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Trading Blog Tuesday (early AM), May 31, 2016

5/31/2016

MARKETS UPDATE (2:00 am EDT)

Yesterday was Memorial Day in the U.S. and equity markets were closed.

We are now at the center of a strong reversal zone for equities, but the window for this reversal can extend into this Friday (and possibly even into June 8). The broad stock market has been rising so we should be looking for a top to sell short for a significant correction to the bottom of the current medium-term cycle, especially in the S&P 500. (The DOW's cycle may have bottomed already on May 19 at 17,331.) A good sell signal to see this week would be a case of intermarket bearish divergence between the DOW and S&P 500 where one takes out its yearly high, but not both Those highs would be 18,167 in the DOW and 2,111 in the S&P 500. That could happen early this week as the S&P 500 is now close to its high (it closed last week at 2,099). If both indices take out their highs, we could see more rallying and possibly a top forming closer to June 3 - 8. This Friday's jobs report may be a decisive factor for these markets as the Fed has recently been talking up the idea of raising interest rates soon. Good employment figures would support this idea and could trigger a selloff in equities. On the other hand, disappointing job numbers might ease investor's fears of an imminent rate hike and encourage buying. On the sidelines of the broad stock market for now.

Gold and silver prices both fell steeply last week with gold breaking below an important support at $1,210 (which may be a bearish sign). This week's reversal zone is also applicable to the precious metals market, but we have to be careful here because there are signs that these metals could push lower. If the Fed keeps talking up an interest rate hike, and this week's jobs data supports that, then the U.S. Dollar Index could push higher and put more downward pressure on gold and silver prices. The cycle patterns for these metals are again looking very ambiguous with several possibilities for a bullish or bearish interpretation (i.e. not very helpful at the moment). If gold or silver (but not both) breaks below its low from last week (intermarket bullish divergence), then we may have a good signal to buy in this reversal zone. If they both make new lows, however, we may want to hold off buying as there is a possibility of prices falling into late June before reaching a bottom. Stay tuned as next week may clarify our options for trading this market. Out of gold and silver for now.

We entered a short position in crude oil last week with the hope that Thursday's $50.21 price was the top of a medium-term cycle that will now begin a significant correction to at least the $43 -$44 level. The current reversal zone is very significant for crude, and because it could extend into the end of the week, we might see crude prices edge higher this week before reversing. We will try and maintain a stop loss for our trade at $51, but I may allow for a higher price if it looks like the reversal is imminent. Holding my short position in crude oil.

Trading Blog Friday, May 27, 2016

5/27/2016

CRUDE OIL TRADE ALERT (3:15 pm EDT)

In last Thursday's blog on crude oil I wrote:

"Crude oil prices made a new yearly high on Wednesday at $48.95 (June contract chart). That may have been a significant top, and if so we could see a sharp drop into next week's reversal zone; however, it is a little too far away from our target of $50 (or higher) so we could still see prices edge up into next week. If they do get closer to $50 next week, we will look to sell short."

Yesterday crude prices reached $50.21 (June contract chart) and today they are backing down a bit. There is strong resistance at the $50 - $51 level, and we are now in the dead center of a reversal zone for crude. It looks like a good time to sell this market short for at least a subcycle correction that could take prices back down to the $42 area.
I am going to enter a short position in crude today with a stop loss around $51. The current reversal zone could extend into late next week so there is a possibility of prices still edging higher, but the cycle structure is suggesting a corrective bottom next week, and that points to yesterday as the top and likely turning point.

The broad stock market is pushing higher into the center of this current reversal zone while precious metal prices continue to fall so these markets are also ripe for turnarounds (gold and silver up and equities down). I am going to hold off trading these markets until next week (the reversal zone could extend into next Friday). I will comment more on these markets over the week-end.

Trading Blog Tuesday, May 24, 2016

5/24/2016

BRIEF MARKETS UPDATE (3:30 pm EDT)

The negation of our bullish divergence signal in the broad stock market last week encouraged me to think that equities would fall into this week's reversal zone. While they still can, today's strong rally introduces the possibility that last week's lows in the DOW and S&P 500 may have been subcycle bottoms, and we could see another rally into the middle or end of this reversal zone (May 28 - June 3). This would mean that the reversal date would correspond to a top, not a bottom, and we would look to sell short any new highs in both these indices. We would especially want to pay close attention to the S&P 500 if it approaches and challenges its strong resistance at the 2,100 level. It is early in the week, however, and this volatile market could still turn back down. Remaining on the sidelines for now.

