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Trading Blog Thursday, May 30, 2019

5/30/2019

UPDATE on CRUDE OIL, PRECIOUS METALS and the U.S. DOLLAR INDEX (4:00 pm EDST)

In Monday's blog on crude oil I wrote:

"...the best fit for the cycle would be to see a final bottom in the next reversal zone specifically for crude, and that would be anytime between June 7 and June 24. An ideal target price range for a bottom now would be around $52 - $56. If we see support this week around $57 then we might get an early bottom, but ideally we would like to see a lower price into that June reversal period."

Prices had been holding above $58, but today they plummeted to $56.33. We are getting close to our target range, and that June reversal period starts on Friday of next week. Let's see if prices can go lower by then. Still on the sidelines of crude oil and waiting to buy.

Also in Monday's blog on precious metals I wrote:

"If gold and silver did start new cycles recently then gold could quickly rise to break its recent high of $1304 and silver could break above $15.64 by the first week of June. If that doesn't happen, we could easily see these metals making new lows into the middle of June."

Well, both metals had been falling this week, but today both gold and silver are rallying strongly. Prices still have time to break those highs (next week is the first week of June), but they could also fall lower into that next reversal zone for precious metals (June 12 - 20) to form a significant cycle bottom to buy. (That is our preferred scenario.) Things could go either way so we remain on the sidelines for now.

The U.S. Dollar Index made a significant bottom at 97.02 on May 13 right in the middle of a reversal zone specifically for currencies (May 7 - 16). The rally from there has been strong, but it is now encountering a strong resistance line around 98.20. If this resistance holds and turns the dollar back down, it could kick start a rally in the precious metals. But if the greenback "breaks out" above this resistance then we could see gold and silver prices push lower. We will watch this situation carefully.

Trading Blog (#2) Wednesday, May 29, 2019

5/29/2019

UPDATE ON THE BROAD STOCK MARKET (6:00 pm EDST)

Today's plunge in the broad stock market is reflecting ongoing fears of U.S./China "trade wars". Adding to these jitters was a public statement by Robert Mueller essentially saying that his investigation of President Trump did not prove that he didn't commit a crime. This is firing up the Democrat's determination to pursue impeachment and practically guarantees more divisiveness and fighting in Congress into next year's election. Wall Street never likes political instability.

Unfortunately, we were stopped out of our just acquired long position with a small loss as all three market indices (DOW, S&P 500, and NASDAQ) broke to new lows (with the DOW and S&P 500 well below their May 13 lows). This means that all three indices are most likely moving to the final bottoms of older medium-term cycles (i.e. new cycles did not start on May 13). These older medium-term cycles are due to bottom shortly (over the next several weeks) so we now look to our next reversal zones for a likely final bottom. There is a rather weak reversal zone for equities this week and next (May 29 - June 5). We could see a bottom there, but there is a much stronger (and wider) reversal period coming up June 7 - 27 (with likely pivot points June 14 and June 24). I am favoring a bottom somewhere in that time period. A good target range for a bottom in the DOW would now be around 24,200 - 25,000 (today we touched the upper part of this range). For the S&P 500 that range could be 2,650 - 2,750. We will now watch for a bottom in these ranges in one of the reversal zones just mentioned. As long as any bottom stays within these ranges, we will again look to go long as we are still anticipating another strong rally into the summer. If these indices move significantly below these ranges, however, we may have to abandon our bullish view as we could be seeing the start of a severe collapse in the broad stock market.

Trading Blog Wednesday, May 29, 2019

5/29/2019

BROAD STOCK MARKET TRADE ALERT (11:00 pm EDST)

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

"What we don't want to see this week is the NASDAQ making a new low AND both the DOW and S&P 500 breaking their May 13 lows. That would be a very bearish sign and could mean a serious washout into June to significantly lower levels in all three indices...What we can do is enter a long position now in either the DOW and/or S&P 500 (if you are trading index funds) with a stop loss based on the DOW and S&P 500 both breaking their May 13 lows (25,222 and 2,801) along with a new weekly low in the NASDAQ.."

