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Trading Blog Wednesday, May 31, 2023

5/31/2023

COMMENT ON THE DEBT CEILING and BRIEF UPDATES ON GOLD, SILVER, and CRUDE OIL (4:00 pm EDT)

Not surprisingly, financial markets are probably going to give us a bit of a roller coaster ride this week. Today the broad stock market was down in early morning trading based on fears that some House Republicans will prevent the passing of the legislation agreed upon by President Biden and House Speaker McCarthy last week-end to raise the debt ceiling. But equities recovered some of that loss in the afternoon when some Fed officials suggested the possibility of skipping any interest rate hike at the next FOMC meeting. The official House vote on the debt-ceiling legislation is tonight, and then it moves to the Senate where debate could extend into this week-end. While most analysts expect it to pass in the Senate, there are some Democrats that are also opposed to the bill, so debates could get heated. The bottom line here is that we won't know for sure if the bill is passed until Friday at the earliest, and maybe not even until Sunday - the day before the government may start to run out of money to pay its bills. We are remaining comfortably on the sidelines of equities this week as we watch to see how all of this plays out.

Gold and silver prices are rising today which is good news for our long positions in both, but we need to see them break through their 15-day moving averages before we can be comfortable that a significant rally is underway. Our current stop loss point for gold is set at yesterday's low of $1932, and silver's stop loss is at last week's low of $22.69.

Crude oil prices continue to fall steeply. A resolution of the debt ceiling crisis could turn crude back up, but will this be before prices break below the May 4 low at $63.89 (July contract chart)? If not, this market could turn bearish and be headed towards the $50 - $55 area. We are out of crude oil for now.

Trading Blog Tuesday, May 30, 2023

5/30/2023

MARKETS UPDATE (4:00 pm EDT)

Today the S&P 500 and NASDAQ surged to new weekly highs while the DOW dropped lower, further accentuating a strong bearish divergence signal in this market. We have extended our general reversal zone through the end of this week as this is the deadline for the U.S. Congress to agree and vote on legislation that will lift the debt ceiling and avoid a catastrophic default. Last Thursday I wrote:

"We have been expecting a steep sub-cycle corrective low this week or next. We got it in the DOW, but not the other two indices. It's possible the S&P 500 and NASDAQ will bypass any steep correction. If that's the case, we could see a strong rally now in all three indices. But there's still time for these indices to drop lower into next week, and if the debt-ceiling crisis continues unresolved, that may indeed happen (the "deadline" to avoid a default seems to be June 2). In that situation, we would look for a good buy spot - as long as the corrections don't go TOO low."

Whether this market falls steeply now or starts to rally seems dependent on the resolution (or not) of this debt ceiling crisis this week. The House votes on Wednesday, and the Senate at the end of the week, but any delays in this process could push final voting into the week-end. A final vote before Monday (June 5) next week would be necessary because that's when the U.S. Treasury Department says it will not have enough money to cover its obligations. We will happily remain on the sidelines of the broad stock market into the end of the week as we watch how this situation plays out.

Today is the last day of our "pivot point" window for both gold and silver. Gold made a new weekly low early today ($1932.85), and prices are rallying off of that. Silver did not make a new weekly low (yet), so we are starting the week with a bullish divergence signal. Gold's sub-cycle bottom is due this week. In fact, it may already be overdue and distorting. This is putting our bullish view of gold in jeopardy. Prices need to rally NOW and start closing above $2000 to maintain a bullish scenario. I am going to raise the stop loss on our long position in gold to a break below today's low at $1932.85. We will hold that long position for now and see if today's rally can gain any legs.

Silver may have made its sub-cycle corrective bottom last Friday at $22.69. As with gold, that bottom was late, and as we are now out of any reversal zone or pivot point for the metals for the rest of this week, we don't expect a deeper low this week. If prices do fall below $22.69, it would strongly suggest the cycle is turning bearish. Let's hold our long position for now with a stop loss based on a break below $22.69.

The U.S. Dollar Index has been rallying over the last three weeks but may now be encountering resistance just above 104. If the greenback turns down from this resistance, it could boost precious metal prices. But if it breaks higher, that could send gold and silver lower. Right now, the longer-term picture for the U.S. dollar looks bullish, but any corrective dips that break below the February low of 100.82 could change that view.

Continued uncertainty over a debt-ceiling deal being passed as well as recent mixed signals from OPEC pushed crude oil prices deeply lower today. Prices are breaking below the $69.39 (July contract chart) low of May 15, but they remain above the May 4th low of $63.89 that may have been the start of a new medium-term cycle. We are now out of our reversal zone for crude (May 16 - 25), so last Wednesday's high at $74.73 may have been a significant turning point. On May 17, I wrote in my update on crude oil:

"The medium-term cycle labeling in crude oil is still not clear. That deep $63.89 (July contract chart) low on May 4 could be the start of a new medium-term cycle as well as a new longer-term 3-year cycle in crude. If correct, crude would be quite bullish now and ready to rise to new heights shortly. This is my preferred scenario at the moment. However, we still can't rule out the possibility that a new medium-term cycle started with the $64.58 low on March 20. In that case, the May 4th low ($63.57) could be considered the first sub-cycle bottom, and because it is lower than the start of the cycle, it would mean the cycle has turned bearish and is headed lower for many more weeks."

