Blog Archives

Trading Blog Thursday (night), May 28, 2015

5/28/2015

MARKETS UPDATE (11:15 pm EDT)

We are still looking for either a high or low in the broad stock market for the end of this week into early next week. Right now it is unclear which it will be. Tuesday's plunge in the DOW was followed by a rally yesterday, and today the markets were down again. Directional momentum remains strongly bullish in the DOW, S&P 500, and NASDAQ, and if new highs are to be made we may not see them until next week. Alternatively, a low in the 17,600 - 17,800 over the next several trading days would not necessarily break the bullish momentum and could give us a good spot to go long. Still on the sidelines of this market.

Gold prices seem to be holding above $1180 and silver prices above $16.50. The current cycle structure and timing in the charts of both these metals suggests the possibility of a strong short-term rally into next week, but there have been no buy signals so far. If a rally doesn't start soon, we could instead see prices fall steeply to new lows. On Tuesday the gold and silver mining company stock index XAU turned 100% bearish. This is not a good sign for the precious metals as the mining company stocks often lead the prices of the metals themselves. On the sidelines here.

The U.S.Dollar Index is down a bit today after achieving a high of 97.38 on Tuesday. There is considerable resistance for the dollar around 98. Whether or not this resistance can be broken may depend on how the Greek debt crisis is resolved over the next week or two. Some political and financial analysts are optimistic that Greece will work out a deal with its creditors, but others say this optimism is unfounded and that Greece will likely default and have to exit the eurozone. If the latter scenario unfolds, the dollar may surge and push the prices of gold and silver lower. We will have to wait to see how this unfolds over the next two weeks.

Crude oil is still looking bearish short-term, and we are staying the course with our short position for now. I am still expecting to see prices dip into the $52 - $55 range over the next week or two. Holding my short position here.

Trading Blog Tuesday, May 26, 2015

5/26/2015

MARKETS UPDATE (6:30 pm EDT)

After a long three day weekend (markets were closed Monday due to the Memorial Day holiday), U.S. investors found a lot going on in many markets on this first day of the trading week. There were big declines in the broad stock market, gold, and crude oil. The cause of this seems to be a strong rally in the U.S.dollar which is likely being fueled by fears of a Greek loan default. Greece is dangerously close to defaulting on its next debt repayment to the International Monetary Fund due in early June. A default could have a serious negative effect on the European economy and lead to a weakening of the euro. The dollar was also bolstered late last week by comments from Federal Reserve Chairwoman Janet Yellen who warned that a first interest rate hike could still be made before the end of 2015. (Many financial analysts had been predicting a rate hike postponement into next year). Time will tell if Ms.Yellen is bluffing, but for the moment, at least, the dollar looks appealing, especially to those worried about Greece defaulting and possibly leaving the eurozone. So how does the U.S. dollar look technically? Today's rally triggered a strong bullish momentum signal in the chart of the U.S. Dollar Index making its directional momentum now mixed bullish and bearish (it had been 100% bearish). Nevertheless, the dollar broke down from its long-term parabolic uptrend in April, and it has a lot of resistance to overcome to regain that strength. Although anything is possible (especially if Greece defaults on its debt), it seems likely this dollar rally is short-term, and the U.S. Dollar Index will probably turn back down soon and make a deeper correction. We will watch this index carefully, especially during the first two weeks of June when Greece's debt payment is due.

The dollar surge helped push gold and silver prices lower with gold dropping close to $1185 today. In my blog last Thursday I wrote: "A cycle pattern is manifesting here which usually takes the form of a steep but brief drop quickly followed by a steep rally to a new high and then a final substantial drop. The end of this week through early next week is the strongest part of the current reversal zone for gold and silver. If these metals move lower over the next three trading days and gold stays above $1190 and silver above $16, I will consider going long for what could be a strong short-term rally into the first week of June." Well, gold has dropped a bit below $1190, but silver is holding above $16 (it reached $16.68 today). This cycle pattern could be unfolding with a strong reversal now imminent; however, gold's strong plunge today along with some other bearish short-term technical signals opens up the possibility of a steeper correction and a major "washout". I will still consider going long over the next day or two if a short-term buy signal appears and gold prices can stay above $1175. On the sidelines for now.

