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Trading Blog Sunday (night), June 1, 2014

5/31/2014

MARKETS UPDATE (11:15 pm EST)

The broad stock market has been relatively calm (and flat) over the last three months, but that may be changing soon as several cycle and technical patterns are indicating that a significant correction could be looming on the horizon. We need to remember, however, to always temper any bearish technical data these days with the reasonable assumption that these markets are being constantly manipulated, and right now that manipulation is designed to prevent stock markets from crashing. The technical correction I am expecting soon should not be of "crash" proportions (perhaps only 10% - 15 %), but we should keep in mind that the broad stock market is quite overbought (it has been rising continuously since March 2009 with no major corrections) and there is a lot of fear and uncertainty in the markets right now. In this kind of environment any significant correction has the potential to trigger panic selling that could lead to a "crash"'. We can assume that the Federal Reserve's "plunge protection team" are working hard to keep this from happening. Since QE (quantitative easing) is now being tapered back, the Fed's assurance that interest rates will remain near zero seems to be the main thing propping up the stock market right now. If some unforeseen event necessitates the raising of interest rates, the stock market could be in trouble.

The second week of June is another potential turning point for many markets. Directional momentum in the DOW, S&P 500 and NASDAQ charts is still strongly bullish so I am favoring the idea of new highs in these indices into that time, but if the market starts to turn down this week we could instead see a significant correction bottoming into mid-June. The reluctance of the DOW to exceed its May 13 all-time high supports this latter bearish scenario, but the DOW closed very close to that high on Friday, so it seems likely it will follow the S&P 500 and break through it. If we do rally into the second week of June, I will be looking to sell short what could be a significant correction from a top forming then. Still on the sidelines of the broad stock market.

The precious metals market had also been quite calm and relatively flat for the first three weeks of May but last week made a decisive break downwards as both gold and silver breached several important support levels. Directional momentum in silver has turned nearly 100% bearish while gold remains mixed bullish and bearish. More significantly, though, the two main gold and silver mining company stock indices, XAU and HUI, are now both 100% bearish. Gold and silver mining company stocks often lead the price of the metals themselves so this is pointing to lower prices ahead. In addition, the chart of the gold ETF (exchange traded fund) GLD as well as the charts for GDX and GDXJ (two gold mining company ETFs) have all turned 100% bearish. All of this strongly suggests that the final bottom to the precious metals market is not yet in. While we could see it bottom by mid-June, there are some technical and cycle data suggesting that the final bottom could be pushed into July. There is also the possibility now of gold prices approaching the $1100 area. If silver breaks clearly below $18 it could fall to the $15 area. Timing, however, is more important here to our trading than price targets, and our strategy now will be to look for a very important bottom in both gold and silver to buy into some time before mid-August. Short-term, we may see an opportunity over the next few weeks to sell short these metals as there could be a brief rally before prices move to their final bottoms. Stay tuned. On the sidelines for now.

The cycle and chart patterns for crude oil continue to be ambiguous and confusing. Directional momentum remains strongly bullish, but prices last week seemed to have trouble getting beyond the $104 level, which is a bearish sign.
If this market is turning bearish it could drop very quickly below $100 within the next two weeks, perhaps into the second week of June. If that happens, it could set up a good buying opportunity. Staying on the sidelines of crude until the technical picture is more clear.

Trading Blog Friday, May 30, 2014

5/30/2014

BRIEF MARKETS UPDATE (3:30 pm EST)

The major market development this week has been the breakdown of gold and silver. As I suggested in my last blog, a break up or down was imminent, and the precious metals have clearly chosen the latter. Gold has broken below a significant support level around $1260 and silver below the strong support at $19. It is likely that we will now see a deeper correction in these metals at least into the second week of June, and I will be looking for signs of a final bottom to buy in both gold and silver at that time. In the meantime, any short-term bounces may present us with an opportunity to sell short as this correction could be substantial. Still on the sidelines.

Directional momentum signals in the broad stock market continue to be very bullish which implies more rallying ahead; however, the DOW still seems reluctant to exceed its May 13 all-time high at 16,735. The S&P 500, on the other hand, continues to make new record highs for the month. This is creating intermarket bearish divergence between the two indices and the potential for a downturn in both. As long as momentum remains strongly bullish, however, I am anticipating a significant top in this market in the second week of June and then the start of a correction to sell short. The DOW may or may not make a new high by then. If it doesn't it will strongly support and reinforce the case for a substantial correction at that time. Still out of this market.

Crude oil prices seem to be correcting a bit after Tuesday's high at $104.50, but momentum signals remain strongly bullish. The cycle pattern in this market is still unclear so I am remaining on the sidelines for now.

I will post a more detailed analysis of the markets and trading strategies this week-end.

