Blog Archives

Trading Blog Tuesday, May 26, 2020

5/26/2020

MARKETS UPDATE (3:30 pm EDST)

All three broad stock market indices are rallying strongly today and making new weekly highs. This negates the bearish divergence signal we had from last week. It seems that the Federal Reserve has decided to use the COVID-19 pandemic to justify the endless printing of money to arguably prevent a major collapse in equity markets. It's questionable how long they can keep this up; but for now the market's bullish energy has pushed us through our last reversal zone without a significant correction down. Our next reversal zone is coming up in June. (We actually have several reversal zones in June that overlap such that June 8 - 30 could be considered one big reversal zone. Two "high probability" reversal points in that time frame will be June 16 and June 22 so we will watch those areas carefully.) That gives this market at least two weeks to rally some more before making a top and correcting down. A rally in the DOW could easily get up to 27,000 or even a bit higher in that time frame. But since this market is most likely being propped up by the Fed's money printing (i.e. it is rising on forced or artificial - not natural - momentum), we can't rule out a top and a significant correction before getting to that June reversal zone. It's tempting to go long now in this bullish environment, but I would still prefer to wait for a corrective dip to buy rather than chase a rally in this volatile market. We will remain on the sidelines of the broad stock market for now.

The Fed's printing of money is certainly bullish for the precious metals, but gold and silver are a bit tricky to play right now. We are still looking for a corrective low to buy. Today gold is making a new weekly low while silver is not so we are getting a bullish divergence signal. Nevertheless, as with the broad stock market, we are not in a reversal zone. Unlike the broad stock market, however, there IS a reversal zone specifically for precious metals starting next Monday (June 1 - 9). This suggests that prices could edge lower into that time frame before reversing back up. Even if prices reverse up now, they would be rising into next week's reversal which could slow down or halt the rally in it's tracks. I am going to wait to see if prices can get a bit lower before buying. Staying on the sidelines of gold and silver today.

The U.S. Dollar Index certainly suffers when the Fed's rhetoric is "dovish". That would explain the dollar's recent reluctance to rally. Today the dollar broke below a support level around 99. This could be the start of at least a short-term downturn in the greenback. A falling dollar is obviously good for gold and silver prices, but we should keep in mind that both the dollar and the precious metals sometimes rise and fall together.

Crude oil prices are edging higher today. This is not surprising as crude often follows the broad stock market. And as with equity markets, this new weekly high is not happening in a reversal zone. Sure, crude could still be making a top now and start a significant correction down (the cycle timing is right), but it could also push higher before correcting. A sub-cycle top could get up to the $40 (June contract chart) level. If we see prices near there in next week's reversal zone for precious metals, I may consider selling short for a sharp correction down. Otherwise, we may just wait for the first sub-cycle corrective bottom to buy. Out of crude oil for now.

Trading Blog Thursday, May 21. 2020

5/21/2020

MARKETS UPDATE (2:30 pm EDST)

The DOW edged a bit higher this morning, but it still has not made a new weekly high while the S&P 500 and NASDAQ have. Our intermarket bearish divergence signal is thus still intact. We are, however, now technically out of our reversal zone (May 5 - 20). Yes, the market could still turn down here, but if it doesn't do so soon, and if prices push higher into next week, we could see more rallying into our next reversal zone in June. Our main short-term strategy now is to wait for a corrective sub-cycle low to buy. We may still try and sell short at a significant top in a reversal zone - probably in June - as long as the trade doesn't look too risky. I am still anticipating a major switch to a bearish strategy (i.e. mostly selling short) once we hit a final top in the current medium-term cycle (or maybe the next one) - probably later this year. As I've said in earlier posts, we could see a new all-time high in the NASDAQ but not necessarily in the DOW and/or S&P 500. The correction from that top may be VERY big and last for some time (possibly into 2021 - 2022). Still on the sidelines of the broad stock market.

Gold made a new weekly high on Monday and silver made a new weekly high yesterday (still in the reversal zone), and both are dropping sharply today. This could be the start of a significant sub-cycle correction. We are still watching for a corrective low to buy as both metals still look quite bullish. Those ideal lows are now around $1690 for gold and $16 in silver. Let's wait and see if prices can get there. On the sidelines of both gold and silver for now.

