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Trading Blog Tuesday, May 30, 2017

5/30/2017

MARKETS UPDATE (6:15 pm EDT)

We are now in a new strong reversal zone for equities that will be in effect through the middle of next week (it peaks near the end of this week and early next week). The rally in the broad stock market from a sub-cycle low on May 18 (in the DOW, S&P 500 and NASDAQ) should be coming to a peak in this reversal zone, and we should now be looking for a spot to take profits in our long positions as a significant downward correction in this cycle could be imminent (possibly 10% or more). This rally has been a lackluster one. Wall Street's "Trumphoria" seems to be waning and possibly morphing into "Trumphobia" as a media-driven frenzy questioning the stability of the new president and his administration continues unabated. Equity markets do not like uncertainty, and they may chose to show their displeasure in this current reversal zone. The DOW still has not exceeded its all-time high of 21,169 from March 1. If it can't do that by the end of the week that may be a good signal to pull out of our long positions (and maybe even sell short). Even if the DOW does make a new high this week (or early next), we will probably look to step aside the broad stock market as the high would be in a strong reversal zone. If equities do start to turn down, the depth of the correction will tell us if the broad stock market's general trend is going to turn bearish or if it will stay bullish with a rebound and another strong rally into the summer. Holding my long position in the broad stock market for now but preparing to sell these positions this week or early next week.

Gold and silver prices were down a bit today, but the cycle and technical picture for both metals is starting to look more bullish. In last Thursday's blog I wrote:

"There is a reversal zone centered around June 2 for all markets and a specific one for the precious metals centered around June 7. If prices now fall into one of those dates, it will be a good buy spot (especially if we get a bullish divergence signal...). If prices instead rise into early June (I think this is more likely) then we would likely unload and take profits in our long position in gold and maybe even sell short..."

This still applies as we approach those dates. An ideal corrective level to buy would be around $1240 - $1250 in gold (we don't want to see it below $1220) and around $16.50 in silver. We are still holding long positions in gold but are out of silver. If prices push higher into the end of the week, we will consider taking profits and unloading our gold trade and possibly selling short (both gold and silver). If we miss the short sell we will wait to buy both metals at those corrective levels mentioned above. Holding my long gold position and out of silver for now.

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

"The U.S. Dollar Index is finding support at 97, but can it start a new rally from there? Maybe, but directional momentum in this chart is still nearly 100% bearish. Also, there is a major reversal zone for currencies coming up in the first week of June. If the dollar is going to make a major bottom and reverse, it is more likely to happen then, not now."

The dollar's rally got to 97.77 early today, but then fell abruptly and closed the day at 97.24. The rally may be over, although it still has time to push higher into the June 2 reversal zone which is especially strong for currencies. That would be a good set-up for a strong correction down. If instead the greenback moves lower into the end of this week or early next week we could see a significant low and the pivot point for another rally. A rising dollar would push gold and silver prices down. A falling dollar would favor the precious metals.

As with the precious metals, crude oil could reverse near June 2 or near June 7. Crude appears to be taking a sub-cycle correction from its $52 high on May 25 (July contract chart) and could easily complete that correction this week or next. We will watch for this bottom ideally below last week's low of $48.18 but above $46 as a possible spot to buy. On the sidelines of crude oil.

Trading Blog Thursday, May 25, 2017

5/25/2017

MARKETS UPDATE (5:15 pm EDT)

Today the DOW finally made a new weekly and monthly high which negates its intermarket bearish divergence over the last week or two against the S&P 500 and NASDAQ (which had been consistently making new highs). The DOW still needs to exceed its all-time high from March 1 (21,169) to be fully bullish, but it is close to doing that. Directional momentum for all three indices is now nearly 100% (the DOW and S&P 500 were mixed bearish and bullish briefly last week). All of this bodes well for our preferred scenario of more rallying of the broad stock market into at least the first week of June. We are now out of the recent reversal zone for equities so we don't expect any major reversals until the next one (centered around June 2). Holding my long position in the broad stock market.