Trading Blog Monday (night), May 26, 2014

5/27/2014

MARKETS UPDATE (11:45 pm EST)

We are now in the last week of May. Technical, cycle, and timing studies indicated a strong potential for market reversals during this month, but so far it is not clear whether or not there have been any significant directional changes in the major markets. In fact, some markets, like gold and silver, have come to a virtual standstill (this may change shortly) while others, like the U.S. dollar, have fluctuated wildly (the dollar appeared to be breaking down earlier in the month but now seems to be in a "breakout rally"). This lack of directional trend makes it difficult to call the markets at the moment, but directional patterns may become more clear as we move into June.

In the broad stock market on May 13 both the DOW and S&P 500 made new all-time highs. It is possible that those highs were significant peaks and that these markets will continue to fall into the first half of June to the end of their current cycles before making further new highs. I think there is a stronger possibility, however, for these indices to make new highs into early June before falling significantly. These markets were rising last week, and there are currently several short-term technical indicators that support this latter scenario, including very bullish directional momentum, not only in the DOW and S&P 500, but in the NASDAQ as well. The contract chart of the S&P 500 did make a new high last week, but the cash DOW was well below its May 13 high. Any reluctance now by the DOW to make a new high would suggest a correction is imminent. I don't feel that patterns in these markets are clear enough to establish a trading position at the moment so I am remaining on the sidelines for now. The second week of June may present us with a shorting opportunity to catch a significant correction down (10% or more); however, after such a correction I think the broad stock market would likely resume its bullishness.

Precious metal prices have been nearly flat over the last few weeks, but technical indicators are suggesting that a break (upside or downside) is imminent. This market is really hard to call right now. One ominous sign is that directional momentum in the chart of the gold and silver mining company stock index XAU recently turned 100% bearish. As I've mentioned before on the site, the direction of precious metal mining company stocks often foreshadows the direction of gold and silver prices, so this is suggesting lower prices ahead. Directional momentum in the metals themselves is currently mixed bullish and bearish for both gold and silver (with gold being a little more bearish, short-term, than silver). There is support for gold at $1280 and resistance at $1300. A clear break through one of those levels would give us a clue as to where prices are headed. The next likely turning point for gold and silver is the second week of June, so if prices move lower into that time frame we may see a good bottom to buy into then. On the other hand, a moderate rally into mid-June could lead to another price correction with the final cycle bottoms in gold and silver being delayed further. It is too early to call a trade in this market. I will continue to watch for signs of a bottom to buy over the next several weeks. Still on the sidelines.

The abrupt surge of crude oil prices last Wednesday was apparently the result of a government report showing that U.S. inventories fell more than expected ( a drop of 7.2 million barrels instead of the expected decline of only 300,000 barrels). This fueled investor buying and pushed crude prices over the $104 mark. Two days earlier (in my May 19th blog) I covered my short position in crude and wrote, "...it is becoming too risky to "ride out" the current price surge
[in crude]..." This turned out to be good timing as the break above $104 suggests a bullish trend in crude's current cycle. As with other markets right now, cycles and technical indicators in crude's charts are ambiguous and a little confusing so we will stay on the sidelines of trading here as well until patterns are more clear.

Trading Blog Friday, May 23, 2014

5/23/2014

BRIEF UPDATE (2:30 pm EST)

I am traveling today and am therefore posting a very brief update here before markets close (I will post a longer discussion sometime this week-end). This was an important week in terms of terms of market timing and potential reversals in market trends. Unfortunately, as is frequently the case these days, markets seem confused, hesitant and reluctant to establish a strong directional trend. There is lots of ambiguity now in the technical signals of several markets and this creates a risky environment for traders. I am remaining out of all markets today. This Monday is Memorial Day in the U.S. and trading is usually light with a tendency towards optimism going into a holiday week-end. Directional trends may become more clear as we move later into next week.

Trading Blog Monday, May 19, 2014

5/19/2014

CRUDE OIL TRADE ALERT (2:45 pm EST)

It looks like crude oil is clearly breaking above the $102 level today and it is becoming too risky to "ride out" the current price surge with my short position. Furthermore, a strong bullish signal appeared today in crude oil charts shifting momentum in this volatile market once again towards 100% bullish, so our bear strategy is now negated. Cycle analysis is also suggesting the possibility that crude's May 1st low at $98.74 could be the start of a new cycle. This is a bullish pattern if prices can exceed the April 16th high of $104. Based on all of this I am going to bail out of my short position in crude oil today with a small loss. We are in the center of a time period for likely market reversals so crude could still turn down, but the reversal window for oil extends well into next week and prices could rise significantly before correcting. Some short-term trade signals are looking very bullish at the moment so it would be prudent to cover short positions now.