The broad stock market plummeted today with the DOW losing nearly 200 points. There was, however, no change in directional momentum in the DOW, S&P 500 or NASDAQ so the technical trend in all three indices remains mostly bullish. The steep drop does confirm that the middle of last week was a significant reversal point for the DOW, and we could be falling into another one at the end of this week into early next. It is hard to trade such a fast moving volatile market, but if the DOW continues to fall I will look to buy late this week/early next, perhaps in the 17,600 - 17,800 area. If, instead, the DOW turns up and rallies into early next week, it could turn out to be a good spot to sell short, especially if only one or two of the three major indices (DOW, S&P 500, NASDAQ) make(s) a new high, but not all three (intermarket bearish divergence). Even if the first scenario plays out (buying a low), the subsequent rally would likely be brief (but possibly substantial) and followed by a significant correction (10% or more) from a peak in mid to late June. We will try to sell short from that peak if it happens. Still on the sidelines of this market.

Unlike the broad stock market and precious metals which have been fluctuating wildly (and somewhat unpredictably) over the last several weeks, crude oil prices have been relatively stable and have been staying (so far) within the parameters of our analysis. We are expecting a correction from a high on May 6 (at $63) to drop into the $52 - $55 range this week or next. Prices dropped close to $58 today so we seem to be getting there. Holding my short position in crude oil.

Trading Blog Thursday, May 21, 2015

5/21/2015

MARKETS UPDATE (6:00 pm EDT)

Yesterday the FOMC officially released the minutes to its April meeting which indicated that the Fed is unlikely to raise interest rates in June. This came as no surprise to most financial analysts who are now anticipating a September rate hike, and especially to those growing number of analysts who believe that the Fed will postpone the first hike into 2016. Foreign investors in the U.S. Dollar are starting to realize that the Fed could delay a rate hike for some time, and this could be the big reason for the dollar's recent breakdown. The DOW rose a bit in the afternoon on the "good news" but then closed the day flat indicating that the broad stock market has likely already factored in a delayed hike. The DOW's new high on Tuesday could be a turning point for a significant correction now as we are in a strong reversal zone. This is supported by the fact that the NASDAQ still has not made a new monthly high (intermarket bearish divergence). There is still time, however, for the DOW to push higher before correcting to the bottom of its current cycle (due any time by the end of June), and the NASDAQ is very close to a new high. If the NASDAQ can break above 5120, we may have to wait until the end of May or early June to sell short on new highs. Directional momentum is still strongly bullish in the DOW, S&P 500 and NASDAQ which supports this view of more rallying. Because the market direction is still unclear, I am remaining on the sidelines until a stronger sell signal appears, which should be soon.

In addition to being a time zone for likely market reversals, the four week period from May 18 - June 12 may also be a time of high market volatility (due to a phenomenon in financial astrology known as "Mercury retrograde" which has been statistically correlated with frequent price swings in all markets). We should therefore be on guard for sudden and unexpected price moves over the next several weeks. One is already happening in the precious metals this week. Gold made a new high on Monday ($1232) which was barely within our target range of $1230 - $1250 (or higher) and was a little early in our timing zone for a reversal; nevertheless, a sharp reversal is now unfolding. Silver prices are also reversing and falling sharply. A cycle pattern is manifesting here which usually takes the form of a steep but brief drop quickly followed by a steep rally to a new high and then a final substantial drop. The end of this week through early next week is the strongest part of the current reversal zone for gold and silver. If these metals move lower over the next three trading days and gold stays above $1190 and silver above $16, I will consider going long for what could be a strong short-term rally into the first week of June. Stay tuned. On the sidelines of gold and silver for now.