Crude oil prices have been rallying strongly from what looks like a new medium-term cycle bottom on April 22. Crude could be making its first sub-cycle top now as prices made a new weekly high today at $36.78 (June contract chart). As with the broad stock market, however, today's new high is just outside our reversal zone which means prices could still push higher into the next strong reversal zone (there is one specifically for crude in the second week of June). Let's stay on the sidelines of this market for now.

Trading Blog Wednesday (late night), May 20, 2020

5/18/2020

I WROTE THIS MARKET UPDATE ON MONDAY, BUT FOR SOME REASON IT DID NOT GET POSTED. I AM POSTING IT NOW (LATE WEDNESDAY NIGHT) AS IT IS STILL VALID.

ALTHOUGH THE BROAD STOCK MARKET NOW SEEMS RIPE FOR A SHORT SELL (SEE BELOW), I AM REMAINING OUT OF ANY TRADING POSITION DUE TO POTENTIALLY EXTREME VOLATILITY.
I WILL TRY AND POST ANOTHER UPDATE TOMORROW (THURSDAY).

MARKETS UPDATE (5/18/20)

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

"....markets are very unpredictable right now. There is still time for these indices to edge higher before this reversal zone is over. If they do that, we may be looking for a top to sell short later this week or early next."

Well, it is "early next" and today equities responded to some positive news about a coronavirus vaccine with an impressive rally. The DOW was up over 900 points! Our current strong reversal zone technically ends on Wednesday so we could be seeing a significant top forming right now or over the next two days. Today all three market indices (DOW, S&P 500, NASDAQ) made new weekly highs, but only the S&P 500 and NASDAQ made new monthly highs (although the DOW came very close). This could be a bearish divergence signal (although that could easily be negated tomorrow if the markets edge higher and the DOW breaks above 24,765). The incredible volatility of this market is keeping me on the sidelines. If these indices stall tomorrow and the DOW remains below 24,765, I will consider selling short (perhaps with a stop loss based on that break above 24,765); however, a sharp downturn would probably have me waiting for a corrective bottom to buy (that could come fairly quickly). Again, I'm not anxious to trade this volatile market right now (or I should say that I AM anxious about trading this market). We are remaining on the sidelines today.

Gold and silver prices also rallied strongly early in the day (pre-trade hours), but then backed down. Gold made a new high for its current medium-term cycle (which began in mid-March), but silver's high was well below the high (so far) of its current medium-term cycle (which also started in mid-March). This is another bearish divergence signal, and
because this is a reversal zone, we could now see prices fall closer to our original targets ($1600 in gold $14 in silver; now maybe $1650 in gold and $14.50 in silver) for a corrective bottom to buy. Still on the sidelines of this market but waiting to buy.

Crude oil may also give us a good opportunity to sell short if prices can edge up closer to $36 (June contract chart) before Wednesday. We are basing this on the idea that crude started a new medium-term cycle on April 21 and is now due for its first sub-cycle correction. On the sidelines of crude for now.

Trading Blog Wednesday (evening), May 13, 2020

5/13/2020

MARKETS UPDATE (9:00 pm EDST)

We are now in our new reversal zone (May 11 - 20) and approaching its center (Thursday/Friday). All three broad stock market indices (DOW, S&P 500, NASDAQ) made new weekly highs on Monday, but only the NASDAQ made a new cycle high so we did get a bearish divergence signal. Equities fell strongly yesterday and today so Monday could have been a significant top. Let's see if prices can now fall close to our target areas (22,000 in the DOW and 2,600 in the S&P 500). If they do and find some support there, we may look to buy. But markets are very unpredictable right now. There is still time for these indices to edge higher before this reversal zone is over. If they do that, we may be looking for a top to sell short later this week or early next.

Longer-term, we are still on track for more rallying into the summer with the NASDAQ possibly making a new all-time high (but probably not the DOW and S&P 500). Still on the sidelines of the broad stock market.

Gold and silver prices are edging a bit higher this week, but both metals seem reluctant to rally strongly. Both are close to making a new weekly high, but if one exceeds its April high without the other, we could have a bearish divergence signal in the middle of the current reversal zone, and that could lead to a reversal back down. We are still watching for a significant sub-cycle correction to buy both metals. Our target areas remain around $1600 for gold and $14 for silver. Staying on the sidelines of gold and silver for now.

