be safer covering our short positions at $23. (Silver is more volatile than gold and can change directions quickly). I realize that this is an abrupt change in our strategy, but when market forces shift and technical signals change we have to go with the flow and align ourselves with the most likely probabilities as they unfold.

In my last blog on crude oil I stated that we are "...looking to go long now (with caution)... ", which is the same strategy we now have in the broad stock market. Momentum is presently short-term to medium-term bullish, and we will look to go long in the $91-$92 area this week if offered, but standing aside this market for today.

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