The recent short-term bounce in the U.S. Dollar Index (that I had anticipated in last Thursday's blog) may be close to ending as it approaches resistance at the 96 level. If this index starts to turn down again over the next few days (it certainly is not getting much support from a dovish Fed), it will likely coincide with reversals in gold and silver. We will therefore watch carefully that 96 line of resistance over the next few days.

ISIL's seizure of Ramadi in Iraq last week and the U.S. State Department's acknowledgement of the seriousness of this latest victory by the Islamic militant group is likely stabilizing crude oil prices this week. Prices should now be falling to at least the $52 - $55 area according to the current cycle pattern in crude. Conflicts in the Middle East are always a "wildcard' factor when trading crude oil, but I am going to maintain my short position here unless prices break clearly above $62. Note that this is a short-term trade and I will be looking to take profits should the price fall to $55 or lower over the next week or two.

Trading Blog Monday, May 18, 2015

5/18/2015

MARKETS UPDATE (6:45 pm EDT)

The DOW finally broke above its all-time high (18,288) today which negates its intermarket bearish divergence with the S&P 500 and NASDAQ (they both made new all-time highs in late April). This is a bullish signal for these markets. There is the possibility now of the DOW rallying towards the 19,000 level, but we are now entering a four week reversal period when all markets can make significant reversals. That reversal window is especially strong
May 25 - June 15 (i.e starting next week) and could turn down any rally. While it is tempting to go long now, there is still a short-term bearish divergence between the NASDAQ (which is below its April high of 5120) and the DOW and S&P 500 (which are both exceeding their April highs). Furthermore, there is now resistance for the DOW in the 18,400 area, and while it is possible for a rally to reach 19,000, a more likely target would be around 18,600. For all of these reasons, I am going to refrain from going long and will instead wait for the signs of a top to sell short. My rationale here is based on the fact that we are nearing the final peak of a major medium-term cycle in the broad stock market, and we are in a time frame (the next four weeks) when this is likely to happen. Yes, there is the possibility of a bullish surge to the final peak (even towards 19,000 in the DOW), but a smaller rally is more likely, and the corrective fall from the peak should be very significant. Likely turning points for reversals would be May 20-21, May 29 - June 1, and June 9-10. On the sidelines of the broad stock market market for now.

The situation now in gold and silver is similar to that of the broad stock market. In my blog last Thursday I wrote: "Today gold made a significant break above its April 6th high of $1224 but closed the day below (at $1222). This is a bullish sign and gold could rally higher now; however, we need to keep in mind that the next two weeks are a major reversal zone for gold. This means we should be watching for a top to sell short in that time frame. If gold can close above $1224, it may get to the $1230 - $1250 area (or even higher) before turning down." Well, today gold prices closed slightly above $1224 so we could be on our way to that $1230 - $1250 area. The end of this week, however, is an especially strong reversal period for gold (and silver), and there are also a few other short-term technical signals suggesting a significant reversal this week. I am therefore going to avoid going long now and wait for signs of a top and an imminent correction. On the sidelines of gold and silver.

The U.S. Dollar Index seems to be finding some support at the 93 level, and several short-term technical signals are suggesting a bounce here. The dollar rallied today so that bounce may be starting now. If the rally gains some legs, it could be the thing that triggers a significant correction in the precious metals. We will have to wait and see.

Crude oil continues to stay below its $62.58 high of May 6 and still appears to be headed to a low in the $52 - $55 area. This could happen over the next few weeks as we are now in a reversal zone for crude oil too. If this low is achieved (and stays above $52), we will be looking to cover our current short position (take profits) and buy as long as the overall directional momentum remains bullish. Holding my short position in crude oil for now.