All of this is happening this morning so we should now be out of this trade. If not already out, sell all long positions in the broad stock market.

Trading Blog Tuesday, May 28, 2019

5/28/2019

BRIEF COMMENT ON CHINA, IRAN, the BROAD STOCK MARKET and CRUDE OIL PRICES (2:00 pm EDST)

Two major current geopolitical situations have the potential to strongly affect the financial markets. These would be the ongoing U.S./China "trade wars", and increasing tensions between the U.S. and Iran.

Clearly, Wall Street is worried over the Trump administration's trade war with China, and this is likely suppressing a strong rally in equities at the moment. Because we are long now, we are hoping these worries will subside or that Mr.Trump will perhaps surprise everyone with a compromise (he is known for his unpredictable changes of mind). That said, increasing U.S./China tensions could easily turn the markets down into the possible "washout" I described in yesterday's blog. We need to be aware of this now and watch our stop loss points diligently.

Tensions in the Middle East are always a potential "wild card" factor affecting the price of crude oil. Last week 1,500 U.S. troops were sent to the Middle East, and the White House is blaming Iran for recent tanker bombings as well as a rocket attack in Iraq. We are anticipating a significant cycle low in crude oil anytime now (but preferably in mid-June) and then a significant rally into the summer. Needless to say, an exacerbation of tensions between the U.S.and Iran could be the trigger that kicks off this rally. We will be watching this situation carefully.

Trading Blog Monday (late night), May 27, 2019

5/26/2019

BROAD STOCK MARKET TRADE ALERT and MARKETS UPDATE (11:30 pm EDST)

There is still a very strong possibility that the DOW and S&P 500 started new medium-term cycles from their May 13 lows (at 25,222 and 2,801, respectively). Those lows held when the broad stock market took a strong dive last Thursday. The NASDAQ's May 13 low of 7,627, however, was broken which means it could still be forming the bottom of an older cycle (i.e. it didn't start a new one on May 13). That bottom may have happened last Thursday at 7,585, but it might push lower this week (it is due any time now). Because the NASDAQ did break to a new low last week and the DOW and S&P 500 did not, we now have a strong case of intermarket bullish divergence. All three indices could be starting new medium-term cycles, which would make them very bullish. Or the NASDAQ could push a bit lower while the DOW and/or the S&P 500 hold above their May 13 lows. Either way, we should be looking to go long now in this market to ride a new cycle rally into the summer. What we don't want to see next week is the NASDAQ making a new low AND both the DOW and S&P 500 breaking their May 13 lows. That would be a very bearish sign and could mean a serious washout into June to significantly lower levels in all three indices.

We actually have a very good trade set-up here to go long with a close stop loss beneath our entry point. What we can do is enter a long position now in either the DOW and/or S&P 500 (if you are trading index funds) with a stop loss based on the DOW and S&P 500 both breaking their May 13 lows (25,222 and 2,801) along with a new weekly low in the NASDAQ. I am going to place a trade for Tuesday's market open to go long in the broad stock market (markets are closed today in the U.S. for Memorial Day).

Gold and silver prices pushed up a bit in the second half of last week, but the bearish warnings I described in Wednesday's blog still apply. If gold and silver did start new cycles recently then gold could quickly rise to break its recent high of $1304 and silver could break above $15.64 by the first week of June. If that doesn't happen, we could easily see these metals making new lows into the middle of June. Let's stay on the sidelines of this market for now.

In Wednesday's blog on crude oil I wrote:

"If the $60 level breaks and this week closes below there it means that May 5 did not start a new cycle and we might have to wait for the final cycle bottom (of an older cycle) probably in the second week of June."

On Thursday crude dropped to $58 and on Friday it got down to $57.50 (July contract chart). Friday may have been the final bottom to this medium-term cycle (but it wasn't in a reversal zone) or we may see a final low this week. But the best fit for the cycle would be to see a final bottom in the next reversal zone specifically for crude, and that would be anytime between June 7 and June 24. An ideal target price range for a bottom now would be around $52 - $56. If we see support this week around $57 then we might get an early bottom, but ideally we would like to see a lower price into that June reversal period. Still on the sidelines of crude and waiting to buy soon.

