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Trading Blog Sunday (evening), June 29, 2014

6/29/2014

BRIEF MARKETS UPDATE (7:00 pm EST)

Next week is a holiday week in the U.S. (Fourth of July) and markets will be closed on Friday. Equity markets are often thinly traded on holiday weeks and also tend to be optimistic (bullish). If the broad stock market does rally into the holiday, we may get a good setup to go short. Lower prices, however, could lead to a modest correction next week followed by more rallying into mid-July. Because trading could be light next week I will probably stay on the sidelines and just observe the directional trend. Ideally, I would still like to sell short in mid-July.

There are currently several technical indicators strongly suggesting that gold and especially silver prices are about to turn down. It is starting to look like this correction could be severe. If support at the $1280 area in gold is broken, prices could fall to $1200 or even lower. It is tempting to try and sell short here, but unless we get a very strong bearish momentum signal, I am going to stick with my bullish strategy of waiting to go long at the bottom of any significant correction. A bottom in the precious metals would be ideal in mid-July.

Last week the U.S. Dollar Index broke support at 80.20 and is now testing another strong support level at 80.00. As I mentioned in last Thursday's blog, the dollar has a lot of support all the way down to 79, so it would not be surprising to see it bounce significantly up any day now and kick start a downturn in gold and silver prices. This may happen next week.

Directional momentum in crude oil remains strongly bullish. If prices can fall to the $103 - $104 area soon I will consider a long position as it is still early in crude's current cycle and there is room for prices to go considerably higher. The ongoing civil war in Iraq is also a major factor now that could push crude prices to higher levels.

Trading Blog Thursday, June 26, 2014

6/26/2014

MARKETS UPDATE (7:15 pm EST)

The broad stock market does not seem to be in a rallying mood this week, but it also seems reluctant to make a strong move down. The S&P 500 and NASDAQ made new highs (barely) on Tuesday (but the DOW did not which could become a case of bearish intermarket divergence). The DOW is dropping a bit so we may be seeing the start of a correction here. Some short-term indicators are suggesting this, but directional momentum is still strongly bullish in all three indices so we'll just have to wait and see where this market goes over the next several days. The first week of July is a timing zone for a likely directional reversal in this market, so if we continue down into next week we could see a significant bottom then. Right now I am favoring the idea of a modest correction into next week and then a rally to new highs (or a double top) to sell short later in July. If instead the market rallies into next week then we may get an early setup for a strong correction down and a good opportunity to go short. Cycle studies and technical indicators are flashing signals of an imminent steep correction, but the question is whether it will be now or later in July. Market manipulators (such as the Federal Reserve) favor a bullish stock market, and they often seem to be able to delay (or even diminish) natural cycle corrections. This is one reason (among others) that I am favoring a steep correction later in July. The directional pattern of this market into next week will give us more information on when (and in what direction) to trade. Still on the sidelines.

Since their surge on June 19, gold and silver prices have leveled off, and both are now looking "toppy". In terms of timing, the next likely turning point for a major directional reversal in precious metal prices is in mid-July. Ideally this will be a low from which the market then turns up, and it will be an ideal buy spot. Short-term technical signals are suggesting some sort of correction now, so it is possible that prices could be down for the next few weeks into that time frame. There is room for gold to rise up a bit more before falling as long as prices remain below the $1330 - $1340 area. If gold prices move down and hold above the $1280 level, it may be a good entry point to buy. Because directional momentum remains mixed bullish and bearish in both gold and silver (as well as in the precious metal mining company stock indices), however, we can't rule out a deeper correction below $1280, possibly even to the $1100 area. Although I would prefer to see a major bottom in mid-July, there is a possibility of a moderate correction now, perhaps to the $1280 area, and then a rally into mid-July to a top that stays below $1400, and then a major correction to new lows. (Should this happen, the mid-July top in precious metals would probably accompany a major bottom in the broad stock market). I know these multiple scenarios can be confusing, but as we move into the first week of July the market directions should become more clear and point us to the appropriate trading strategy. The important thing to remember is that we are now at or close to the final long-term cycle bottoms in both gold and silver and our major strategy is to be bullish (i.e. looking to go long on any significant corrections). Still on the sidelines here and waiting to buy.