Trading Blog Thursday, May 14, 2015

5/14/2015

MARKETS UPDATE (5:30 pm EDT)

After moving down for three days, the broad stock market is rallying strongly today, and the DOW is getting close to its all-time high of 18,288. As I've been stating in recent blogs, if that level is exceeded it will negate the current intermarket bearish divergence with the S&P 500 and NASDAQ (both made new all-time highs in April) and make the market more bullish. What we need to be aware of now is that the last two weeks of May through the first two weeks of June is a time period when major reversals can occur in all the markets we follow. May 25 - June 5 is an especially strong reversal period. Because of this wide time span, we could see more than one significant reversal over the next four weeks, and we will use cycle analysis to help us gauge potential tops or bottoms. The current cycle structure in the DOW suggests that a high is due over the next several weeks to be followed by a major correction. If the DOW doesn't break 18,288 soon, we could see the cycle top out any day now followed by a four to six week correction that could break below 17,000. A break above 18,288, however, would be more bullish and could possibly lead to a top in the 18,600 - 19,000 area before any significant correction. I would like to point out here that despite any short-term bullishness in equities, the longer term picture of the broad stock market is looking very "toppy", and this market is due (overdue) for a major (15% or more) correction anytime now but especially when (if) the Fed starts to raise interest rates. This is the reason I have been cautious about going long in the stock market and have been focusing more on selling short. I may take a long position in equities, but it will usually be a short-term trade. Still on the sidelines and watching that 18,288 area carefully.

The U.S. Dollar Index is breaking below the strong support at 94 and this has triggered a bearish momentum signal in its chart making directional momentum in the dollar now 100% bearish. There is still some support for the dollar down to 92, and because it is very oversold at the moment, we could still get a short-term bounce here before moving to lower levels. A bottom above 92 by the middle of next week could be the turning point for such a bounce.
Not surprisingly, the dollar's breakdown has led to a surge in gold and silver prices. Today gold made a significant break above its April 6th high of $1224 but closed the day below (at $1222). This is a bullish sign and gold could rally higher now; however, we need to keep in mind that the next two weeks are a major reversal zone for gold. This means we should be watching for a top to sell short in that time frame. If gold can close above $1224, it may get to the $1230 - $1250 area (or even higher) before turning down. Some short-term trading signals are suggesting a top for this rally as early as next week. So the question is whether to go long now for a potentially strong (short-term) rally or just wait for the expected top and sell short. I am going to wait until gold breaks clearly above $1224 (and silver above $17.50) before considering a long position in these metals. Still on the sidelines.

After a brief surge on Tuesday and Wednesday, crude oil prices are back down again today. We are currently holding a short position in crude, and ideally we want to see a low over the next two weeks in the $52 area. If prices start to break above the May 6th high of $62.58, there is a possibility of a new high rather than a low into late May (which would be another shorting opportunity). For now, I am sticking with the idea of a low and am holding my short position in crude.

Trading Blog Monday, May 11, 2015

5/11/2015

MARKETS UPDATE (4:45 pm EDT)

The broad stock market rallied strongly on Friday in response to a stronger than expected U.S. jobs report and also in response to the clear win in the UK elections by the Conservative Party (which led to Friday's surge in the London Financial Times Index). Despite the upbeat jobs data, many analysts are saying that it is coming too late to put a June interest rate hike back on the table (recall that last month's poor jobs data made a June hike seem unlikely), and most are now anticipating the first rate hike by the Fed in September (or even later). Although Friday's market surge made a new monthly high in the DOW (18,205), this index's all-time high of 18,288 still has not been broken. Thus our case of bearish intermarket divergence is still in place (the S&P 500 and NASDAQ have made new all-time highs in April). In terms of cycles, last week's low at 17,733 was a significant turning point, and this market could rally for another 2-3 weeks. If the DOW exceeds 18,288, we could see new highs into the end of the month. A more bearish scenario, however, could see the DOW unable to break above 18,288 and continuing down into the third or fourth week of this month. Directional momentum is still mixed bullish and bearish in all three stock indices so it is unclear at the moment how this will play out. The 18,288 line in the DOW is clearly the hurdle here so we will watch this carefully now to gauge our trading strategy. Still on the sidelines.

Crude oil is in the process of correcting down from a high of $62.58 on May 6. This correction could go as low as $52 so I am continuing to hold my short position here (entered on May 1). Unless the correction breaks below $52, it should be short-term, and I will be looking to cover and go long at a bottom within the next two or three weeks. Maintaining my short position in crude oil for now.