Trading Blog Wednesday, May 22, 2019

5/22/2019

MARKETS UPDATE (4:30 pm EDST)

Today is the last day of our current reversal zone (May 15 - 22) and none of the broad stock market indices (DOW, S&P 500, NASDAQ) are making new lows below their deep lows from last week. That means this reversal likely correlates with the highs from May 16 and the steep corrective dip that followed. So where does the market go from here? Well, as long as those lows from last week aren't breached, they could represent the start of a new medium-term cycle (which would be very bullish). But this market also seems reluctant to rally strongly so these indices might still push lower to form their final (older) cycle bottoms in June (bearish). If these indices can close this week above last week's highs, it would support the bullish scenario (new cycles). There is currently a resistance area for the DOW at 26,000 - 26,131 and for the S&P 500 at 2,900 - 2,910. If Friday closes above those areas, that would also strongly suggest new medium-term cycles started with those May 13 lows. If that turns out to be the case, we will watch for any minor corrective dip to buy for a strong rally into the summer. Otherwise, we will wait for a final corrective bottom to buy sometime in June. Still on the sidelines of the broad stock market.

We are today at the end of a reversal zone for precious metals too (May 15 - 22) and both metals appear to be bottoming with gold still holding above its low of $1265 from April 23. Yes, this looks like it could be a good set-up to buy, but there are several bearish short-term signals right now that make me reluctant to do so (COT- commitment of traders- charts do not look that good, gold miner index ETFs- GDX, GDXJ- are 100% bearish, the gold/silver mining company index XAU is 100% bearish). We are also about to enter the month of June which is traditionally a bad time for gold prices. Let's stay on the sidelines of gold and silver for now. If these metals don't bottom now, we will look to buy a deeper bottom probably in mid to late June.

In Sunday's blog on crude oil I wrote:

"Crude oil's low at $60.04 on May 5 (June contract chart) may well have been the start of a new medium-term cycle, but its weak rally from there is calling this into question (new cycles usually start off very bullish). Prices are now rising into the current reversal zone (May 15 -22) so we could see them back down from a high between now and this Wednesday. If they do go lower and hold above that $60.04 low, we will look to buy. But if that low breaks, we may have to wait until June for the final cycle bottom."

The high was on Sunday and prices have been falling sharply this week. Today they plunged down to $61.03 (July contract chart). There is a support line this week at $61. Let's see if that support is breached tomorrow. If it holds, we may have a good spot to go long as we could be seeing a bullish "double-bottom" to the May 5 low of $60. If the $60 level breaks and this week closes below there it means that May 5 did not start a new cycle and we might have to wait for the final cycle bottom (of an older cycle) probably in the second week of June. On the sidelines but waiting to buy the cycle bottom soon (maybe this week).

Trading Blog Sunday, May 19, 2019

5/19/2019

MARKETS UPDATE (5:30 pm EDST)

All three major broad stock market indices (DOW, S&P 500, NASDAQ) made deep, significant lows last Monday (25,222, 2,801, and 7,627, respectively). That may have been the final medium-term cycle bottom(s) for any one of them (or possibly all three). After those lows, the market rallied strongly into a possible top on Thursday (the start of a new reversal zone - May 15-22) and then turned sharply down on Friday. We could see this correction continue into this week. If any of those lows on Monday were cycle bottoms then the correction shouldn't break below those levels. If one or two (but not all three) of those lows break (especially early in the week), that would give us a bullish divergence signal and a good spot to buy. We don't want to see all three lows breaking, however, as that would be a bearish sign. Once the cycle lows are in (last week or possibly this week) we will want to be long as we are anticipating the start of a new cycle and another strong rally into the summer. On the sidelines for now.