There's a good chance that crude oil started a new medium-term cycle with its low of $6.50 (June contract chart) on April 21. If so, prices could make a significant sub-cycle top in our current reversal zone. If prices can get up to the $36 area and stall this week or early next week, it may be a good opportunity to sell short for a brief but possibly steep short-term correction down. On the sidelines of crude for now.

Trading Blog Thursday, May 7, 2020

5/7/2020

UPDATE on the BROAD STOCK MARKET and PRECIOUS METALS (5:30 pm EDST)

The DOW and S&P 500 have been relatively flat this week, but the NASDAQ is rallying. Today the NASDAQ made a new weekly high while the DOW and S&P 500 did not. This gives us a bearish divergence signal and suggests a top could be forming now. If so, we could see the broad stock market fall into next week's strong reversal zone (May 11 - 20) and possibly give us a good spot to buy. If equities push higher into next week, we will instead be looking for a top to possibly sell short for a brief but sharp correction down. Once completed, however, we would be looking to buy the bottom of that correction (as long as it doesn't go too low). We will stay on the sidelines until we can see what pattern is unfolding (top or bottom). At the moment, it looks like it could go either way.

Gold prices fell a bit earlier this week but are rallying today. Silver prices have been edging up since Monday. This market is still giving us mixed signals as we approach next week's strong reversal zone. We are still waiting for a substantial dip to buy in both metals. So far, prices have not gotten down to our ideal targets around $1600 in gold and $14 in silver. That could still happen if these metals push down into next week's reversal to form a bottom. If instead prices rally into next week, we could see a top and then a sharp corrective dip that may end up higher than our target prices. We would still want to buy the bottom of that dip. Let's stay on the sidelines for now.

Trading Blog Monday, May 4, 2020

5/4/2020

MARKETS UPDATE (7:30 pm EDST)

All three major broad stock market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles on March 23 and have been rallying bullishly from the lows on that date. We have been waiting for a high and subsequent first sub-cycle correction in these new cycles (down to 22.000 in the DOW and 2,600 in the S&P 500) to buy. While it's possible to still see these targets achieved, it looks like the corrective bottom could have been today, and if so a strong rally could follow from here. If that happens, the upcoming very strong reversal zone (May 11 - 20) could end up being a very significant top in this new cycle and would be a good point to sell short. On the other hand, if these indices push lower from here, we could see our original expectation of our significant target lows to buy in this same time frame. We'll wait to see what it will be - high or low - and trade accordingly. Still on the sidelines of this market.

We need to keep in mind that although these new medium-term cycles are now short-term bullish, I don't think the DOW or S&P 500 will make new all-time highs before these cycles peak and start a significant correction down to their final cycle bottoms. (The NASDAQ, however, MAY make a new all-time high. If it does and the DOW and S&P 500 do not, we will have a VERY strong bearish divergence signal and a good place to sell short.) If coronavirus fears subside strongly and all ALL THREE indices end up making new all-time highs (right now this seems unlikely) then we will have to postpone our short selling plans. Even if the final longer-term cycle tops to the broad stock market are still ahead, they should be in by the end of the year and then followed by a VERY severe correction in equity markets (i.e. possibly 30% - 50% or even more). In other words, we are still on track for the "big one" (crash) which may have already started..

Gold and silver prices did not move much today. This market is still giving us mixed signals. Ideally, we would like to see prices drop lower. If gold can get close to $1600 and silver close to $14 and stabilize, it would be an ideal place to buy both metals, especially if that happens in the upcoming reversal zone (May 11 - 20) or even later this week. Of course, these prices could rally instead and give us a high in that same reversal zone. Let's stay on the sidelines of the precious metals for now.

The U.S. Dollar Index is rallying today off what seems to be a support level just above 98. There is a reversal zone specifically for currencies coming up later this week (May 6 - 14). If the dollar can rally into it, it could push gold and silver prices down closer to our targets. Then a reversal in the dollar could trigger another rally in the metals from those targets. Let's watch for this.

We are still safely on the sidelines of crude oil after its recent dramatic plunge that took prices temporarily into negative territory. The cycle pattern in this market is still not clear, although it's possible a new medium-term cycle started with the low of $6.50 on April 21 (June contract chart). But the possibility of even lower prices still can't be ruled out. We will remain on the sidelines of this market until a cycle pattern is more clearly established.