Gold and silver charts are still looking ambiguous. The current odd disparity in directional momentum between these metals (gold 100% bearish and silver 100% bullish) is persisting, but other technical signals are looking a little more bearish than bullish. The U.S. Dollar Index is predictably bouncing from strong support at 94 and may rally a bit before turning down again. This could put more downward pressure on the precious metals. To turn bullish now, gold needs to break above the $1224 high of April 6. If it can't do that soon, prices may be headed considerably lower over the next two or three months. Any break below $1143 would be very bearish for gold (and silver). In terms of timing, the next significant turning point in gold could be the middle of this week and/or the end of next week. We will watch carefully for any short-term trading opportunities until a longer term trend can be identified.. On the sidelines of the precious metals for now.

Trading Blog Thursday, May 7, 2015

5/7/2015

MARKETS UPDATE (1:30 pm EDT)

The broad stock market is pausing at 17,800 today (at the time of this writing) and taking a break from its two day fall. If the DOW fails to break below 17,700 tomorrow, we may have to wait another week or two for it to do so (assuming it doesn't break above its all-time high of 18,288 first). As I stated in yesterday's blog, any break below 17,579 would suggest the market is turning bearish. Still on the sidelines.

Despite recent weakness in the U.S. Dollar Index, gold and silver prices seem reluctant to rally this week which is not a good sign for these metals. Not much has changed in the precious metals since my blog on Tuesday. There are still a lot of mixed signals in this market now. It is possible that the price of gold is being manipulated (suppressed) now to prevent or delay a breakdown in the U.S.dollar as a strong rally in gold could trigger panic selling out of the already weak dollar. This might explain the current odd disparity in directional momentum between the two metals with silver being 100% bullish and gold 100% bearish. Out of both gold and silver for now.

In Tuesday's blog on crude oil I wrote: "In my last blog (Friday) I issued a crude trade alert and entered a short position with a stop loss on a close above $60. I am going to raise this stop loss to a close over $61.5 and try to maintain my short position for at least a few more days. There are several technical signals still pointing to an imminent correction in crude, and cycle analysis also strongly suggests a reversal this week." It looks like that correction is starting now. From an intraday high of $62.58 yesterday, crude fell to $58.64 today. My original target for this short-term correction was the $52 area, but prices may find support around $55. Either way, we will be looking to take profits on this trade soon and switch to a long position (unless prices break below $52) as the overall trend in this market is currently bullish. Holding my short position in crude oil for now.

Trading Blog Wednesday, May 6, 2015

5/6/2015

BRIEF BROAD STOCK MARKET UPDATE (5:15 pm EDT)

The broad stock market is down again today following yesterday's loss with another sharp drop The DOW lost 86 points at today's closing, but more significantly, strong bearish momentum signals appeared in the charts of the DOW, S&P 500 and NASDAQ indices. This means that directional momentum is now mixed bullish and bearish for these markets, and that puts our bullish trading strategy in jeopardy. The DOW is now close to our ideal buy spot in the 17,600 - 17,700 range. If we enter that area tomorrow or Friday, I will still consider a long position. Any break below 17,579 (the low of March 26), however, would negate the idea of going long and would suggest that the market is turning bearish with prices moving lower for up to seven more weeks (or less if the cycle ends early). I know it is frustrating to be frequently changing our trading strategy, but we have to follow the technical signals, chart patterns and cycle structures when they shift. Unfortunately, that seems to be happening a lot in today's volatile markets.
Still on the sidelines and watching the DOW carefully now for any break below 17,579.