Trading Blog Thursday, May 15, 2014

5/15/2014

MARKETS UPDATE (6:15 pm EST)

The broad stock market fell sharply today, and we are entering a time zone where significant market reversals are likely (May 14-28). Could this be the start of the significant correction we've been expecting? Maybe, but some short-term technical indicators are suggesting that this market could push up a bit more into the middle of next week before taking a deeper correction. There is support now for the DOW in the 16,420 -16,450 area which seems to be holding today's plunge. If the DOW breaks and closes below that support tomorrow (Friday) we could see a steep fall into next week. I would prefer to see another top into early next week and then a fall, as this would be the ideal set-up to sell short. Right now directional momentum is still bullish in the DOW and S&P 500 charts and still bearish in some (but not all) of the NASDAQ charts. Strong bearish signals in the DOW and S&P charts will alert us if and when a serious correction is underway. Still on the sidelines.

Over the last several days it had appeared that gold and silver were mounting a significant rally into the second half of this month, but gold seems reluctant to break above the $1300 level, and silver has barely touched its resistance at $20. Both metals are down sharply today. If they continue to fall into next week we could see a significant low to buy into. A significant development in silver charts this week was the appearance of a strong bullish directional signal which now makes directional momentum in both gold and silver mixed bullish and bearish (it had been 100% bearish in silver). This is a good sign that we are nearing a bottom in the precious metals. If instead of falling, prices continue to rally into next week, we could see a reversal then and an extended correction into mid-June. At the moment it appears more likely prices will make a low next week. On the sidelines and waiting to buy.

Crude oil prices backed down today after a strong surge yesterday and closed the day near $101.50. As with the broad stock market, cycle analysis is suggesting an imminent correction in crude. This correction could start now and bottom into next week; however, if prices instead make new highs into next week, we could see the correction begin then. Because of the likelihood of an imminent correction, I am attempting to "ride out" this week's price surge with my short position even though it has broken through my stop loss zone at $100 - $101. The danger here is the possibility of a strong price surge into next week (perhaps fueled by more turmoil in Ukraine), but today's downturn has moderated prices a bit, and we are still close to our short sell price near $100. I am therefore maintaining my short position for now in anticipation of a correction soon. Momentum remains mixed bullish and bearish in this market.

Trading Blog Tuesday, May 13, 2014

5/13/2014

BRIEF UPDATE ON CRUDE OIL (3:45 pm EST)

Crude oil is breaking and closing above my $100-$101 stop loss area today, but since there is also resistance in the $102 area and we are now entering a time period (May 12 - 28) when strong directional changes are likely in many markets, I am going to hold my short position for now with the assumption that even a minor correction will negate any loss and potentially give us a good gain. I am being a little more risk tolerant than normal with this position due to the relatively small amount of money I allocated to it. When opening this short position on May 2nd I wrote, "...I am being very cautious with this trade and I am not putting too much money into it as escalating violence in Ukraine may exacerbate geopolitical instability in this region and push crude prices higher." Clashes between Ukrainian armed forces and pro-Russian separatists are continuing, but today's rise in price is more likely the result of U.S. Energy Secretary Ernest Moniz's statement that the U.S. is considering relaxing the regulations that ban the export of crude oil to foreign countries. We will have to wait and see if the White House and Congress will follow through with this suggestion as it would require changing a 38 year old law banning exports and would have a significant effect on crude prices.

A major bullish signal appeared in the U.S. Dollar Index chart today so overall directional momentum in the dollar is now mixed bullish and bearish (it had been 100% bearish). This dollar surge may help to moderate oil prices.

Trading Blog Sunday (night), May 11, 2014

5/10/2014

MARKETS UPDATE (11:30 am EST)

We are about to enter a very important "reversal zone" in market timing during the last two weeks of this month which may be the strongest and most significant one of the entire year. During these two weeks there is a high probability for major financial markets to make significant reversals in directional trend. We therefore want to pay close attention to market directions moving into this period. The mid-point of this period, May 20-21, is especially significant and may turn out to be the turning point for several markets.

After finding support around 16,400 early last week, the DOW rallied into Friday but still could not break through the all-time April 4 high of 16,631. The S&P 500 also came close to exceeding its all-time high (1897 on April 4) but could not do so. There is a bearish possibility here of a double top formation that could lead to a steep correction in the broad stock market and a cycle bottom into the end of this month. I think it is more likely, however, that these markets will rally a bit more and make new highs close to that May 20 -21 date before taking a significant correction. My strategy now is to look for new highs by the third week of this month with plans to sell short.
We will have to wait and see if market movements this week will present us with the opportunity to do this. Momentum in the DOW and S&P 500 is now extremely bullish (the NASDAQ, however, remains very bearish).
Still on the sidelines.

Gold and silver (especially silver) continue to look short-term bearish. A significant bottom to buy into these markets may be setting up as early as the end of this week or the beginning of the following week. An alternate scenario (less likely) is for gold and silver to rally now into the third week of this month. If that happens, we would likely see another correction down into mid-June before considering a long position. On the sidelines of gold and silver for now.