Gold and silver seem to be on target for new lows into this week's reversal zone. Both metals are now nearing their weekly support levels (around $1,230 in gold and $16 in silver) so we should be looking for signs of a bottom to buy over the next few days. If gold prices break below $1,200, however, we may refrain from buying as that could indicate a more serious correction is underway that could continue for several more weeks. On the sidelines of gold and silver but looking to buy.

Trading Blog Thursday, May 19, 2016

5/19/2016

MARKETS UPDATE (5:30 pm EDT)

In last Sunday's blog I wrote:

"On Friday the DOW dropped below 17,580 and made a new weekly low, but the S&P 500 did not break below its previous week's low of 2,039 (it came close) so we have a potential case of intermarket bullish divergence in effect (until the S&P 500 breaches 2,039). Other technical signals are bearish, however, so if that 2,039 support breaks we could see the broad stock market tumble some more into the end of this month (or possibly longer)."

That 2,039 level in the S&P 500 broke today so our bullish divergence signal is negated, and it looks like these markets are headed lower into next week's reversal zone (which could start as early as next Tuesday). Equity market movements had been indecisive until the minutes of the last Federal Reserve meeting were released yesterday and showed that most Fed members are ready to lift interest rates in June. This made Wall Street nervous and pushed equity prices down. We will have to wait and see if this is just a temporary reaction. Cycle patterns in the broad stock market allow for a steep drop now, but next week's reversal zone suggests that a correction won't get very far. In either case our strategy will be to look for a bottom to buy. As I've mentioned before, I think the Fed (and others) would like to keep stock markets buoyant into the U.S. presidential election so we may not see a normal market correction until late this year or early 2017. On the sidelines of the broad stock market for now.

While the prospect of an early interest rate hike frightened equity markets, it gave a boost to the U.S. Dollar Index which had already been rallying strongly from a bottom on May 2 at the critical support level of 93. The dollar surge forced an indecisive gold and silver market to finally make a move. In Sunday's blog I wrote:

"Gold and silver charts also continue to give us mixed signals. Directional momentum in both metals is now strongly bullish as are other technical indicators, but the COT (Commitment of Traders) charts still show the Commercial positions (smart money) to be strongly bearish. There are some technical signals suggesting a strong price move next week, but it is not clear whether it will be up or down."

Well, it looks like that move is going to be down. Both metals are now making new lows for the month and could be headed lower into next week's reversal zone. We will probably be looking to buy sometime next week as the longer-term trend for gold and silver still looks bullish. The depth of any correction now will tell us if we need to temper that bullish view. On the sidelines of gold and silver.

Crude oil prices made a new yearly high on Wednesday at $48.95 (June contract chart). That may have been a significant top, and if so we could see a sharp drop into next week's reversal zone; however, it is a little too far away from our target of $50 (or higher) so we could still see prices edge up into next week. If they do get closer to $50 next week, we will look to sell short. If instead prices fall into next week then we will look to buy a bottom as next week's reversal zone is especially relevant to crude. Out of crude for now.

Trading Blog Sunday (night), May 15, 2016

5/15/2016

BRIEF MARKETS UPDATE (11:15 pm EDT)

On Friday the DOW dropped below 17,580 and made a new weekly low, but the S&P 500 did not break below its previous week's low of 2,039 (it came close) so we have a potential case of intermarket bullish divergence in effect (until the S&P 500 breaches 2,039). Other technical signals are bearish, however, so if that 2,039 support breaks we could see the broad stock market tumble some more into the end of this month (or possibly longer). I would prefer to see a rally into that time frame for an ideal spot to sell short, but a correction that will take us to the bottom of the current medium-term cycle may have already started (especially in the DOW). The cycle pattern continues to be ambiguous but may become more clear this week. On the sidelines for now.

Gold and silver charts also continue to give us mixed signals. Directional momentum in both metals is now strongly bullish as are other technical indicators, but the COT (Commitment of Traders) charts still show the Commercial positions (smart money) to be strongly bearish. There are some technical signals suggesting a strong price move next week, but it is not clear whether it will be up or down. It may be best to refrain from trading this market until we get closer to the next strong reversal zone around May 28. Volatility should be lower then, and we can be more confident of a significant turning point. It seems like the overall trend of the precious metals is turning bullish so if we see prices fall into that reversal zone, it will probably be a good spot to buy. On the sidelines of gold and silver for now.

