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Trading Blog Thursday, June 27, 2013

6/27/2013

MARKETS UPDATE (12:00 Noon EST)

I was unable to use my computer for most of Wednesday and am traveling for most of today so I am posting a brief early blog here. All our positions are unchanged (out of all markets for now).

Fear in the broad stock market seems to be subsiding as the market is rallying again, but bullish and bearish signals remain mixed and overall market direction is still not clear. We are now entering a timing window (which begins today and ends around the fourth of July) when all markets can experience significant reversals in direction. We therefore need to pay attention to market directions into the end of this week and start of next week (midpoint of this window). The DOW seems to be rising into this period (and is now also approaching a zone of resistance) so a downward move may be imminent. We are on the sidelines of this market.

Gold and silver have been moving lower and technical signals still look quite bearish, but the timing zone mentioned above for the broad stock market applies here as well, so we may see some kind of relief rally shortly. We are still standing aside the precious metals.

Crude oil prices have been rising but they are now approaching resistance as we enter that time zone of potential reversal so we don't want to go long here (even though momentum is strongly bullish). We will watch to see if the price can correct back down towards $91. My recent interest in going long was to take advantage of a possible rally that could take prices above the recent high at $99, but this timing zone factor is making that seem less likely at the moment, so we will remain out of this market for now.

Trading Blog Monday, June 24, 2013

6/24/2013

MARKETS UPDATE (4:00 pm EST)

The major concern for most investors at the moment is whether or not the panic generated by Bernanke's speech last week on Federal Reserve policy and the economy is going to subside or ignite further serious sell offs in the markets. As always we look to chart analysis for clues to market direction, and there is not much change today in the charts of the DOW, S&P 500 or NASDAQ. Although the Dow dropped about 250 points earlier in the day, it rebounded a bit and is closing with a 140 point loss. Momentum and other technical signals remain mixed (bullish and bearish) so we remain on the sidelines of the broad stock market for now.

Gold and silver are both down a bit today and their momentum continues to be strongly bearish. Some blog readers may be wondering why I'm not short selling the metals due to their strong bearish momentum. The reason for this is that gold and silver momentum has been bearish for some time, and the gold and silver cycles are close to forming major bottoms from which a significant long-term rally should start. I have therefore been cautious with short positions and am trying to focus more on the establishment of long positions once the final cycle bottom can be determined. Still on the sidelines of gold and silver.

I was stopped out of my long crude oil position rather abruptly last Friday, apparently due to "fallout" from the Bernanke speech on Wednesday (which I had underestimated due to crude's weak reaction on Wednesday). In my last blog I mentioned a potential cycle pattern setting up now in crude in which the recent falling price could snap back quickly and resume its earlier rally. Crude prices did drop further today (below $93) and then snapped back up to close around $95. It may drop lower, though, towards the middle of the week (I would like to see a low closer to $91) and give a better short-term buy signal. Medium and long-term momentum remains bullish in this market, so there is still the potential for more rallying here. (But keep in mind I am expecting a significant correction in oil prices probably in July or August, so any rally now would probably be short-term). On the sidelines for now.

Trading Blog Friday, June 21, 2013

6/21/2013

CRUDE OIL TRADE ALERT
AND BRIEF MARKETS UPDATE (2:30 pm EST)

Crude oil moved lower today and broke below that $95 support, but overall momentum remains strongly bullish implying that this downward move could be short-term. Nevertheless, the price is pushing beyond my stop loss limits and I am going to bail out and sell my long position at this point to avoid the risk of further loss. There is a cycle pattern that may be occurring here which typically manifests as a sudden sharp price drop that briefly interrupts a rally and then quickly snaps back up with a resumption of the rally to higher levels. This may give us an opportunity to make back this loss shortly. I will discuss this in more detail in a weekend post.

Fear in the broad stock market and precious metals market has subsided a bit today, but it is still a little too early to gauge investor confidence going forward from here. Momentum has not changed in these markets (gold and silver remain strongly bearish and the broad stock market is mixed) and we are out of all markets at the moment.