All of this still applies. If the current correction can stabilize around $68, it would suggest May 4 as the start of a new medium-term cycle, and that might be a good spot to buy. If prices start breaking below $64, however, it would likely mean the medium-term cycle started March 20 and is bearish with prices falling back to the $50 - $55 area. It looks like the resolution (or not) of the debt ceiling crisis by the end of this week will determine which way this market is going to go. We shall remain on the sidelines of crude for now as we watch how this unfolds.

Trading Blog Monday (U.S. Memorial Day), May 29, 2023

5/29/2023

BRIEF COMMENT ON THE DEBT-CEILING AGREEMENT (3:00 pm EDT)

Over the week-end President Joe Biden and Republican House Speaker Kevin McCarthy finally struck a deal on compromise legislation that would avert a first-ever national default. The "debt-ceiling crisis", however, won't be fully resolved until the legislation is passed by both the House and the Senate this week. Any delays in that process could push the final vote into Friday or even the week-end.

We may see a sigh of relief and a strong movement in equity markets as early as tomorrow as the stalemate between Biden and McCarthy has broken, but until the legislation is officially passed by both House and Senate, financial markets could be jittery. We might even see optimism in the markets soar early in the week and possibly be crushed by another stalemate in voting. The House is expected to vote on Wednesday, and the Senate vote will follow at the end of the week. We are at critical junctures in several markets right now, so we will will need to watch all of this very carefully.

Trading Blog Thursday, May 25, 2023

5/25/2023

UPDATES on GOLD, SILVER, and the BROAD STOCK MARKET (4:00 pm EDT)

Today silver is breaking slightly below my suggested stop loss point of $23, and it may close below there. While round numbers like $23 often act as psychological support (or resistance) in trader psychology, they don't always hold. Closer examination of silver's chart shows another support level around $22.50, and that is still within our target range for a sub-cycle corrective low that is overdue in this market now. Furthermore, today through next Tuesday (the day after Memorial Day) is a potential "pivot point" for both gold and silver, so that overdue low could be imminent. For these reasons, I'm going to stay long in silver for now and base my stop loss for this trade on timing, that is, on prices moving lower after next Tuesday. Very risk adverse traders could move their stop loss down to a close below $22.50.

Gold is trading below the support level of $1950 today, but we recently (last Thursday) lowered our stop loss for our long position in gold to a close below $1900. This was based on our entry into the very strong reversal zone for the precious metals that started last week and continues through next Tuesday. As with silver, a sub-cycle corrective low is now due (overdue) in gold. Prices could get to $1900, but a more ideal target range would be around $1940 - $1962. We are in that range today. I am still holding my long position in gold for now.

Wall Street jitters over the ongoing debt-ceiling crisis in Washington D.C. pushed the broad stock market down steeply over the last three days, but today equity markets seem to be snapping back up, perhaps buoyed by the approaching Memorial Day week-end (stock markets often rally into holidays) and optimism that the crisis will be resolved soon. The DOW took the biggest hit and today plummeted to 32,586. This is within a good target range (31,850 - 33,000) for a significant sub-cycle low that is due now or next week. The S&P 500, however, made a low yesterday at 4,104, and it is rallying strongly today. That low is far above the ideal target of 3,868 - 4,028 for a sub-cycle bottom in the S&P 500. This suggests this index could fall lower (as could the DOW) tomorrow or even next week. The most bullish index right now - the NASDAQ - barely took a shallow two-day dip on Tuesday and Wednesday (not enough to qualify as a sub-cycle correction) and "gapped-up" today almost to a new weekly high.

We are getting a lot of mixed signals in these equity markets right now. The DOW is making new weekly and monthly lows. The S&P 500 is making a new weekly low but not a new monthly low, and the NASDAQ is not making any new lows. This gives us a bullish divergence signal. On the other hand, the NASDAQ and S&P 500 are both making new YEARLY highs, but the DOW has not, and this gives us a bearish divergence signal. Which signal is correct? We can't tell yet. We have been expecting a steep sub-cycle corrective low this week or next. We got it in the DOW, but not the other two indices. It's possible the S&P 500 and NASDAQ will bypass any steep correction. If that's the case, we could see a strong rally now in all three indices. But there's still time for these indices to drop lower into next week, and if the debt-ceiling crisis continues unresolved, that may indeed happen (the "deadline" to avoid a default seems to be June 2). In that situation, we would look for a good buy spot - as long as the corrections don't go TOO low. For now, we remain on the sidelines of the broad stock market.