The precious metals market is a bit tricky to call right now, and several analysts that I follow seem to disagree on whether this market is turning bullish or bearish. From a cycles perspective, it appears that both gold and silver started new medium-term cycles on May 9. If so, then both metals should be at least short-term bullish. The other possibility is that either gold or silver (or both) are still completing older (overdue) cycles, in which case we could see prices drop sharply below those lows from May 9, probably by the first week of June. (In previous blogs I had mentioned the possibility of this happening with one metal making a new low and the other staying above its May 9th low for a case of intermarket bullish divergence and a good spot to buy). There is a reversal zone centered around June 2 for all markets and a specific one for the precious metals centered around June 7. If prices now fall into one of those dates, it will be a good buy spot (especially if we get a bullish divergence signal as stated above). If prices instead rise into early June (I think this is more likely) then we would likely unload and take profits in our long position in gold and maybe even sell short depending on how high prices get (we would like to see gold break and close above $1308 to remain bullish). We are still holding a long position in gold. Let's raise our stop loss for this trade on a close below $1,240 (unless that happens near June 2 or 7). We are out of silver but will look to buy again on any correction that stays above $16.07.

As usual, the movement of the U.S. dollar will likely influence the direction of the precious metals. The U.S. Dollar Index is finding support at 97, but can it start a new rally from there? Maybe, but directional momentum in this chart is still nearly 100% bearish. Also, there is a major reversal zone for currencies coming up in the first week of June. If the dollar is going to make a major bottom and reverse, it is more likely to happen then, not now. If the dollar does rally into that reversal date, it may be setting up for another major fall and a deeper correction. Because the dollar usually moves in a direction opposite the price of gold and silver, we will watch this index carefully over the next week or two.

Crude oil prices reached $51.88 (July contract chart) yesterday (the last day of the recent reversal zone) then plunged dramatically today. This looks like the start of a sub-cycle correction, and if so it could bottom as early as next week or possibly the following week. As long as prices stay above $44.13, we will be looking to buy the bottom of this correction. On the sidelines of crude oil for now.

Trading Blog Monday (night), May 22, 2017

5/22/2017

MARKETS UPDATE (10:30 pm EDT)

The DOW, S&P 500, and NASDAQ all plunged last week to new lows for the month on Thursday then sharply reversed back up in the center of a minor (weak) reversal zone. Today (Monday) these indices continued up with the DOW gaining nearly 90 points. Thursday's low was likely a sub-cycle bottom for all three indices, and if so, the broad stock market should now rally at least into the next reversal zone (which is a strong one) in the first week of June. If this rally turns south and starts moving below last Thursday's lows, however, we may have to abandon that bullish view, especially if the DOW breaks below 20,379 or the S&P 500 breaks below 2,322 (the start of their new medium-term cycles). Still holding my long position in the broad stock market.

Gold and especially silver rallied strongly today. Last week we sold our silver long position because of the possibility of silver making a new low and forming its medium-term cycle bottom this week or next with bullish divergence to gold. Today's strong rally is negating that scenario, and it looks like May 9 was the start of a new medium-term cycle in silver (as it appears to be for gold). We are still in a weak reversal zone through Wednesday so prices could reverse and turn down here for a small correction. If that happens, we will look to buy back silver as long as it stays above $16.07. We also want to see gold stay above $1230, and especially above $1214. Still holding my long position in gold but out of silver for now.

The U.S. Dollar Index continues to fall as it broke below 97 today. The first week of June is a strong reversal zone for currencies so it looks like the greenback could move lower into that time before it finds significant support. A bearish dollar would support more rallying of the precious metals.

Crude oil prices have been pushing higher, and today they touched $51.06 (June contract chart) before closing at $50.73. This new high for the month is confirming the idea that the low of $43.76 on May 5 was the start of a new medium-term cycle (which is bullish). We should now look to buy the bottom of any correction that holds above that low. We could see that correction soon as we are still in a reversal zone (through Wednesday) and this market is rallying to a new high. On the sidelines of crude for now.