Trading Blog Friday, May 13, 2016

5/13/2016

MARKETS UPDATE (2:30 pm EDT)

The broad stock market rallied in the first half of this week, but the rally didn't get very far and the market is now turning down and erasing most of that gain. Last Friday was near the center point of our recent reversal zone (which extended into early this week) so that was likely the turning point for the reversal. The next strong reversal zone centers around May 28 (plus or minus a few days on either side). If the DOW and S&P 500 break below last Friday's lows (17,580 in the DOW and 2,039 in the S&P 500) then we could see them fall for another week or two into that next reversal zone. If that happens we will look to buy. If last Friday's lows hold, however, we could instead see more rallying into the end of the month, and we would be back on track to sell short from a top (which may or may not make a new high for the year). We should keep in mind that the Federal Reserve (and others) most likely want to keep the stock markets buoyant into the presidential election later this year; however, this week's lackluster rally is suggesting that these markets need to take some sort of correction soon. Still on the sidelines of the broad stock market..

Gold and silver prices have been mostly down this week. This market is still giving us mixed signals, but it may be setting up for a strong rally shortly. As I mentioned in my last blog, the longer-term picture for these metals seems to be turning bullish. I will analyze this more carefully over the week-end. Still out of both gold and silver.

From a low of $43 (June contract chart) on Tuesday, crude oil prices reversed up and made a new high yesterday at $47. Because we are looking to buy near $41 or sell near $50, we are still on the sidelines of this market. Directional momentum in this market is currently 100% bullish so we may see prices edge up towards that $50 mark over the next two weeks into another reversal zone at the end of the month. Yesterday's high was technically still within this week's reversal zone, however, so it is also possible for prices to reverse again and fall into the end of the month towards our $41 target. Technical data currently supports the idea of more rallying so we will wait on the sidelines for a price closer to $50 and look to sell short if technical signals support a correction.

Trading Blog Sunday (night), May 8, 2016

5/8/2016

MARKETS UPDATE and BROAD STOCK MARKET TRADE ALERT (10:30 pm EDT)

The U.S. jobs data released on Friday was disappointing. Wall St. had been expecting around 203,000 new jobs, but Labor Department statistics showed non-farm payrolls increased by only 160,000 jobs. This step-down in job growth increases the chances that the Fed will hold back the next interest rate hike so it was not surprising to see the broad stock market rally a bit on Friday. Cycle analysis shows that it is late in the medium-term cycles of the DOW, S&P 500 and NASDAQ so all are due to bottom fairly soon. The DOW's cycle may have bottomed on Friday, but it is a little too early for a cycle bottom in the the S&P 500 or NASDAQ. Because this week puts us at the center of a potential reversal zone, I am going to take profits and cover my short position in the broad stock market now. We could easily see a brief (1-3 week) rally here that may or may not make new highs in these indices before they turn down again and make their final cycle bottoms (although that bottom may have happened last Friday in the DOW, but not likely in the other two indices). If we do get a rally now, we will look to re-short the top of that rally to ride a correction down to the final cycle lows (at least for the S&P 500 and NASDAQ). Taking profits and covering (unloading) my short position in the broad stock market now.

Gold and silver are still giving us mixed signals and are very tricky to call right now. The disappointing employment figures on Friday fueled speculation that the Fed will delay an interest rate hike which caused the U.S. Dollar Index to plunge briefly in the morning (but it immediately snapped back up). The precious metals responded with a rally, but this may have been just a "knee-jerk" reaction to the jobs data. Gold and silver prices could continue to fall this week and give us a good spot to go long or they may rally to new weekly highs and present us with a shorting opportunity. A significant move (up or down) could start late this week and continue into the following week so we will be on the alert for trade signals one way or the other. The longer-term picture for gold and silver seems to be turning bullish, but there could be a severe short-term correction before the bullish trend can assert itself so we need to be careful in our trading of these metals. Out of both gold and silver for now.

Like the precious metals, crude oil could prices could go either way this week. If they rally close to $50, we will consider selling short. If they fall close to $41, a long position may be appropriate. On the sidelines of crude oil.

Trading Blog Thursday, May 5, 2016

5/5/2016

MARKETS UPDATE (6:00 pm EDT)

The broad stock market has been falling this week, and we are entering the center of another reversal zone early next week so we should be watching for a bottom here. Equities were mostly flat today as investors were likely indecisive ahead of tomorrow's jobs report. We will wait and see how the market responds to the employment data. It may be a trigger for a reversal, but if not we could see equities move lower into early next week before turning back up. I would consider taking profits in our short position now, but this correction has been modest so far and technically has the potential to move considerably lower. On the other hand, directional momentum remains strongly bullish for the broad stock market, and we can assume the Fed wants to keep equities buoyant into the upcoming presidential election so perhaps we shouldn't expect a normal correction. Holding my short position in the broad stock market but looking to cover this position soon.