Trading Blog Thursday, June 20, 2013

6/20/2013

ASSESSING DAMAGE FROM THE "BERNANKE FACTOR"

Apparently oil traders (as well as DOW traders) are more worried about yesterday's speech by Ben Bernanke than they are about the war in Syria, and unfortunately this is not good for the long position we established in crude oil yesterday. Because crude did not initially react as severely as the DOW to Bernanke's comments, I assumed it was discounting them, but overnight selling as well as this morning's falling oil prices show that this market is experiencing fallout from the "Bernanke Factor". At the time of this writing (1:25 pm EST) crude is at $95.70 and the price seems to have paused in its plunge (at least temporarily) at the $95 level. There is some support in this area ($95-$95.50), and the strong bullish momentum signals in the crude oil charts have not been violated so this $95 level may hold. I am going to use change in momentum as a major stop loss parameter here and also keep a close watch for any clear break below $95. A bounce from this support would at the very least allow us to bail out with a smaller loss (the price is currently down about 2.8% from our entry point). I am currently long in this market, but any traders who didn't go long yesterday or early today should stay out of crude oil for now.

On a more positive note, our cautious "stand aside" approach to the other financial markets (i.e. gold, silver, and the broad stock market) is helping us avoid the chaotic volatility resulting now from Mr. Bernanke's optimistic comments about the economy. It is ironic that the Fed's positive report on economic conditions should cause a severe downturn in markets that reflect the very economy the Fed is praising, but who ever said financial markets operate on logic and common sense? Markets are frequently driven by emotions (fear and greed), and fear seems to be the predominant one right now. Several highly respected traders that I follow are not happy with the way markets are reacting to the Fed chairman's speech, and many stop losses were triggered in their trade recommendations today. Fortunately we are on the sidelines of these markets (except for crude oil) and can assess the Bernanke fallout with some detachment.

The broad stock market is down heavily today with a drop of about 350 points (about 2.3%) and prices are breaking several support levels. Directional momentum, however, is still mixed (bullish and bearish) so I am not ready to push the panic button and sell short just yet. The fear generated by Bernanke's speech may start to ease as investors come to their senses (maybe) and realize that the Fed is not going to raise interest rates for at least several more months (and only if employment figures improve). We will remain on the sidelines for now but are prepared to sell this market short if momentum turns fully bearish.

Gold and silver took big hits today and broke below their mid April "crash" lows with gold closing just above $1280 and silver around $16.65. The persistently bearish momentum in the charts of both these metals over the last several months was hinting that prices could turn lower, and it looks like the Bernanke factor was the kick needed to make that happen. We had considered the possibility of those April lows being the final bottoms of a major long-term cycle in both gold and silver, but now we know that the final bottoms will be lower. As I've mentioned in recent blogs, that final low will be a major opportunity to go long in precious metals as it will likely mark the beginning of a long-term rally that should take gold and silver to new all-time highs. Because of today's plunge I need to revise some of my short-term strategy for trading these metals, and I will be posting this in upcoming blogs. Fortunately we are on the sidelines of this market now and will stay there until the Bernanke fallout settles down a bit and I can get a better bearing on short-term market direction.

Trading Blog Thursday, June 20, 2013

6/20/2013

UPDATE ON CRUDE OIL TRADE ALERT (1:45 pm EST)

As many traders have probably noticed, crude oil is strongly down from overnight trading and into this this morning.
Those who did not go long yet should stay out of this market for now as it is suffering damage from the "Bernanke factor". I will post another blog shortly (within a few hours) outlining strategy for those who are long.