Trading Blog Thursday, May 18, 2017

5/18/2017

SILVER TRADE ALERT and MARKETS UPDATE (2:00 pm EDT)

Silver and gold prices have rallied strongly this week, but both could now be making a top in this week's reversal zone. It looks like both metals could have started new medium-term cycles on May 9, but what bothers me is the lack of bullish divergence (they both made new lows) which is often present at significant bottoms. Silver is reversing sharply today and its directional momentum is still nearly 100% bearish (gold is mixed bullish and bearish). For these reasons I think it is possible for silver to make a new low or maybe a double bottom over the next two weeks while gold remains above its May 9 low. This would give us intermarket bullish divergence and a stronger signal to buy. We are still above our entry point for silver on May 8 so we can sell that position today with a small profit. We will look to buy back silver if we get the bullish divergence set-up mentioned above. Unloading (selling) my long position in silver today. Still holding my long position in gold.

As I've mentioned in recent blogs, the U.S. Dollar Index chart is looking very bearish. The dollar plunged this week and broke below another important support level; however, it may now be finding at least temporary support just above the 97 area. The greenback's rally today turned down gold and silver prices, but the severely bearish chart for the dollar suggests this rally may be short-lived.

At the time of time of this writing (1:30 pm EDT) the broad stock market seems to have halted yesterday's dramatic plunge (caused by a news frenzy questioning the integrity and stability of the Trump presidency) so we will need to wait and see if this panic was just a "flash in the pan" or if Wall Street sentiment is seriously turning against Trump. We also need to be aware of the fact that an equity sell-off in May is not unusual ("sell in May and go away"), but the strength of the sell-off is our main concern here. We were expecting a reversal, but we can ride out any correction that stays above 20,379 in the DOW and 2,322 in the S&P 500. Holding my long position in the broad stock market.

Crude oil prices have not backed down much from Monday's high of $49.66 (June contract chart) and may be aiming for another high in this week's reversal zone (centered on Friday). As I mentioned in Tuesday's blog, we may be switching to a more bullish trading strategy for crude and could be looking to buy any sub-cycle correction now that stays above $44 (ideally in the $46 area). Still on the sidelines of crude oil.

Trading Blog Wednesday, May 17, 2017

5/17/2017

BRIEF UPDATE ON THE BROAD STOCK MARKET (8:00 pm EDT)

In yesterday's blog I wrote:

" It would not be unusual, therefore, to see this market take another correction from a top in this new reversal zone (especially if the DOW cannot clear that high - 21,169 - soon).

We entered this new reversal zone yesterday (its center point is Friday) so today's plunge in equities is a bit early. The DOW's recent sub-cycle top was on May 9 so we will watch for a bottom in this new reversal period (now through next Wednesday). Because the S&P 500 and NASDAQ made new all-time highs yesterday, they could make both a top and a bottom in this new reversal zone. Of course, today's sudden and substantial drop puts us on alert for a more serious correction. As I mentioned yesterday, we don't want to see the DOW or S&P 500 drop below the lows that started their new cycles (20,379 in the DOW and 2,322 in the S&P 500). That is the main line in the sand for our long positions. Holding my long position in the broad stock market for now.

Trading Blog Tuesday (late night), May 16, 2017

5/16/2017

MARKETS UPDATE (11:30 pm EDT)

We are out of last week's reversal zone for the broad stock market and are now entering a new one which is centered on this Friday. Both of these reversal zones are minor and not that strong, but they can still be turning points for this market. A small dip in equities followed from highs on May 9 last week, but that dip was short-lived. The DOW, S&P 500 and NASDAQ are now rising again into this new reversal point. Not only that, the S&P 500 and NASDAQ are making new all-time highs while the DOW (so far) is staying below its all-time high (21,169 on March 1). This creates an intermarket bearish divergence signal until the DOW gets above that high (it is close). It would not be unusual, therefore, to see this market take another correction from a top in this new reversal zone (especially if the DOW cannot clear that high soon). Nevertheless, it is very early in the new medium-term cycles for these three indices (they started in March-April) so it would be highly unlikely to see a serious correction right now. As long as the DOW and S&P 500 stay above the lows that started this new cycle (20,379 in the DOW and 2,322 in the S&P 500) we should see new highs at least into early summer. Holding my long position in the broad stock market with a stop loss based on the DOW closing below 21,379 and the S&P 500 closing below 2,322).