Is the U.S. Dollar Index giving us any clue as to where gold and silver are headed? Well, since June 10th the dollar has been falling as the precious metals have been rising, and both are now stabilizing and leveling off (gold and silver at a top and the dollar at a bottom). Significantly, a strong bearish signal appeared in the U.S. Dollar Index chart yesterday, so directional momentum is now mixed bullish and bearish for the dollar (as it is for gold and silver). Because gold and silver are now approaching resistance and the dollar is encountering support, it would be likely for both to reverse direction here, at least short-term. I should point out that the dollar has several layers of support all the way down to the 79 area (it is currently leveling off at 80.20). The 79 level is critical support for the U.S. Dollar, and should this level be clearly breached the dollar would be in trouble (and gold and silver would likely soar). Could this happen? One wonders when the latest Federal Reserve policy statement is suggestive of maintaining near zero interest rates indefinitely and even hints at the possibility of more QE (quantitative easing) if economic data justifies it. The dollar did not like the Fed's dovish statements made last week and fell sharply after they were released. We will have to wait and see to what level the Fed will allow inflation (and erosion of the U.S. Dollar) to go before making policy changes to control it.

Trading Blog Monday, June 23, 2014

6/23/2014

MARKETS UPDATE (8:45 pm EST)

Last Wednesday's FOMC meeting and the "dovish" tone of its policy statement gave a small boost to the broad stock market which kicked the DOW to a new record high of 16,978 on Friday (8 points above the previous June 9th high of 16,970). The DOW is slightly down from that high today and so far this rally seems a bit anemic. We are near the end of significant cycles in all three broad stock market indices (DOW, S&P 500, NASDAQ) so some sort of correction is imminent in these markets. The question is how big the correction will be. Right now directional momentum in these indices continues to be strongly bullish which suggests more rallying into July. If Friday's high was a double top to the June 9th high, however, the market could start falling now and take a moderate correction (perhaps to the 16,300 level). I still feel a more serious correction is coming in July (possibly from a rally to another new high following a moderate correction now). My main focus continues to be on shorting a new high in July, but we could still get a tradable dip and rally before then. Still on the sidelines.

After surging strongly last week the day after the FOMC meeting, gold and silver prices seem to be leveling off. As I mentioned in Friday's gold and silver update, it appears that precious metals could be "breaking out" and starting their new long-term uptrend. There are, however, several short-term technical indicators suggesting that prices could now back down a bit from this surge before continuing higher, and there is even the possibility of this surge being a "fake out" to be followed by new lows in gold and/or silver. This is why I am being cautiously bullish at the moment.
If gold and silver are going to move down again they should start doing so this week. If gold cannot get significantly above $1340, we may see a pullback to the $1290 area. Any dip that holds above $1280 would be a good spot to go long. There is still the possibility of gold and silver making new lows in July, and this would actually be the ideal setup for buying but, of course, financial markets don't always give us the ideal technical setup that we want (although sometimes they do). Gold prices need to clearly break through $1400 before we can be reasonably confident that the final long-term cycle bottom is in. Until that happens there is a possibility of gold moving back down to the $1100 area. I know this short-term speculating can be frustrating to traders, but calling the final bottom of a long-term cycle is never easy. It is important to keep in mind now that the medium and long-term technical picture for gold and silver is very bullish, and once the long-term cycle bottoms are in, both metals are set to rally very significantly for (at least) the next several years. Those bottoms may already be in, but if not, they should be in no later than late July or early August. For now, my short-term strategy is to watch for any dips that hold above the $1280 - $1290 area in gold to go long. On the sidelines of this market.

Relevant to the price movements of gold and silver is the U.S. Dollar Index (which usually moves in a direction opposite precious metal prices). The dollar has lost all of its gains from a surge earlier this month, but it seems to be finding some support above 80.20, and its directional momentum is still strongly bullish. If gold and silver are now "breaking out" then we would expect the dollar to be "breaking down". While this may be happening, the dollar's current bullish momentum makes this judgement premature and reinforces my cautiously bullish attitude towards gold and silver.

I have been staying on the sidelines of crude oil in part due to the current political crisis in Iraq which could continue to have a severe impact on crude prices and make this market very volatile. The cycle picture in crude charts has become clearer recently (we are in the first half of a new cycle that began on May 1) and directional momentum remains strongly bullish. I may consider going long on any significant corrections, but it is important to remember that increased price volatility due to the Iraq crisis can result in abrupt moves in both directions. Buying is not without risk (though probably less of a risk than short selling crude during an escalating crisis in the Middle East). Still on the sidelines here.