Trading Blog Wednesday (night), June 19, 2013

6/20/2013

MARKETS UPDATE (11:15 pm EST)

It doesn't take much to spook a jittery stock market. Today's 200 point drop in the DOW after Fed chairman Ben Bernanke spoke late in the afternoon about the possibility of tapering off QE (perhaps later in the year and only if the unemployment rate goes down) shows just how volatile this market can be. Mr. Bernanke did, however, express optimism about the economy which perhaps led many investors to see rising interest rates as being just around the corner. It is too early to tell if this knee jerk reaction to Bernanke's comments will trigger a major sell off or if the market recovers quickly (as it often does following abrupt reactions to statements by the Fed). Despite its 200 point drop, technical momentum in the broad stock market remains unchanged (mixed bullish and bearish signals) and so the direction is still ambiguous for the moment. If fear takes hold of this market we might get an early start to that major correction I was expecting later in the summer (possibly 10% or more), but we will have to wait and see how prices behave tomorrow and Friday before considering this possibility. Still out of this market.

Gold and silver also disliked Bernanke's statements as both metals dropped sharply in late afternoon trading. This is not that surprising as directional momentum in the precious metals has been consistently bearish for the past several months. Today many gold and silver mining company stocks negated some of their recent bullish signals and turned bearish. As I've mentioned in previous blogs, the stock prices of precious metal mining companies often lead the actual price of gold and silver metal, so the entire precious metal sector is very bearish at the moment. As with the broad stock market, we will have to wait and see if this is just a knee jerk reaction to the Fed's statements or a legitimate bearish development that will lead to lower prices. Still out of both gold and silver.

This afternoon (around 3:30 pm EST) I posted a trade alert for crude oil and went long in this market. Crude oil, which usually follows the broad stock market, also fell in afternoon trading but not as severely as the DOW, perhaps buoyed by the worsening Syrian conflict. Oil is now dropping some more in the overnight market (U.S.time), but momentum signals remain bullish. I made this trade because there is a strong potential now for a significant short-term rally that could reach the $105-107 price range; however, I am prepared to bail out quickly should chart signals turn bearish. We will need to watch the price carefully tomorrow. If any traders were unable to go long before the market closed, I would hold off placing a trade until we see how the price moves tomorrow.

Trading Blog Wednesday, June 19, 2013

6/19/2013

CRUDE OIL TRADE ALERT (3:35 pm EST)

I apologize to active traders for posting this trade alert a little late (I normally try to do this before 3:00 pm EST), but I needed to wait and see how the markets would digest the information from Ben Bernanke's speech today (delivered around 2:30). I will make more comments about the markets later this evening. It looks like Bernanke will continue to delay any tapering of QE (at least until the end of the year) and Wall Street can relax a little.

Crude oil dropped significantly today and looks like it is in a decent position to buy for a possible short-term rally that could break the $100 mark. Price chart momentum is very bullish at the moment, so I am going to go long crude oil today. I will post more detail on this later in the evening.

Trading Blog Tuesday, June 18, 2013

6/18/2013

MARKETS UPDATE (5:15 pm EST)

There are several political/economic events in the news right now that could have a major effect on financial markets this week, so I will mention them here along with the technical picture of the markets at the moment. A key event this week will be Ben Bernanke's press conference on Wednesday after the Federal Reserve's policy meeting, and the markets will likely remain calm until then.

The broad stock market is a little more bullish this week, today breaking above the 15,200 level that seemed to be holding it back last week; however overall directional momentum is mixed (bullish and bearish), so it is still not clear where this market is going short-term. Some analysts are speculating that Bernanke in his speech tomorrow will continue to hint (as he did several weeks ago) that the Fed is close to tapering down its massive quantitative easing program (QE). If so, this would certainly put more fear into the stock market. President Obama in a public television interview on Monday implied that this could be Mr. Bernanke's last term (which expires in January) as Fed chairman, and this may also exacerbate the fear of imminent changes in the Federal Reserve's monetary policy which could possibly be implemented by a new chairman. Because the market's current technical signals are mixed, we will wait to see how tomorrow's speech will affect directional sentiment. Still out of this market.

Gold and silver are both down today and momentum is still looking quite bearish short-term. Our stand aside attitude with this market is proving useful as these metals have been bouncing up and down in a relatively narrow range over the last several weeks, but tomorrow's Fed speech may give it a strong directional kick. We will wait to see if this is going to be up or down. Still on the sidelines here.

