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Trading Blog Wednesday, May 30, 2018

5/30/2018

MARKETS UPDATE (5:30 pm EST)

In last Thursday's blog on the broad stock market I wrote:

"We are getting close to our target for a sub-cycle bottom in the DOW in the 24,400 - 24,500 area. A good target for the S&P 500 would be 2,650 - 2,700...A low in those target areas would be a buy spot ..."

Yesterday's new weekly lows in the DOW and S&P 500 are meeting those targets, and the NASDAQ did not make a new weekly low so we have an intermarket bullish divergence signal as well. Should we buy here? No, not yet. We need to observe that while the DOW may have started a new medium-term cycle on April 2 (and thus could be bullish), both the S&P 500 and NASDAQ are older cycles nearing their tops to be followed by a steep corrective fall from those tops soon. The S&P 500 may have already topped out with its high of 2743 on May 22. The NASDAQ is making a new weekly high today but the S&P 500 and DOW are not so we also have a bearish divergence signal (until the S&P 500 and DOW exceed last week's highs). It is still possible for the S&P 500 and NASDAQ to fall further into their final cycle bottoms and maybe even pull the DOW down with them. I know I'm giving a confusing and conflicted picture here, but that's what the market is presenting us. If today's rally gains some legs and can push the DOW and S&P 500 to new weekly highs this week or next, we will have a more bullish picture moving into the summer. Right now, however, a bearish scenario is still possible. We will stay on the sidelines of the broad stock market for now.

The precious metals market is also currently presenting a short-term indecisive picture for traders (longer-term we are still bullish). We are now at the center of a reversal zone for gold and silver (it ends early next week). Gold made a new weekly high last Friday early in the reversal zone and prices have been falling so that could be a turning point. Silver also made a new high then and is falling. Neither one has made a new weekly low yet. If one metal can do that without the other this week or next, that would be a good buy signal (bullish divergence). We know now that gold is now ending (or has just ended) an older medium-term cycle so we are looking to go long. If last week's low of $1282 was not the cycle bottom, we could see a lower low this week or early next week and a good buy spot. Silver's current medium-term cycle may have started with its low of $16.13 on March 20, but it also could have started a new cycle on May 1 at $16.07 (yes, I know, more ambiguity here). If prices can stay above $16.07 it will confirm May 1 as the new cycle and that would be bullish. We will remain on the sidelines of both metals until this picture becomes more clear, but we are still looking to go long in both metals soon.

Crude oil prices are rallying today in sync with today's rally in equities. Crude's medium-term cycle is old and nearing completion, and its May 22 high at $72.90 (July contract chart) could have been the top of the cycle. If so, today's rally won't get very far before reversing down again to make a final cycle low sometime over the next several weeks. If prices do push higher, we could see a new top above $72.90 soon which could be an opportunity to sell short (especially if it happens in a reversal zone). Please see my update on crude oil from May 28. On the sidelines of this market.

Trading Blog Monday (late night), May 28, 2018

5/28/2018

CRUDE OIL UPDATE (11:00 pm EST)

As I stated on Friday, crude oil's medium-term cycle could have peaked last week on Tuesday at $72.90 (July contract chart). If that was the final peak, then prices would likely fall for 2-5 weeks from that top to make a final cycle bottom sometime in June. But we note that prices are now falling steeply into the center of the current reversal zone for crude (which ends this Friday). There is strong support in the $66 area (where prices are now), and if crude's trend is to remain bullish, we might see just a sub-cycle bottom here and more rallying to exceed last week's top. There is another support line around $63 - $64 and below that at $58 - $59. If prices break below $63, that would be a bearish signal, and we would probably wait for the final bottom to buy in June. A sharp rally from here, however, could set up another shorting opportunity. We will have to wait and see how prices move this week. Still on the sidelines of crude.

Trading Blog Friday, May 25, 2018

5/25/2018

UPDATE and CORRECTION on CRUDE OIL (2:00 pm EST)

I have to apologize for an error in my analysis of crude oil in yesterday's blog. I try to use the most recent contract chart for my analysis of crude, and I had been using the June contract chart. That chart had not been updated yesterday so I was doing my analysis unaware of Wednesday's down day. This wouldn't have made much difference anyway because crude decided to peak one day before entering our reversal zone (May 23 - June 1). These reversal zone boundary dates are not set in stone, and there is a certain margin of error on both sides of the reversal's center point. The center point has the highest probability of reversal, and the probability decreases before and after that point. We usually allow three days on each side of the center point, but this does not mean it is impossible to have a reversal at four (or even more) days from the center; it is just less likely.