Trading blog Friday, June 20, 2014

6/20/2014

GOLD AND SILVER UPDATE (3:30 pm EST)

In Wednesday's blog on gold and silver I wrote:

"...If the cycle bottoms are already in, gold and silver prices could continue up from here and "breakout" to begin that new long-term uptrend. A clear break above the $1300 level in gold would suggest that this is happening."

This scenario may now be unfolding. Gold and silver prices did not react strongly to the Federal Reserve's dovish policy statement on Wednesday, but a sharp drop in the U.S. Dollar Index showed that the dollar did not appreciate the Fed's "easy money" attitude. After digesting this information overnight, many precious metal investors apparently decided it was a good time to buy, and gold prices shot up over $30 on Thursday. Today gold is closing the week above $1300 and silver above $20.50, which is strongly suggestive of a breakout. Strong bullish momentum signals in gold charts accompanied yesterday's price surge making directional momentum in both gold and silver now mixed bullish and bearish (gold had been 100% bearish). This means we should now abandon any short-selling strategies and focus on finding a good entry point to go long in these metals. There are several technical and timing factors right now suggesting some sort of short-term pullback in prices. In fact, there is a possibility that this breakout could be a "fake out" and we could still get a correction to new lows, but that scenario seems much less likely now.
My strategy for precious metals will be bullish now, and I will be looking to buy any short-term corrections or dips in both gold and silver. On the sidelines and waiting to buy.

Trading Blog Wednesday, June 18, 2014

6/18/2014

MARKETS UPDATE (5:15 pm EST)

The Federal Reserve's policy-setting committee (FOMC) finished its two day meeting at 2:00 this afternoon and released a policy statement that contained no surprises for investors and analysts. As expected, the Fed tapered its quantitative easing program (QE) by another $10 billion and, to the relief of many investors, seemed to be in no rush to raise interest rates. In fact, the Fed's press release stated that near zero interest rates would likely be appropriate for "a considerable time" after QE tapering ends. If QE tapering continues at the current rate it should end sometime in 2015, but the Fed's statement even went so far as to say that, "...asset purchases [QE] are not on a preset course...", implying that the QE taper could even be slowed down or stopped if economic data warrants it. Since two major investor fears over the last six or seven months have been QE tapering and the threat of rising interest rates, the dovish tone of this statement was warmly embraced by equity markets and the DOW surged up nearly 100 points in late afternoon after its release. Of course, this may be just a short-term knee jerk reaction to good news, but directional momentum in the broad stock market continues to be strongly bullish so this "thumbs up" from the Fed could be the kick that drives this market to new highs into July. As I've stated in recent blogs, I am anticipating a significant top to sell short in July as there is the potential for a major correction (10-15%) then. The next few days should tell us if today's rally will gain any legs. Still on the sidelines.

Gold and silver prices seemed little affected by today's FOMC statement with both rising only slightly. At the moment it is still unclear if the precious metals will make one more correction down and form new lows (or a double bottom) before starting a new bullish long-term cycle. If the cycle bottoms are already in, gold and silver prices could continue up from here and "breakout" to begin that new long-term uptrend. A clear break above the $1300 level in gold would suggest that this is happening. Until we see that, any rally to the $1290 area in gold and the $20 area in silver may be an opportunity to sell short. Directional momentum in gold is still strongly bearish while silver is mixed bullish and bearish which gives us mixed signals. Ideally I would like to see a new bottom in July to buy into, but if gold prices start to exceed $1300 then I may have to abandon that idea and start buying sooner. If this market is going to turn down again it should start doing so over the next several days. We will watch closely for this. Still on the sidelines.

The U.S. Dollar Index dropped sharply today, perhaps in response to the Fed's "easy money" policy statement. Nevertheless, support at 80.40 seems to be holding and directional momentum in the dollar continues to be strongly bullish. If this index stays bullish, we could see a rally that could help drive gold and silver to their final lows and ideal buy spot. Alternatively, any breakdown of the dollar now would likely propel the precious metals into a breakout. We will continue to watch this index carefully.