Both gold and silver prices fell steeply last week. Silver made a new monthly low while gold held above its April low low so we are seeing intermarket bulish divergence here. This is also happening in the center of a reversal zone. If gold can stay above its April 23 low of $1265 through the first half of this week (and thus maintain the bullish divergence signal) then we may look to go long in both metals. But I am not so sure this will happen. There are quite a few short-term bearish signals right now suggesting gold could push lower. If it breaks bellow $1265 then prices could be down for several more weeks before we see a cycle bottom. Silver could also be making a cycle bottom now (with gold), but if gold breaks that $1265 low, silver will likely move lower, and we may not see a final cycle bottom until mid-June. So the key here is whether or not gold stays above $1265 next week. On the sidelines for now and still waiting to buy the final medium-term cycle bottom in both metals.

Crude oil's low at $60.04 on May 5 (June contract chart) may well have been the start of a new medium-term cycle, but its weak rally from there is calling this into question (new cycles usually start off very bullish). Prices are now rising into the current reversal zone (May 15 -22) so we could see them back down from a high between now and this Wednesday. If they do go lower and hold above that $60.04 low, we will look to buy. But if that low breaks, we may have to wait until June for the final cycle bottom. Still on the sidelines and waiting for the final medium-term cycle bottom to buy. Once that bottom is in we expect another strong rally into the summer.

Trading Blog Wednesday, May 15, 2019

5/15/2019

MARKETS UPDATE (2:30 pm EDST)

With this mid-week update (Wednesday) we are now entering another reversal zone (May 15 -22) which is relevant to all markets, but is especially applicable to precious metals and the broad stock market. Unfortunately, there is no clear directional pattern in any of the markets right now to suggest a top or bottom is imminent. The ongoing U.S.- China "trade war" has been giving Wall Street a bit of a roller coaster ride and is surely contributing to trader indecisiveness. We can't control Trump's trade war, but we can look at technical and cycle patterns in our charts to pinpoint likely turning points in these markets.

The broad stock market plunged dramatically on Monday to new monthly lows in all three major indices (DOW, S&P 500 and NASDAQ). Was this the final medium-term cycle low we've been waiting for? It's possible, but Monday was not in a reversal zone. It would be much better to see the final bottom in our new reversal zone (i.e. between now and next Wednesday). We also did not get a bullish divergence signal because all three indices made new lows. The two day bounce from Monday's lows could be just a "relief rally" before the market resumes its plunge. Lower lows early next week (perhaps with a bullish divergence signal) would be the ideal set-up to buy so let's watch for that. If instead this market pushes higher into the reversal zone, we would also expect a reversal from a top either this week or early next week. In that case, we could see a final bottom in early to mid-June. We will stay on the sidelines for now until we can identify the medium-term cycle bottom with more certainty.

Gold made a new weekly high on Monday while silver stayed well below last week's highs so we now have a case of bearish divergence (until silver exceeds $14.95). Both metals could turn down now and make new lows in the current reversal zone (by next Wednesday). As with the broad stock market, that would probably be a good a good buy spot. Even if prices push higher into the end of the week, the reversal zone suggests they will turn down again. Let's stay on the sidelines of this market for now.

The U.S. Dollar Index had been falling steeply since late April, but it has been rising sharply from a low near 97 on Monday. That low was in the center of a reversal zone specifically for currencies (May 7 - 16) so it's possible this rally could gain some legs (although it needs to first overcome resistance at 97.60). If the dollar does rally now, it would put downward pressure on gold and silver prices.

In Sunday's blog on crude oil I wrote:

"Crude oil may have started a new medium-term cycle on May 5 at $60.04 (June contract chart), but the rally from there has not been that strong (new cycles usually start off very bullish). We took profits in our short position at that bottom, but it's possible the old medium-term cycle is not over and could still go lower. If that's the case, prices could continue down into the next reversal zone for crude in mid-June (June 7 - 22) which would be a good place to buy. (Any dip back down to $60 which holds may also be a "double bottom" low and an opportunity to buy.)"

All of this still applies. This market still seems reluctant to rally, and may be taking its cues from the broad stock market with jitters from Trump's "trade wars". The chances of prices making a new low are still substantial so let's stay on the sidelines of crude for now.