The bottom line here is that it looks like the peak of the current medium-term cycle in crude happened on Tuesday, and prices are now falling to the final cycle bottom. It is too late to sell short so we will now wait for the bottom of the cycle and an opportunity to buy. I will update this analysis over the week-end with a likely target area and timing for the bottom.

Trading Blog Thursday, May 24, 2018

5/24/2018

MARKETS UPDATE (4:30 pm EST)

We are about to enter another significant reversal zone for the broad stock market (May 25 - June 5), and it is still not clear if equities will fall or rise into it. This market rallied a bit early in the week but now may be falling again. We are getting close to our target for a sub-cycle bottom in the DOW in the 24,400 - 24,500 area. A good target for the S&P 500 would be 2,650 - 2,700. We are close to those areas now and could easily enter them as we head into next week's reversal. That seems to be the path unfolding, but there is still time for this market to rally and make new highs into next week so we need to be aware of that possibility as well. A low in those target areas would be a buy spot whereas new highs (especially with bullish divergence) would be another opportunity to sell short. Longer term, we can say that if April 2 was the start of a new medium-term cycle in the DOW then we are still on track for possible new all-time highs this summer to be followed by a very severe correction Still on the sidelines of the broad stock market.

Gold made a new monthly low on Monday at $1282 and prices are rallying from there. That low could have been the end of the old medium-term cycle and the start of a new one, but it didn't happen in a reversal zone, and we are now entering a reversal zone for precious metals (May 24 - June 2). If prices continue their rally into next week, there is a good chance we will see a top and some sort of pullback. We are looking to buy the bottom of this new cycle, but let's wait and see what kind of pullback we get (if any) next week. Silver is also rallying so it too could see a pullback next week. Silver may have started a new medium-term cycle with its $16.06 low on May 1. If so, it is bullish now and any correction shouldn't dip below that mark. A modest dip in silver next week would give us a good buy spot (especially if gold makes a new low and silver does not). We will watch for this. Still on the sidelines of gold and silver but looking to go long soon.

The U.S. Dollar Index, which has been rallying strongly since mid-April, is now encountering a strong resistance area around 94. We are at the end of a reversal zone for currencies (May 16 - 25), but this could carry over next week into our other reversal zones. A sub-cycle top and correction could be imminent. We will watch this carefully as the dollar's behavior will influence price movements in the precious metals.

Crude oil prices are edging up to new highs as we approach the center of a reversal zone specifically relevant to crude (May 23 - June 1). We are late in the medium-term cycle of crude so we should be watching for a cycle top to be followed by a significant correction down to the final cycle bottom. The price range for that top is wide and could be as low as $70 (we are there) or as high as $78. We will wait for a signal to sell short tomorrow or next week somewhere between those prices. On the sidelines of crude oil for now.

Trading Blog Sunday (late night), May 20, 2018

5/20/2018

UPDATE ON THE BROAD STOCK MARKET and PRECIOUS METALS (11:30 pm EST)

We stepped to the sidelines of the broad stock market last Wednesday with the idea of waiting to see if it would rally into the next reversal zone coming up May 25 - June 5 (likely) or instead fall a bit more into that time and hit our targets for a sub-cycle corrective bottom (or even fall a lot more to an older cycle bottom). Equities remained mostly flat Thursday and Friday so we still have no clue as to which scenario will unfold. If the DOW pushes down into the 24,400 - 24,500 area for a bottom early this week, then rallies strongly into the following week, that would be a good set-up for a top to sell short. There is still a possibility of this market falling steeply into this next reversal zone, possibly as low as 23,300 (that would be a buy spot). This week should tell us which scenario is unfolding and how to trade. On the sidelines for now.

Gold and silver are proving very difficult to trade right now. We were stopped out of our long positions last week when a surge in the U.S. Dollar Index triggered a price plunge in both metals. That plunge verified that gold did not start a new medium-term cycle on May 1 (as we had speculated) and is instead completing the final bottom of an older cycle. The bad news is we took a loss last week by going long in this market prematurely. The good news is that we are now more certain of an imminent cycle bottom in gold and can go long again soon with more self-confidence. Unlike gold, silver's plunge did not break below its May 1 low so that could still be the start of a new medium-term cycle in silver. If so, silver will be bullish and rally now. Because gold made a new low but silver did not, we also have a case of bullish divergence which could lift both metals from here. If silver breaks below its May 1 low ($16.06) this week, however, that would negate the bullish divergence signal, and both silver and gold would likely move lower into the next reversal zone for precious metals (May 24 - June 2).