Trading Blog Monday, June 16, 2014

6/16/2014

MARKETS UPDATE (3:15 pm EST)

A major development on the geopolitical scene last week was the news of militant groups in Iraq threatening to seize control of Baghdad. This crisis seems to have caught the U.S. White House off guard and struggling for an appropriate reaction to a conflict it thought it had left behind with the end of the Second Gulf War and the withdrawal of all U.S. troops in 2011. President Obama is now promising assistance to Iraq's government to help fight insurgents but has stated that there will be no American "boots on the ground" in Iraq. The immediate and most obvious effect of this crisis on financial markets was a surge in oil prices to over $107 last Thursday. Any escalation of the crisis in coming weeks could potentially cause an already nervous stock market to drop hard and also trigger a strong rally in precious metals. We now have three geopolitical situations to keep our eye on for their potential influence on financial markets: Iran, Ukraine, and Syria (this country's civil war continues and is being exploited by the same terrorist group, ISIS, that is now seizing control of cities in Iraq). Significantly, directional momentum in crude oil charts has been persistently bullish over the last four weeks, perhaps foreshadowing the current crisis in Iran (markets can sometimes be bellwethers of political events).

After dropping a bit from a peak near 17,000 last Monday, the DOW seems to be leveling off between 16,700 and 16,800. Monday's peak could be a significant top, and it is possible now for the DOW to continue down into the 16,200 - 16,300 area over the next few weeks, especially considering potential investor fears from the new geopolitical crisis in Iraq. Directional momentum, however, continues to be strongly bullish in the DOW, S&P 500 and NASDAQ indices, so I am reluctant to sell short at the moment. I still favor the idea of further rallying into July before any serious correction. Remaining on the sidelines of the broad stock market for now.

With this new instability in the Middle East, crude oil prices could become quite volatile over the next several weeks and it may be wise to avoid any trading of this commodity (especially short selling as escalating political instability in Iraq could trigger major price surges). Crude charts are still showing strong bullish momentum, and cycle studies are now suggesting that we are in a new cycle that started in early May, so prices may have room to go much higher.
I may consider going long on any short-term correction, but for now I am staying on the sidelines.

My main focus in trading right now is in the precious metals market. As I have been stating in recent blogs, it looks like gold and silver prices are at or near their long-term cycle bottoms, and we should be looking to go long heavily in these metals soon. Short-term, however, I have been watching for a final price correction down into July, which would be the ideal time for the long-term cycle lows. Strong bearish momentum in the charts of gold and silver as well as in the charts of gold and silver mining company stocks have been supporting this idea of one more leg down in prices. That may be changing, however, as the two main mining company stock indices, HUI and XAU, have now shifted from 100% bearish to mixed bearish and bullish. Today silver charts are doing the same thing (they are now mixed bearish and bullish; gold charts remain 100% bearish, at least for now). This is a sign that precious metals are about to turn up, so we may be very close to the final cycle bottoms. We can still get another correction down first (in fact, several short-term technical signals are strongly suggesting this) so there may still be an opportunity here to short sell this market before going long. I will wait for a daily sell signal before attempting this. That signal may come over the next few days. Stay tuned. On the sidelines at the moment.

The U.S. Dollar Index backed down a bit last week from its "breakout" above 80.80 but is now hovering above strong support at 80.40. If the dollar launches another assault at the 80.80 level it could help push the precious metals down to a final bottom. On the other hand, if support at 80.40 breaks down we may see gold and silver start to rally strongly. As always, we will keep an eye on this index to help us gauge the behavior of the precious metals.

Trading Blog Wednesday, June 11, 2014

6/11/2014

MARKETS UPDATE (4:30 pm EST)

A positive jobs report last Friday helped to propel the DOW to a new record high this week on Monday, but the market now seems to be falling from that high. I am anticipating a directional shift this week so this may be the start of it. Directional momentum is still mostly bullish in the broad stock market, and as long as it remains bullish I am still thinking that the major correction in this market (10% or more) will be in July. That said, we could still get a substantial dip now that could possibly reach the 16,200 area in the DOW. I would be looking to buy any such correction for a rally into July to a new high to sell short. My main strategy now is to focus on that peak in July for a substantial shorting opportunity, but we may also see a worthwhile short-term trade (up or down) before then. Stay tuned. Still on the sidelines of this market.