Trading Blog Tuesday, May 23, 2023

5/23/2023

SILVER TRADE ALERT (3:00 pm EDT)

Today silver prices made a new weekly low ($23.12) and gold did not. I would have preferred to see gold make the new low without silver because silver's sub-cycle correction was due last week (it is a little late). Nevertheless, we are getting a bullish divergence signal between the metals, it is happening in a reversal zone for the precious metals, and both metals are closing in the upper part of today's range. Silver prices are also at an ideal target for a correction, and there are a few short-term technical indicators now suggesting an imminent reversal back up. It looks like a good time to go long in silver. We will do that now with an initial stop loss based on a close below $23.

Trading Blog Monday, May 22, 2023

5/22/2023

MARKETS UPDATE (9:00 pm EDT)

The broad stock market has been giving us an unusual array of mixed signals over the last week or two, and it seems to be indecisive in its movements. This is almost certainly due to the current debt ceiling crisis now being debated in Washington D.C. According to House Speaker Kevin McCarthy, Republicans and Democrats need to resolve this issue and agree on a deal by the end of this week to avoid the nation's first-ever default. Last week it looked like both parties were coming to an agreement before negotiations abruptly broke down again by the end of the day on Friday. So far, equity markets seem to be fairly stable and avoiding a panic sell-off, but that could change quickly if the crisis is not resolved soon (like this week).

Coincidentally (or maybe not) we are at the end of our very strong reversal zone for equities (May 11 -19), but because of this debt ceiling crisis I am going to extend this reversal zone two more weeks (into June 5). The S&P 500 and NASDAQ are peaking with new highs now, but the DOW is struggling to make new highs and remains below its 15-day and 45-day moving averages. This gives us a strong bearish divergence signal and increases the likelihood of an imminent turn down in this market. Any panic over failure to resolve the debt ceiling crisis could be just the catalyst needed to trigger a sell-off. For this reason, we are now out of all our long positions in the broad stock market, and we will stay there until this crisis is resolved (or not)..

If equities do panic and sell-off into early June, we may see Congress come to an agreement and raise the debt ceiling at the "11th hour" (as they have done in the past), and this could potentially halt any sell-off and reverse the markets back up. I am just speculating here, but should this scenario unfold, it could set up a stable sub-cycle correction that may be worth buying for more rallying into the summer. If markets continue to fall past June 5, however, it would most likely negate that bullish scenario.

Gold might have made a significant sub-cycle low last Thursday at $1954. That was in the center of a reversal zone specifically for the precious metals (May 15 - 24), and it was right on time for a sub-cycle bottom. However, there are still two more days left in the reversal zone, and Thursday-Friday this week may be a pivot point for silver and Friday-next Monday a strong pivot point for gold. This means prices might go lower and make another bottom in any one of these time frames. Gold prices were down a bit today, but they remained above last Thursday's low. Let's continue to hold our long position in gold for now.

Silver prices were also slightly down today but still above last week's low ($23.49). Silver's sub-cycle low was due last week. If prices go below $23.49, it could mean the cycle is turning bearish. Otherwise, prices could rally now from last week's low to new highs. An ideal situation right now would be to see gold make a new weekly low this week without silver for a case of bullish divergence. That would be a good signal to buy silver. For now, let's stay on the sidelines of silver.

Crude oil prices remain range-bound between $70 and $74 but seem to be stabilizing above the 15-day moving average. We are now in the center of a reversal zone specifically for crude that is in effect for the rest of this week. If crude makes a new weekly low, it may be a good spot to buy. On the other hand, a new high above $74 could end up being the top of a reversal back down. We will stay on the sidelines for now as we watch how prices move into the end of the week.

Trading Blog Friday, May 19, 2023

5/19/2023

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

I am going to advise anyone still holding long positions tied to the DOW index to sell them now. Yesterday I suggested traders also get out of any long positions connected to the NASDAQ and S&P 500, so all traders should be out of the broad stock market right now. We got long on 4/27/23, so DOW traders should be able to get out now with little or no loss. (Those that were in the S&P 500, and especially those trading the NASDAQ, have made some profit.)

We are near the end of a very strong reversal zone (which I may extend into the middle of next week) and both the NASDAQ and S&P 500 are making new weekly and monthly highs while the DOW remains below its high from last week. This gives us a strong bearish divergence signal inside this reversal zone, so it is best for us to be on the sidelines now.