It appears that gold and silver may have formed new medium-term cycle bottoms last Tuesday (May 9th) in last week's reversal zone. Both metals have risen sharply from those lows. Prices still need to go higher, however, before we can confirm the start of a new cycle, but it is looking good so far for our long positions in both metals. This week's reversal point (Friday) could also affect the precious metals so there is still a possibility of prices turning down again and making new lows into the first week of June, but even if that happens we won't worry too much as long as gold stays above $1195 and silver above $15.65. In fact, if either gold or silver break below last week's low without the other doing so, it would be a strong bullish divergence signal (especially in the first week of June) and would be another good spot to buy. Holding my long positions in gold and silver.

In last Thursday's blog on the U.S. Dollar Index I wrote:

"The dollar's rally this week has been quite strong, but it may be backing off now as it encounters strong resistance in the 100 area. Directional momentum in this market is currently nearly 100% bearish... The dollar's strong rally was triggered by the euro's sharp selloff following Macron's election... For this reason, it may not last because the euro's post election selloff should be brief as pro-EU Macron is (theoretically, at least) good for the euro. If the dollar backs down, we should see gold and silver prices rise."

This appears to be happening as the dollar is falling strongly this week and precious metal prices surge. The U.S. Dollar Index is now making a new yearly low, and its chart is looking quite bearish. Macron's election may have saved the euro, but it is dealing a hard blow to the U.S. greenback.

I may be revising my analysis of crude oil's chart. In earlier blogs I labeled the March 22 low ($47.58 June contract chart) as the start of a new medium-term cycle in crude. It is now looking like the deeper low of May 5 at $43.76 may instead be the medium-term cycle bottom. The difference is important because if the cycle started on March 22, prices have already fallen below that point, and the general trend would be turning bearish. If we have a newer cycle starting on May 5, however, then this market could be quite bullish now. Chart analysis is currently supporting this more bullish view of crude. There was a reversal point specifically for crude last Friday and into Monday. Monday's price surge to $49.66 may be the top of the reversal so let's see how far prices come down over the next several days. If May 5 was the start of a new cycle (bullish), prices should stay above $44, and we may want to buy the bottom of this correction. Still out of crude oil.

Trading Blog Thursday, May 11, 2107

5/11/2017

MARKETS UPDATE (5:15 pm EDT)

In Monday's blog I wrote about the broad stock market's lackluster reaction to Macron's win in the French presidential election:

"We may have a case of "buy the rumor, sell the news" here where the markets poured most of their enthusiasm for Macron into a strong rally after his lead over Le Pen was announced two weeks ago...so we can hope that "sell the news" is over and will not continue into this week's trading. Even if we see more selling (we are at the center of a minor reversal zone so it is possible), we won't worry too much as long as the DOW and S&P 500 remain above our stop loss points (20,379 in the DOW and 2,322 in the S&P 500)."

It appears that "sell the news" is not over and/or equities are forming a top (May 9th) in the center of our current (minor) reversal zone. We will watch this carefully, but so far this correction doesn't seem to have much downward momentum, and we are still comfortably above those stop loss points for the DOW and S&P 500. The end of next week is the center of another minor reversal zone so if equities continue to edge down, we may see a bottom and reversal back up then. Holding my long position in the broad stock market.

May 9th (Tuesday) could also be the bottom and reversal point for gold and silver prices. Both metals made new lows that day and prices are now rising. I am a little cautious here because it would have been better to see intermarket bullish divergence with these bottoms (i.e. one metal making a new weekly low but not the other), although silver's low was below its March low while gold's low was not. Today through Monday is also a time period where we could see a short-term but sharp reversal in gold (and possibly silver). Because prices are rising, we could see another sharp turn down. If that does happen, we could get that bullish divergence signal next week, which would be fine as long as we don't break below our stop loss points for our current long positions ($1195 in gold and $15.65 in silver). The bottom line here (pun intended) is that we are close to a medium-term cycle bottom in both gold and silver and are anticipating a turn up any time now. If it didn't happen Tuesday, we may see it in the second half of next week. Holding my long position in gold and silver for now.