Trading Blog Tuesday, May 5, 2015

5/5/2015

MARKETS UPDATE (3:45 pm EST)

Today the price of crude oil touched $61 before backing down a bit, and it seems to be holding above $60. In my last blog (Friday) I issued a crude trade alert and entered a short position with a stop loss on a close above $60. I am going to raise this stop loss to a close over $61.5 and try to maintain my short position for at least a few more days. There are several technical signals still pointing to an imminent correction in crude, and cycle analysis also strongly suggests a reversal this week. Weekly resistance is at $61 and the price target for this expected top is $59 - $61. This is an ideal setup for a short sell, but if prices push higher after Thursday we may have to abandon the trade (if not already stopped out). Maintaining my short position in crude with a stop loss now on a close above $61.5.

The broad stock market continues to be indecisive in its directional movement. Today was a down day with the DOW giving up 142 points. There is still time (now through Friday) for this index to drop down into our ideal bottom range of 17,600 -17,700 to go long. Our recent intermarket bearish divergence signal remains intact (the S&P 500 and NASDAQ have both made new yearly highs but the DOW has not) and supports the idea of a new low this week. The key here is the DOW's all-time high of 18,288. If the DOW continues to rally and breaches that high, we will probably have to wait at least a few more weeks for any significant correction. Overall directional momentum remains strongly bullish in all three broad stock market indices DOW, S&P 500, NASDAQ). Still on the sidelines.

The precious metals market is currently manifesting a strange mix of bullish and bearish signals. Directional momentum in gold charts is nearly 100% bearish, but it is almost 100% bullish in silver charts. Both gold and silver have been moving up and down in a defined trading range over the last four weeks around $1180 - $1220 in gold and $15.50 - $17 in silver. We were watching for a low for both metals in the current reversal zone and we may have gotten that last week in gold with Thursday and Friday's plunge to a new weekly low of $1170. Silver's low of $15.83 on Thursday, however, was not a new weekly low, and thus we have a case of intermarket divergence, which in this case is bullish. On the other hand, silver made a new weekly high yesterday and gold is a good distance away from its high of last week, so we may now also have a case of bearish intermarket divergence (unless gold can exceed last week's high of $1215). I know this is all a bit confusing, but there are a few key things to watch for now. If gold prices can rally above the April 6 high of $1224, it will indicate that gold is turning bullish. Timewise (according to cycles), gold could still make a new low this week and start a bullish rally from that point; however, if prices continue lower into next week it puts a damper on the bullish view and we will have to consider the possibility of the cycle turning bearish with prices going lower for at least another seven weeks. Still on the sidelines of gold and silver.

The U.S. Dollar Index seems to be stabilizing just above strong support at 94. Directional momentum in the dollar chart is now mixed bullish and bearish so it could go either way here. A bounce up from the 94 support is not out of the question, and such a rally could push down precious metal prices. We must keep in mind, however, that the dollar has now broken down from a medium-term parabolic uptrend (an upwardly sloping curved line that supported a continuously rising dollar from July 2014 through March 2015), and this is very bearish. My bias at the moment is that any bounce now in the dollar will not get very far before turning down again as it seems like the dollar's correction could go lower. Such a scenario would be bullish for gold and silver. The key level to watch now is 94.

Trading Blog Friday, May 1, 2015

5/1/2015

CRUDE OIL TRADE ALERT (1:00 pm EDT)

Crude oil prices are currently pushing against several strong resistance factors centered around the $60 level, and we are now in a timing window for a likely short-term reversal in this market (from now through early next week). This is presenting a good opportunity for a short-term trade in crude as prices could correct down to the $52 area before resuming their rally. I want to emphasize here that this is a very short-term trade since crude oil is likely starting a new long-term cycle (from a mid-March bottom) and should be bullish for at least several more months. Our overall trading strategy now is bullish, i.e. we are looking to buy the bottom of any short-term corrections. Nevertheless, this imminent correction may be worth shorting from the top (now) with the idea of taking profits and going long at the bottom (hopefully in the $52 area). By setting a stop loss for the trade on a close above $60 our risk is minimal (the current price is $58.50). Conservative traders may want to avoid this trade and just wait for the bottom of any correction to go long. Selling crude short today with a stop loss on a close above $60.

Archives

LEGAL and DISCLAIMER