In last Tuesday's blog I stated that, "...While we may be seeing the start of a dollar breakdown, it should be noted that there is a very strong support line for the dollar between 78 and 79, and this level could serve as a springboard for at least a temporary bounce." This turned out to be prophetic as the U.S. Dollar Index surged up into Friday making a new weekly high near 80. This helped push gold and silver prices down last week, but this rally may not last very long. There are several resistance levels on the way up to and including the 81 area, and directional momentum in the dollar chart is still strongly bearish. If the dollar continues to rise into the end of this week, we could see it turn back down again to test the 78-79 support. A clear break below that support could lead to a serious downturn in the dollar and kick-start a major rally in the precious metals.

I am still holding my short position in crude oil as prices seem reluctant to breach my $100 -$101 stop loss area and cycle analysis and timing factors point to a correction into the end of this month. If crude rises next week and we do get stopped out, another shorting opportunity might present itself in the following week if prices continue to rise.

Trading Blog Wednesday, May 7, 2014

5/7/2014

BRIEF UPDATE ON GOLD AND CRUDE OIL (3:30 pm EST)

Today Federal Reserve Chairwoman Janet Yellen spoke before the Joint Economic Committee of Congress and made generally positive and upbeat comments about the state of the U.S. economy. She also made it clear that the governments's bond purchasing program (QE) would end in the fall if the economy stays on course. This "hawkish" tone and optimism about the economy had a depressing effect on precious metals (which are viewed as a safe haven in bad economic times). Gold and silver both dropped sharply (over 1.5%) which is in line with my recent short-term bearish view of these metals (see yesterday's blog). Despite Yellen's remarks, however, the long-term picture for gold and silver remains very bullish. At the moment it looks like a good buy spot in both metals could be setting up in the second half of this month. Still on the sidelines.

Crude oil broke and closed above $100 today. This price increase was apparently the result of weekly government data showing an unexpected drop in crude oil supplies contrary to expectations that inventory supplies would hit new highs. If this is the case, the rally may not get very far. There is resistance at $101 and I am not ready to give up my short position until that level is cleared. Maintaining my short position for now.

Trading Blog Tuesday, May 6, 2014

5/6/2014

MARKETS UPDATE (4:45 pm EST)

The DOW and S&P 500 both made new weekly highs last Friday (16,620 in the DOW and 1891 in the S&P), but they did not exceed their April 4 all-time highs (16,631 and 1897, respectively), and both indices are falling moderately now. Friday's highs were close to the all-time highs so this could represent a significant "double top" bearish formation. Directional momentum, however, remains nearly 100% bullish in the DOW and S&P 500 charts so it is more likely we will see a minor correction and then more rallying into the second half of this month. A major argument against this view is the fact that NASDAQ chart momentum remains stubbornly bearish. Could this be warning us of a more severe imminent correction in the broad stock market? Maybe, but for now I am sticking with the more bullish expectation of new all-time highs (at least in the DOW and S&P 500) over the next few weeks before a more severe correction kicks in. There is some support now around 16,300 in the DOW and 1850 in the S&P 500. It would take a break below those levels to change my bullish view. Still standing aside the broad stock market.

Crude oil prices have found it difficult to break through the $100 mark over the last several days in spite of the escalating tensions between Russia and Ukraine. This bodes well for our short position in crude right now where I've set a a stop loss price between $100 - $101. Cycle and timing analysis are suggesting a correction to at least the $97 - $98 area over the next several weeks. If prices break below there we could even see the $92 area tested.
Maintaining my short position in crude oil.

Gold and silver prices remain at crossroads where they could turn either bullish or bearish, but my bias is still bearish as directional momentum in silver charts is still strongly bearish (gold is still mixed bullish and bearish). Short-term cycles are a little ambiguous in the precious metals right now, but many technical and timing factors are suggesting prices could fall lower over the next few weeks. Until gold breaks clearly over $1330 and silver breaks the $20 level, I am staying with the idea of a significant new low in prices to buy into around the third week of this month. That said, we also need to watch the Russia/Ukraine crisis carefully now as this is a "wild card" factor that could push precious metal prices higher and turn the markets bullish. Still on the sidelines of precious metals.

Directional momentum in the U.S. Dollar Index turned 100% bearish last week, and today the index plunged to just above the 79 level. While we may be seeing the start of a dollar breakdown, it should be noted that there is a very strong support line for the dollar between 78 and 79, and this level could serve as a springboard for at least a temporary bounce. My main concern here is the bullish effect a dollar breakdown would have on precious metal prices. A clear break of the dollar below 78 would very likely kick-start a major rally in gold and silver. On the other hand, a short-term bounce in the dollar from here could bring precious metal prices into the ideal low we are looking for in the third week of May. We will therefore keep a careful eye on the dollar over the next few weeks.

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