As usual, the U.S. Dollar Index may have something to say about gold and silver prices. The dollar's rally this week has been quite strong, but it may be backing off now as it encounters strong resistance in the 100 area. Directional momentum in this market is currently nearly 100% bearish, but there are a few technical signals suggesting this rally could go higher. The dollar's strong rally was triggered by the euro's sharp selloff following Macron's election (following a very strong pre-election rally - "buy the rumor, sell the news"). For this reason, it may not last because the euro's post election selloff should be brief as pro-EU Macron is (theoretically, at least) good for the euro. If the dollar backs down, we should see gold and silver prices rise, but if the greenback continues its rally, the precious metals could go lower.

It looks like crude oil prices made a sub-cycle bottom last Friday and they are now rallying strongly into a reversal zone specifically for crude that lasts through next Thursday. The general trend of this market recently turned bearish so we should now be looking to sell short the top of any significant short-term rally. We will watch for a sell signal over the next several days. Still on the sidelines of crude oil.

Trading Blog Monday, May 8, 2017

5/8/2017

MARKETS UPDATE and Comment on French Election Results (5:30 pm EDT)

The reaction of equity markets today to Sunday's French presidential election win by centrist Emmanuel Macron was unremarkable; in fact, there was a brief 20 point sell-off in the DOW in early morning trading before the market recovered and closed with a small 5 point gain. We may have a case of "buy the rumor, sell the news" here where the markets poured most of their enthusiasm for Macron into a strong rally after his lead over Le Pen was announced two weeks ago. After that rally, equity markets leveled off as they waited for the final election results. Of course, I'm sure that Wall Street is still happy with Macron (and at least a temporary stability in the EU), so we can hope that "sell the news" is over and will not continue into this week's trading. Even if we see more selling (we are at the center of a minor reversal zone so it is possible), we won't worry too much as long as the DOW and S&P 500 remain above our stop loss points (20,379 in the DOW and 2,322 in the S&P 500). Holding my long position in the broad stock market for now.

The adage "buy the rumor, sell the news" was even more apparent in euro currency. After the announcement of Macron's lead two weeks ago, the euro commenced a strong rally that peaked with the election yesterday, but the euro was down strongly today. The U.S. dollar, of course, reversed this pattern ("sell the rumor, buy the news") and declined into the election but was up strongly today. Does this mean that the U.S. dollar is reversing its downtrend pattern? Not necessarily. The U.S. Dollar Index has a lot of resistance to overcome in the 99-100 area, and directional momentum in the dollar is still nearly 100% bearish. As I mentioned in my last blog, any close below 98.50 could be the start of a more serious correction in the dollar.

Today's dollar rally dampened gold and silver prices a bit, but we are still well above our stop loss levels ($1195 in gold and $15.65 in silver) for our long positions entered today. This week's reversal zone extends into Thursday so there is still time for prices to edge lower before reversing back up. There is support for gold in the $1220 area and again around $1200. Silver has support around $16.20 and $16. Thursday-Friday could be a major turning point for gold so if prices edge lower into the end of the week, we will watch for a reversal then. Holding my long position in gold and silver,

Trading Blog Sunday (late night), May 7, 2017

5/7/2017

MARKETS UPDATE and GOLD and SiLVER TRADE ALERT (11:30 pm EDT)

The results of the French presidential election are in, and the centrist Emmanuel Macron won in a sweeping victory over far-right nationalist Marine Le Pen. Most media and polls had been predicting Macron's win over the last two weeks, though some had feared a surprise Le Pen victory and the possible negative repercussions in financial markets due to Le Pen's anti-EU platform. With those fears gone, equity markets could (should) rally now unless the market has already factored in Macron's victory over the last two weeks of media and poll endorsement. We are holding a long position in the broad stock market. There seems to be no reason at the moment to abandon our bullish stance.