Last Friday crude oil broke out to a new multi-month high and its momentum shifted abruptly from strongly bearish to strongly bullish. The triggering event for this was most likely the escalating civil war in Syria. Today's news report that leaders at the G8 summit could not come to a decisive agreement on how to handle the Syrian crisis indicates that the tension of this situation is not winding down, and this could propel oil prices higher (above $100) quickly. There is the potential here for a good short-term rally, but I want to wait for the possibly high volatility of tomorrow's markets (due to Bernanke's speech) to pass before commiting to any trade. (Note: I am still expecting a substancial correction in crude oil within the next month or two that I will probably want to sell short, and the shorting point will likely be the peak of the current rally.) Out of this market for now.

Financial Market Overview June 16, 2013

6/16/2013

AN OVERVIEW OF FINANCIAL MARKETS FOR THE SECOND HALF OF 2013

I would like to post some brief comments about where I think the markets that I follow on the website (i.e. the U.S. stock market, crude oil, gold, silver, the Swiss Franc and U.S. Dollar) will be heading over the next six months or so.   Because I write the Trading Blog several times a week I am often focusing on short-term patterns and cycles in these markets, and I realize that blog readers may not be aware of the medium and long-term patterns that I am also using to make my trade decisions (although I do try to point out some of these to make my stategies more clear).
The following comments are intended to give a broader overview of the markets.

GOLD AND SILVER

It looks like gold and silver are now setting up for a major long-term rally that will likely take both metals to new highs and possibly much higher. The recent crash in the prices of both these metals is thought to be a major corrective phase in a longer-term bull market that began in 2000 and will continue to be bullish for at least several more years.
The bottom of this major correction may already be in with gold's $1321 low and silver's low at $20, but there is some chance it is still forming and prices may drop to new lows before the end of the year. [UPDATE 6/28/13 : Prices have broken below $1321 in gold and $20 in silver so the final bottoms are still in the process of forming.]
This corrective low is presenting a rare buying opportunity for investors in precious metals before prices begin to take off again. In my opinion, precious metals are currently one of the best investments going (but I would advise new investors to hold off buying until we are reasonably certain that the current corrective phase bottom is in).

U.S. STOCK MARKET

The U.S. stock market is also looking like it has the potential to make dramatic moves (both up and down) over the next six months (and longer) and may present some excellent opportunities for nimble traders. This market could be in a "blow-off" mode (fueled by the Federal Reserve's policy of continuous quantitative easing, media driven positive public sentiment, and other forms of market manipulation) and, if so, it has the potential to rise rapidly in a short period of time. Of course, a blow-off is always followed by a severe crash, and calling the top of such a market can be very difficult.  Many of the financial analysts I study believe that a crash in the U.S. stock market similar to (or possibly worse) than the one in 2008-2009 may be just around the corner (i.e. sometime over the next several years).   In such volatile markets traders must be alert and nimble, but good profits can be made in relatively short periods of time (going long as well as selling short).  Despite the potential bullish blow-off energy in the stock market now, I am expecting a significant correction (maybe 10% or more) within the next several months, and we will want to watch for trading signals to sell short then. After the correction, though, the market may resume its buoyant rally.
[UPDATE 11/27/13 : The DOW has taken two 5% corrections since June (one in August and one in September), but in both instances the index bounced back and fully recovered within two weeks.  It now looks like the bigger correction I had been expecting before the end of this year may be pushed into early next year. The recent promise of more QE from Janet Yellen combined with holiday season optimism may fuel a "Santa Claus" rally into the end of the year.]

CRUDE OIL

Crude oil, which usually follows the stock market, should also be making a significant correction shortly (within the next month or two) which we will try to sell short.  Once this correction is over, crude should turn bullish again and perhaps rise in sync with a "blow-off" bullish stock market.  It should also be kept in mind that any escalating tension in the Middle East can light a fire under oil prices (as it is doing now) and accelerate any rally (or reverse a downtrend).
[UPDATE 12/1/13: Crude oil made a 7% correction in late June and then experienced a vigorous rally into late August that culminated with a steep surge fueled by the Syrian crisis. Prices have since been falling from that "blow-off" top (that peaked just under $108) and for the last two months oil and the broad stock market have diverged and are moving in opposite directions.]