So how do we trade these metals from here? If silver breaks below $16.06 this week then both gold and silver will likely make lows into the May 24 - June 2 reversal zone and we can look to buy both metals again then. If silver stays above $16.06 and rallies into the reversal zone, we would probably wait for a small correction (that stays above $16.06) and then buy. Gold rallying into the end of this week (or the following week) would also be a set-up for a small corrective dip and a possible buying opportunity. I will be watching both metals carefully and will post appropriate trade alerts if and when they arise. Out of gold and silver for now.

Trading Blog Wednesday, May 16, 2018

5/16/2018

BROAD STOCK MARKET TRADE ALERT and MARKETS UPDATE (2:30 pm EST)

Today is the last day of a strong reversal zone for the broad stock market, but there is another coming up May 25 - June 5. The peak and turning point for the current reversal zone was Monday (May 14) when the DOW. S&P 500, and NASDAQ all made new highs (note no bearish divergence signal). The dip down so far has been minor and does not qualify as a significant sub-cycle correction. A minimal sub-cycle correction would go to at least 24,280 in the DOW and 2,660 in the S&P 500. Assuming this market continues to fall, our original plan was to unload our short positions and take a small profit at those levels; however, equities seem to be bullish again today. There is a good chance this market could rally into the next reversal zone to form another top before a significant correction happens. COT (Commitment of Traders) charts for the S&P 500 have turned bullish recently, and some other chart formations are also making a case for this short-term bullish view. For all these reasons, I am going to cover (unload) my short position in the broad stock market today. We are almost exactly where we entered this position on April 18 so we can cover our trade with little or no loss here. If the market does correct down to those minimal levels mentioned above and stabilizes, we will look to go long. If instead it rallies into the next reversal zone (May 25 - June 5), we will consider selling short again.

Even though we were prematurely stopped out of our precious metals trade yesterday, we may be looking to get back in once gold's cycle bottoms and as long as silver's cycle remains bullish. The cycle patterns in both these metals should become more clear over the next few weeks, and this will tell us how to trade. The medium and long-term picture for gold and silver continues to look very bullish. Out of both gold and silver for now.

Crude oil seems to be taking its cues from the broad stock market and will likely follow any rally in equities. President Trump's recent pulling out of the Iran nuclear deal is also a factor buoying oil prices now. The next reversal zone for crude oil is May 23 - June 1. We could easily see prices edge higher to a new top in that time period. On the sidelines of crude oil for now.

Trading Blog Tuesday, May 15, 2018

5/15/2018

GOLD and SILVER TRADE ALERT and BROAD STOCK MARKET UPDATE (2:30 pm EST)

Yesterday I made some tricky trading calls in the broad stock market and in precious metals. One was good, but unfortunately, the other was not.

We bought gold and silver yesterday as several technical signals were suggesting that new medium-term cycles had started in both metals on May 1. While that still may be true for silver, gold is most likely completing the end of an older cycle with a final bottom below $1300. Even if silver started a new cycle on May 1, if its price falls below the low from that day ($16.06) that would mean the cycle is turning bearish with significantly lower prices ahead. Both metal prices are falling steeply today and both have now broken below last week's lows so our stop loss points have been triggered. If not already out, long positions in both metals should be unloaded (sold) now. We are taking a loss of about 2% on each here, but there is a risk of further significant downside if we hold.

Fortunately, today's gains from our short position in the broad stock market should offset some of our loss in the precious metals. Even though yesterday's rally in equities was strong enough to negate any bearish divergence signal for the week, the rally made new highs in a strong reversal zone. I suspected a turn down was imminent and decided to hold my short position. Today the market has turned down strongly, and it looks like we could be starting a multi-day corrective dip. If this correction gets close to 24,100 in the DOW and 2,640 in the S&P 500, we will consider covering our short positions and going long. There is a small chance this correction could go much deeper, but that is less likely now that it appears a new cycle started on April 2. Holding my short position in the broad stock market for now.

Trading Blog Monday, May 14, 2018

5/14/2018

GOLD and SILVER TRADE ALERT and BROAD STOCK MARKET UPDATE (3:15 pm EST)

Gold and silver prices are dropping lower today and giving us a good opportunity to go long in both metals. What we can do here is set our stop losses on both gold and silver breaking below their lows from last week. That would be $1304 in gold and $16.32 in silver (as always, these are "spot" prices). If only one metal goes below its low and not the other over the next few days, we may stay long as that would be a bullish divergence signal in the current reversal zone (which ends on Thursday). Going long in both gold and silver today.