Macron's victory should give a boost to the euro, but it will likely weaken the U.S. dollar. As I've mentioned in recent blogs, the U.S. Dollar Index chart is starting to look quite bearish. If the dollar's Feb.1 low at 99.50 was the start of a new medium-term cycle (as it seems to be), then the overall trend could be turning bearish because the dollar has already broken below that low. If the dollar starts closing below 98.50, it could be in trouble.

A falling dollar could be just the thing to kick precious metal prices up from their current lows. It is late in the medium-term cycles of both gold and silver so these lows forming now could easily be the final cycle bottoms from which a strong rally could start. We are now in the center of a minor reversal zone (for all of the markets we follow), both gold and silver are in the ideal price target range for their cycle bottoms, and we have a case of intermarket bullish divergence as last week silver plunged significantly below its March low while gold stayed well above its low from March. Macron's victory (and a falling dollar) are also favoring the idea of a cycle bottom and a reversal in the precious metals. A long position in both metals may be desirable now because of a favorable risk/reward ratio for the trade. We don't want to see silver break below the start of its cycle which was $15.65 back in Dec. 2016 because that would mean that the trend is turning bearish. It is close to that level now (last Thursday it hit $16.18) so we can set a stop loss for a long position in silver on a close below $15.65. Gold also started its cycle in Dec. 2016 at $1124. We definitely don't want to see that level broken, but that is too far below the current price to set as a comfortable stop loss point. A more recent sub-cycle low in gold on March 10 at $1195 offers significant support and is much closer to gold's current price to make it a desirable stop loss level for a gold long position. I should mention here that there is a stronger reversal zone specifically for precious metals coming up in early June so there is a possibility of gold and silver's cycles bottoming then. If prices move lower into that time frame, however, the trend could turn bearish, and we may not want to buy. I am going to enter a long position in both metals now (for Monday's market open) with a stop loss based on both metals closing below these stop loss points ($1195 in gold and $15.65 in silver). Note: very low risk conservative traders may just wish to trade gold here as silver is very volatile and may open tomorrow significantly above the suggested stop loss. Traders may also wait for the market to open and then decide if the prices are acceptable to buy.

Crude oil prices may have made a sub-cycle bottom last Friday, and if so they could rally sharply into this week's major reversal zone specifically for crude (the center point is this Friday). Because crude's overall trend seems to be bearish, we will watch for this as a possible top to sell short. Should prices plunge lower this week, we will instead watch for a reversal from a new low. Still on the sidelines of crude oil.

Trading Blog Wednesday, May 3, 2017

5/3/2017

MARKETS UPDATE and COMMENT ON THE FED MEETING (4:30 pm EDT)

The Fed released its policy statement at 2 pm EDT today after a two day meeting. To no one's surprise, interest rates were left unchanged. The statement delivered a "stay the course" message saying that interest rate hikes would continue to be gradual (two more are expected this year) but that "...the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data." In other words, if economic conditions start to sour, they will likely slow down or stop hiking interest rates.

The DOW fell in early trading today but then climbed back up near the Fed's 2 pm statement release, backed down a bit after the release then rose again to close the day with a small 7 point gain. The S&P 500 and NASDAQ closed with small losses. Overall, it seems like the markets are comfortable with the Fed statement, but the DOW and S&P 500 still have not cracked their all-time highs. We are now entering a minor reversal zone for equities which will last through most of next week. If equities move lower now, this reversal could coincide with a sub-cycle bottom. This would be bullish as long as that bottom doesn't break below our stop loss points (20,379 in the DOW and 2,322 in the S&P 500). Holding my long position in the broad stock market.

It seems like gold finally decided to chase silver's steep fall as the price of both metals plunged strongly today and directional momentum in gold charts changed from 100% bullish to mixed bullish and bearish (silver is 100% bearish). Both gold and silver are now in the price range for a medium-term cycle bottom, and cycle timing indicates this bottom is due soon so we will watch for this as a possible buy spot; however, we don't want to see prices go too low. If silver falls below $15.65 and gold falls below $1,195, the longer-term trend could be turning bearish. Still on the sidelines of gold and silver.

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