A major directional shift in precious metals could also occur this week, and since gold and silver prices have been rising, that directional shift would be back down. This reversal could start any day now, and I am waiting for any short-term sell signal that would indicate an opportunity to go short in these metals. Directional momentum remains mostly bearish in gold and silver which is supporting this idea of the precious metals moving down to a final bottom sometime in July. If gold continues to rally past this week and starts to exceed $1300, however, I will have to abandon that view and consider the possibility that the final cycle bottoms in gold and silver are already in. The main thing to keep in mind here is that we want to start buying gold and silver once we are reasonably certain of the final long-term cycle bottoms in both metals. Still on the sidelines but waiting to sell short, possibly within the next few days.

After a brief correction down last week, the U.S. Dollar Index is resuming its "breakout" behavior this week as it surged up and reached 80.9 yesterday. This bullish behavior of the dollar seems to be tempering the current rally in precious metals, but if the dollar now backs down a bit it could push gold and silver prices to an ideal spot to sell short within the next few days.

Crude oil prices made a new high and touched $105 yesterday, but cycle patterns are still unclear in this market. Directional momentum remains strongly bullish, but this market is overbought and due for some sort of correction.
Still on the sidelines here.

Trading Blog Thursday, June 5, 2014

6/5/2014

MARKETS UPDATE (7:15 pm EST)

The U.S. Labor Department jobs report comes out tomorrow, and since we are about to enter a potential turning point in markets in the second week of June, investor reaction to this data may have some impact on directional trends. Most analysts are not expecting this report to deliver any data that would support delaying the Fed's QE tapering program (in which bond purchasing is expected to cease by the end of the year), but numbers that point to a stable economy also means that we are on track for the raising of interest rates in 2015, something that investors are dreading. The fear of rising interest rates is a potentially bearish factor in the stock market that we need to be increasingly aware of as we approach 2015.

The DOW finally made a new all-time high on Monday and is rising a bit more today. After analyzing the charts of the broad stock market over the last few days, I am starting to think that any significant correction in this market may be pushed into July. In other words, it may be a little too early to think about selling short. Any dips now, I suspect, will be minor and followed by more rallying into July. This scenario is supported by the fact that both the DOW and S&P 500 have now made new all-time highs (negating the bearish intermarket divergence signal from last week) and by directional momentum that remains strongly bullish in both indices. If this market continues to push higher tomorrow and into next week there will be a good chance for a reversal, but, as stated above, I think it is likely to be short-lived and followed by higher prices into July. If the DOW reacts poorly to tomorrow's jobs report we could also see a brief dip in the market that could bottom next week and serve as the base for a reversal and rally into July. We will have to wait and see how this plays out, but for now, barring a major bearish shift in directional momentum, I am anticipating a major top to sell short in July. Depending on the nature of any short-term dips over the next week or two, we may also see an opportunity to go long for a rally into July. On the sidelines for now.

In my last blog I wrote, "...Short-term, we may see an opportunity over the next few weeks to sell short these metals [gold and silver] as there could be a brief rally before prices move to their final bottoms."
We may be seeing the start of that rally now as both gold and silver rose sharply today. This rally could be substantial, but the technical and cycle picture is suggesting it will be of brief duration and followed by a strong decline into July. As long as directional momentum remains strongly bearish in the precious metals market (the bearish conditions described in Sunday's blog are essentially unchanged), I am looking to sell short any significant rally now with the expectation of a final cycle bottom in July. Still on the sidelines.

In May the U.S. Dollar Index was manifesting a "breakout" pattern with directional momentum remaining strongly bullish which suggested that the breakout was not a "fake out''. Today, however, the dollar surged to 81 then fell sharply and closed the day around 80.34 near the bottom of the day's range, which is very bearish behavior (at least short-term). After rallying strongly for the last four weeks, the dollar was entitled to a break, but today's volatile movements might be a 'blow-off" pattern suggesting an imminent breakdown. My primary concern here is the inverse correlation between the dollar and precious metal prices. Ideally, this dollar correction will be brief (but perhaps steep) and will help drive gold and silver prices to a top that can be sold short when the dollar starts to bounce back. The dollar's directional momentum is still strongly bullish (for now) so I am favoring (and hoping for) this scenario. If the dollar does start to seriously break down, however, it would likely trigger major rallying in precious metals and I would be looking to go long in gold and silver instead of selling short. I will be watching the dollar index carefully over the next several weeks.

Crude oil prices have been fairly flat this week and cycle and chart patterns in crude remain ambiguous. Momentum is still strongly bullish. If momentum remains bullish and prices start to fall into next week, we may have a good set up to go long. Still on the sidelines.

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