Trading Blog Thursday, May 18, 2023

5/18/2023

UPDATE ON THE BROAD STOCK MARKET and GOLD AND SILVER (3:00 pm EDT)

The S&P 500 seems to be making a high in our strong reversal zone, so, as with the NASDAQ, any traders long in this index should probably take profits now and get out. Any traders holding long positions in the DOW can stay long. We note that the DOW is rallying a bit, but it could also make a new low tomorrow or into early next week and still form a significant sub-cycle bottom (good buy spot). Traders that are out of the broad stock market should remain on the sidelines.

We are breaking below the stop loss point I suggested for gold on Monday ($1970) today, but I am going to hold my long position for now and lower that stop loss point down to $1900. Why? Both gold and silver are now clearly taking sharp sub-cycle corrective dips into the dead center of a reversal zone specifically for the precious metals (May 15 - 24), and the timing in both cycles is now ideal for a bottom to form (this week or next). There is some support for gold at $1950, but even $1900 would be an acceptable target for a correction. After this bottom, we expect gold to rally sharply again and challenge or exceed the May 4 high at $2059.

A good corrective target range for silver now would be $22.50 - $24. We are already in the upper part of that range, but prices could go lower over the next several trading days into next week. We are looking to buy this low because silver still has the potential to rally back up to $30. Both gold and silver are potentially very bullish now, but gold needs to start breaking above $2070 to confirm this. We will stay on the sidelines of silver for today.

The U.S. Dollar Index has been rising, but it is now approaching a resistance line around 104, and we are now in the center of a reversal zone specifically for currencies (May 15 - 23). This means a reversal back down could be imminent, and that could help turn precious metal prices back up.

Trading Blog Wednesday, May 17, 2023

5/17/2023

CRUDE OIL UPDATE (2:30 pm EDT)

The medium-term cycle labeling in crude oil is still not clear. That deep $63.57 (June contract chart) low on May 4 could be the start of a new medium-term cycle as well as a new longer-term 3-year cycle in crude. If correct, crude would be quite bullish now and ready to rise to new heights shortly. This is my preferred scenario at the moment. However, we still can't rule out the possibility that a new medium-term cycle started with the $64.58 low on March 20. In that case, the May 4th low ($63.57) could be considered the first sub-cycle bottom, and because it is lower than the start of the cycle, it would mean the cycle has turned bearish and is headed lower for many more weeks.

Crude prices rallied strongly today and are closing above the 15-day moving average. That's supporting the case for a bullish new medium-term cycle starting on May 4. A break above last week's high ($73.89) and the 45-day moving average (currently around $74.70 and rising slowly) would support the bullish scenario even more. We are now in a reversal zone specifically for crude (May 16 - 25) that is overlapping with our strong general reversal zone (May 11 - 19). Prices made an isolated low on Monday ($69.41) within the general reversal zone but just out of the crude reversal zone, and they are now rising sharply. Any new highs this week or next would be in crude's reversal time frame, and that could send prices back down. If prices can drop back down a bit below $69.41 (and stay above $63.57) this week or next, it might give us a good spot to buy. Otherwise, we will wait for a stronger signal to confirm May 4 as the start of a new medium-term and longer-term 3-year cycle. A new medium-term and 3-year cycle would be very bullish and could see crude prices skyrocket back towards $90 (and above) by the end of the year. For now, we remain on the sidelines of crude.

Trading Blog Monday, May 16, 2023

5/16/2023

BROAD STOCK MARKET ALERT and PRECIOUS METALS UPDATE (3:30 pm EDT)

The broad stock market is giving us some odd mixed signals at the moment. We are now in the dead center of a very strong reversal zone (May 11 -19). The NASDAQ is making a new weekly and multi-month high, but the DOW is falling below its 15-day and 45-day moving averages and is making a new weekly low (bullish and bearish divergence). The S&P 500 seems undecided as it rests just above its 15-day (and 45-day) moving average, although it seems more likely to pop up to a new high than to break below those two averages and make a low in this reversal zone. Traders with long positions tied to the NASDAQ should consider taking profits now as a top seems imminent in that index. But a bottom also seems imminent in the DOW, so those with trades tied to the DOW should stay long. If the S&P 500 jumps up to a new high, one should take profits in that index, but if it instead drops to a new low (breaking the 15-day and even the 45-day moving average), I would stay long for an imminent reversal back up. Traders who are out of this market should stay out for now.
I will update this unusual and complex situation over the next several days.

Today gold prices are closing just below the 45-day moving average. That was our stop loss for our long trade, but I am going to stay long in gold today and move that stop loss down to a close below $1970 because we are near the center of two strong reversal zones (one general and one specifically for the precious metals). We also have a bullish divergence signal between gold and silver as silver is below its April low while gold is not. A sub-cycle corrective bottom is also due this week (or next) in both metals. Thus the chance of a reversal back up in both metals is very high right now. We will probably be looking to go long in silver tomorrow, especially if it drops a bit lower and gold holds above $1970. We are currently on the sidelines of silver.

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