Trading Blog Sunday (late night), May 12, 2019

5/12/2019

MARKETS UPDATE (11:00 pm EDST)

Last week the broad stock market fell sharply indicating that all three indices (DOW, S&P 500, NASDAQ) are taking their final steep corrective drops to the final lows in their current medium-term cycles. (There is still the possibility that the DOW already began a new medium-term cycle on March 25 and last week's drop was just a sub-cycle dip, but that is much less likely now.) After a sharp four day decline in these indices last week, I we took profits and coved our short positions in the market. I wrote in last Thursday's blog:

"Could the market fall lower? Yes, that's possible, but the cycle timing and other technical signals are strongly pointing to a bottom now. If it does fall lower after today, we would probably expect the final bottom either at the end of this month or in the first two weeks of June."

Well, all three indices did fall lower on Friday (although they snapped back up to close with a gain) which means we might see them push lower this week before reaching their final cycle bottoms. The end of this week or early the following week could be a very good spot for the final cycle bottoms (if they didn't happen last week). Seeing new lows in one or two but not all three of these indices would also be a good sign (bullish divergence) that the final bottoms are in and new cycles are starting. Even though we may have pulled out of our short position a little too early last week, the upside is that we are now ready to go long at what could be the start of a new bullish cycle by the end of this month (and possibly this week). On the sidelines now and looking to go long at the start of a new medium-term cycle.

The cycle patterns in gold and silver charts are still very ambiguous, and this makes the precious metals very difficult to call right now. It's possible gold began a new medium-term cycle with its spot price low of $1267 on May 3, especially as silver made a new weekly low last week without gold for a case of bullish divergence. But gold also made a new high last week and silver didn't so we also have a bearish divergence signal to cancel out the bullish one. Directional momentum in both metals is currently 100% bearish. The gold miners ETF index fund GDX is also 100% bearish at the moment. This is suggesting prices could go lower, perhaps into the next reversal zone for precious metals coming up this week (May 15 - 22). Let's stay on the sidelines for now and see how prices move into the end of this week.

Crude oil may have started a new medium-term cycle on May 5 at $60.04 (June contract chart), but the rally from there has not been that strong (new cycles usually start off very bullish). We took profits in our short position at that bottom, but it's possible the old medium-term cycle is not over and could still go lower. If that's the case, prices could continue down into the next reversal zone for crude in mid-June (June 7 - 22) which would be a good place to buy. (Any dip back down to $60 which holds may also be a "double bottom" low and an opportunity to buy.) If it is instead a new cycle starting from that May 5 low, prices should rally now, and we may have to wait for a dip in the new cycle to buy. On the sidelines of crude oil.

Trading Blog Thursday, May 9, 2019

5/9/2019

BROAD STOCK MARKET TRADE ALERT (2:30 pm EDST)

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

"A good target for a bottom in the DOW would be around 25,500 - 26,000 or possibly lower. A decline to the final cycle bottom normally lasts between 2-5 weeks. We are now entering another reversal zone for equities (May 1-9) so it's possible we could see the final bottom by the end of next week."

Today the DOW plummeted to a low of 25,517 just before noon, and it is now snapping back sharply. It's the last day of our reversal zone, and we are in the second week of the correction. The S&P 500 and NASDAQ are also in good target areas for a corrective bottom to their medium-term cycles. There's a good chance we are seeing a bottom now, and it looks like a good point to take profits and cover our short position in this market. We have done well with this trade that we entered on April 25 near the cycle top.

Could the market fall lower? Yes, that's possible, but the cycle timing and other technical signals are strongly pointing to a bottom now. If it does fall lower after today, we would probably expect the final bottom either at the end of this month or in the first two weeks of June. We are looking to buy the final bottom (whenever it happens - as long as it doesn't go too low) as we are expecting another strong rally into the summer. This final corrective fall was triggered by Trump's Trade Deal crisis with China. I would speculate that if this is not resolved soon, the markets could push lower. But Trump is famous for his sudden unexpected change of mind (and trouble with China is probably not good for his chances of getting re-elected in 2020) so I think there's a good chance this issue will be resolved soon. If it is, it could easily cause the stock market to soar back up. Taking profits and covering (unloading) my short position in the broad stock market today.

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