THE SWISS FRANC AND U.S. DOLLAR

In March and April of this year the Swiss Franc appeared to be establishing a baseline and support (at 1.050) for a new bullish cycle and rally but then it suddenly turned bearish in May and dropped to a new low (around 1.020). This May low could turn out to be the bullish turning point we were expecting, but this is not clear at the moment. A major bearish factor now weighing on the Swiss Franc is the rapidly weakening European economy due to the fact that the value of the Swiss Franc is now pegged to the Euro.

Several financial analysts I study are very bullish on the U.S. Dollar for the year 2013. Why would global investors be attracted to the currency of a country (the U.S.) whose present economy is shaky at best and possibly on the verge of collapsing into a deeper recession/depression? The simple answer is that other major global economies (specifically Europe and Japan) are in even worse shape, and as the old proverb goes: "In the land of the blind, the one-eyed man is king". The dollar's strength, however, now seems to be in question as the U.S. Dollar Index broke down early this month from a bearish chart pattern that had developed over the previous four months. While it is possible this plunge is just a temporary correction, momentum in the U.S. dollar at the moment is 100% bearish. The direction of the Swiss Franc and U.S. Dollar for the rest of the year is, therefore, unclear at the moment (due primarily to the recent dollar breakdown). However, because a sudden recovery in Europe and Japan's economies seems unlikely, the dollar could reassert its bullish momentum before the year is over. We will have to wait and see.

[UPDATE 7/2/13:  The dollar appears to be recovering from its breakdown and momentum is now medium-
                               term bullish.]

[UPDATE 9/1/13:  The dollar seems to have recovered from its correction and its momentum is nearly
                               100% bullish again.]

[UPDATE 9/19/13:   Wow! What a roller coaster ride!  The dollar is "crashing" again. Over the last five days
                                  momentum has switched from 100% bullish to 100% bearish!]

Trading Blog Friday, June 14, 2013

6/14/2013

MARKETS UPDATE (5:45 pm EST)

There are no changes to our positions this week (still out of all markets).
Please note that if I have any trade alerts for the day I will always attempt to post them by 3:00 pm EST (or well before, if possible) to give active traders time to place trades before the U.S. markets close.   If I don't make a blog post by 3:00 pm there are usually no changes in my market positions.

The broad stock market was flat this week and stayed mostly within a narrow range between 15,000 and 15,200. Momentum is still mostly bearish (but not 100%), and other short-term technical indicators are also looking somewhat bearish at the moment. Even though this market is looking bearish, there are no definitive sell signals that would make me want to short it right now, so I am remaining on the sidelines.

Gold and silver were also quiet this week. Gold continued to hover just under $1400 all week while silver remained below $22 (but the spot price closed up today just a hair above that mark). Momentum remains mostly bearish in both of these metals, but there are a few short-term technical and timing indicators right now that suggest a rally may be starting. We will remain on the sidelines for now and watch for a possible momentum change next week.

Worries about war in Syria caused a major shift in the crude oil market today. Prices shot above $98 before closing the day just below that price (around $97.80). This triggered major bullish signals in the crude oil price charts and momentum in crude oil has now switched from bearish to 100% bullish.   As mentioned before on the website, tension in the Middle East is always a wild card factor in the price of crude, and this can often upset short selling stategies in this market.   Although Syria is not regarded as critical to global oil supplies, an escalating civil war in this country could draw in other more important oil producing countries in the region.  Should that happen, today's price spike may not be temporary (as it often is with news reports of potential conflicts in the Middle East). The bullish technical picture now in the crude oil price charts supports this view of an extended conflict. Regardless of this bullish change in direction, I still expect a major cycle correction in oil prices within the next month or two. This new bullish momentum may now drive a strong rally that could peak over the $100 mark before we see that correction. I am going to try and buy this market on any dips next week, but we need to be cautious with this "news driven" rally. It may be safer to just wait and sell short the major cycle correction that is imminent.  Still on the sidelines of this market.

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