Gold and silver prices are also falling into next week's reversal zone but, as with the broad stock market, the correction hasn't been very deep. The COT (Commitment of Traders) charts are still very bearish for these precious metals which is suggesting a deeper correction. On the other hand, cycle analysis suggests that both gold and silver are "breaking out", and directional momentum in both metals is now strongly bullish. These mixed signals are keeping us on the trading sidelines for now. Let's wait and see if prices can go lower into next week before considering a long position. On the sidelines of both gold and silver for now.

In Monday's blog on the U.S. dollar I wrote:

"What happens to gold and silver now will depend on the U.S. dollar. Today the U.S. Dollar Index closed below important support at 93 which means that it is in danger of melting down. There is some support down to 92.5, and it is resting at that level now. Market volatility is high right now so this breakdown could also be a "fake-out". We have to see the dollar reverse back up soon to avert the danger of a more serious collapse. We will be watching this situation carefully."

On Tuesday, the U.S. Dollar Index plunged briefly to 91.88 but then snapped back up and closed above 92. It rallied today and closed above 93 so the breakdown could indeed be a "fake-out". If so, the dollar may be getting ready to start another strong rally, and this would likely push precious metal prices lower.

Crude oil prices are down this week and appear to be sinking into next week's reversal zone (which is especially relevant to crude); however, prices surged briefly today and came close to last week's high ($46.78 in June contract chart) before falling again and closing below $45. This makes me think that crude could still make a new high in the first half of next week closer to our target near $50 before making a significant correction. That would be an ideal spot to sell short if it happens next week. If prices continue to fall, we will instead look for a bottom to buy as the longer-term crude cycle seem to be turning bullish. Out of crude oil for now.

Trading Blog Monday (night), May 2, 2016

5/2/2016

MARKETS UPDATE (11:30 pm EDT)

After moving down late last week, equities were up a bit today, but all three indices (DOW, S&P 500 and NASDAQ) remain below their April highs. The next reversal zone for this market is early next week (May 9-10) so it's possible these indices could fall sharply into that time and then reverse back up. It's also possible for them to bounce this week and make another high before reversing down into their cycle lows. We will hold on to our short position in the broad stock market for now with a stop loss on both the DOW and S&P 500 exceeding their April 20 highs (18,168 in the DOW and 2,111 in the S&P 500). It may be OK if one exceeds its high but not the other as this would be a case of intermarket bearish divergence, especially if it happens early next week.

We covered our short position in gold last week just in time to avoid a price surge triggered by the Bank of Japan's announcement to not raise interest rates (at least for now). As I wrote in last Thursday's blog:

"The Bank of Japan surprised everyone today by leaving its monetary policy steady (most analysts had been expecting an aggressive loosening of policy) and this caused the U.S. dollar to take a plunge. Note that the U.S. Dollar Index is now near critical support around 93. If this drop is just a temporary knee-jerk reaction to the BOJ's announcement today, it may bounce from here, but if the dollar starts breaking below 93 it could be in big trouble."

That dollar plunge kicked gold and silver prices up and confirmed that both gold and silver started new medium-term cycles in late March/early April and could be turning very bullish. "Could" is the key word here because the precious metals market will likely be very volatile over the next three or four weeks, and what now looks like a breakout could turn out to be a "fake-out". The COT (Commitment of Traders) charts for gold and silver still show Commercial traders (smart money) to be very bearish on these metals, and because the Commercials are rarely wrong we need to be careful about getting too bullish. A significant correction could still be imminent. That might happen this week, but if prices move higher into early next week, we could see a reversal then. We will remain on the sidelines for now and watch how precious metal prices move into next week.

What happens to gold and silver now will depend on the U.S. dollar. Today the U.S. Dollar Index closed below important support at 93 which means that it is in danger of melting down. There is some support down to 92.5, and it is resting at that level now. Market volatility is high right now so this breakdown could also be a "fake-out". We have to see the dollar reverse back up soon to avert the danger of a more serious collapse. We will be watching this situation carefully.

Crude oil made a new high last week at $46.78 (June contract chart), but the target for the current rally is closer to $50 so prices could edge higher this week. If they do go higher into Friday or early next week, I may consider entering a short position for a short-term subcycle correction as next week's reversal zone is especially relevant to crude. Longer-term traders may wish to wait and buy the bottom of any correction because the long-term cycle in crude seems to be turning bullish. Currently out of crude oil.

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