The broad stock market rallied early today but is falling this afternoon. That rally had all three indices making new weekly highs so will have no bearish divergence signal this week. Nevertheless, we are still in a reversal zone (through Wednesday) so a modest correction could be starting now. I am going to hold my short position a bit longer here with the idea of covering it at a better price if the market moves lower.

Trading Blog Sunday (late night), May 13, 2018

5/13/2018

MARKETS UPDATE (11:30 pm EST)

The DOW did not close above its April high (24,879) on Friday, but it did close in the upper half of that day's range which is a little more bullish than bearish. As I mentioned in last week's blogs, there is a good chance that the DOW is forming an unusual "triple bottom" pattern with the lows of Feb. 9, April 2, and May 3. If so, it means a new medium-term cycle started on April 2 and this market will now be bullish into the summer. The S&P 500 and NASDAQ would most likely also be bullish now. There is still a chance that an older cycle in the DOW is completing its final low and the DOW will fall below its Feb. 9 low of 23,360, but the bullish "triple bottom" pattern appears more likely at the moment.

Even if the bullish scenario is correct, we are now in the center of a reversal zone so a top and at least a sub-cycle correction could happen starting early this week. If we do indeed have a "triple bottom" young cycle, this correction will be small and completed within a week. If the bearish older cycle scenario unfolds, the correction would be more significant and could last several weeks. We are favoring the bullish cycle, and a good target for a modest correction in this cycle would be around 24,100 in the DOW and 2,640 in the S&P 500. If the market corrects to these levels and stabilizes, we will look to buy.

I am still holding my short position in the broad stock market. Some traders may have been stopped out of their short positions last week as the S&P 500 and DOW both broke above their mid-April highs. Those traders may stay on the sidelines and wait to buy at the bottom of any modest correction as stated above. Traders still holding short positions can look to take profits and cover those positions if the market corrects to those targets stated above and then reverse position and buy. A good sign for a top this week would be a case of intermarket bearish divergence where one or two, but not all three market indices (DOW, S&P 500, NASDAQ) make a new weekly high. If all three indices rally strongly early in the week and make new highs, we will likely cover our short positions as it could mean that a cycle top will come in the next reversal zone (May 25 - June 5).

Gold and silver are tricky to call right now. Both metals rallied strongly last week and made new weekly highs into Thursday (the center of a reversal zone) and then pulled back into Friday. If we see prices edge a bit lower early next week, we may look to buy as it appears both metals could have started new medium-term cycles on March 1. If true, this would make them very bullish. On the sidelines of gold and silver for now.

Crude oil's high at $71.89 (June contract chart) last Thursday in the center of a reversal zone for crude could have been a significant top, but prices could edge higher as this reversal zone extends into Wednesday. If crude does move higher early this week, we will look to sell short.

Trading Blog Friday, May 11, 2018

5/11/2018

MARKETS UPDATE (2:00 pm EST)

I am going to be traveling later this afternoon and will not be able to post a blog. This update should be sufficient until I post another sometime during the weekend.

The DOW broke above its April high (24,879) by just 10 points earlier this morning but then started to fall steeply. At the time of this writing (2:00 pm EST) it is back down near its opening price around 24,775. Our bearish divergence signal has been negated, but we are still at the center of a strong reversal zone so some sort of pullback can happen.
If the market closes significantly down from its morning highs, that will also be a bearish signal. For these reasons, I am going to hold my short position for now. Any traders that were stopped out should remain on the sidelines. If this market rallies back up over the next two hours and the DOW looks like it will close the week above that 24,879 high then traders can cover (unload) their short positions. Otherwise, I am going to wait until the weekend to make any trading decisions.

Gold and silver also negated a bearish divergence set-up as gold made a new weekly high this morning (silver did this yesterday). Nevertheless, like the broad stock market, both metals seem to be closing in the lower part of today's range which is a bearish sign, and it is happening in the center of a reversal zone. Some sort of correction could follow. Let's stay on the sidelines of gold and silver for now.

Crude oil prices are down a bit after hitting a new high of $71.89 yesterday (June 2018 contract chart). That high may have been a top, but the current reversal zone extends into next Wednesday so there is still time for crude to push higher into our ideal target range of $72 - $75. We may sell short on Sunday or early next week. Staying on the sidelines for now.

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