Blog Archives

Trading Blog Tuesday, June 30, 2015

6/30/2015

BROAD STOCK MARKET TRADE ALERT (3:30 pm EDT)

Another major bear signal appeared in the DOW chart today making its directional momentum now 100% bearish. (The S&P 500 and NASDAQ indices remain mixed bullish and bearish - for now). Cycle analysis is now pointing to further downside into mid-July.

Today Greek Prime Minister Alexis Tsipras submitted a request to Greece's creditors for a third bailout, but German Chancellor Angela Merkel stated that another bailout would not be discussed until after Sunday's referendum when Greek voters will decide on whether or not they will accept the austerity measures of eurozone's finance ministers. It appears that this Greek debt crisis could drag out a bit longer.

Based on the above, I am going to enter a short position in the broad stock market now with a stop loss on a close above 17,700 in the DOW. That breached support level will now offer some resistance to any recovery rally.

Trading Blog Monday (evening), June 29, 2015

6/29/2015

COMMENTS ON THE GREEK DEBT CRISIS and BROAD STOCK MARKET UPDATE (6:45 pm EDT)

European leaders are today encouraging the people of Greece to vote "yes" later this week in a referendum to approve their country's bailout on eurozone terms to avoid a Greek exit from the euro. Greece's prime minister Alexis Tsipras, however, continues to urge a "no" vote in an attempt to gain more leverage to negotiate a deal more favorable to his anti-austerity party. That vote is scheduled for the 5th of July. Mr. Tsipras also stated today that Greece would miss its loan payment to the International Monetary Fund due on Tuesday. Does this mean that Greece will default and leave the eurozone? Well, maybe, but not necessarily. Greece's decision to have a referendum vote has cast the country into uncharted waters. Even if Greece defaults, the European Central Bank and the International Monetary Fund will have to decide how to proceed under these unusual circumstances, and major money moves could be delayed for at least a week. This would give the Greek people enough time to vote and either accept or reject the current terms of their country's creditors. If Greece does default, it is even possible for the country to apply immediately for another bailout; however, a likely requirement for these new funds would be Greece's total acceptance of its creditors terms (i.e. no negotiations and no anti-austerity proposals).

This is not a good situation for global equity markets. Remember that the crash of 2008-2009 was triggered by failing banks. We are now looking at the failing economies of entire countries. Greece's economic collapse could soon be followed by the breakdown of other weak economies in Europe such as Spain and Italy. Some financial analysts are now referring to the current overbought broad stock market as a "bubble looking for a pin". Could the debt crisis in Greece be the pin that pops the bubble? Anything is possible, but no player in this "Greek tragedy" wants to see Greece leave the eurozone, so some sort of resolution may come about over the next week or two to keep Greece's economy in the EU.

The big question for traders and investors now is whether or not financial markets can handle the stress of this economic uncertainty in Europe. The DOW plunged 350 points today, but more significantly, it closed below 17,700. In last Thursday's blog I wrote: " ...If the DOW does break below that (17,700) level, it means the old cycle is not over yet and the market could continue down for several more weeks, possibly bottoming in mid-July. The Greek debt crisis may be the factor that will resolve this current ambiguity in cycle labeling. If the crisis is resolved, stock markets could soar and would likely make new highs. A Greek default and exit from the eurozone, however, could sink the DOW below that 17,700 mark." The DOW closed the day at 17,596 so it looks like we have an older cycle that could bottom in mid to late July. If this bottom goes below 17,000, the broad stock market could turn very bearish. Today's plunge triggered bearish momentum signals in the DOW, S&P 500 and NASDAQ making these indices now mixed bullish and bearish. (They had been 100% bullish). We may see an opportunity to sell this market short over the next several days, but for now we are out of the broad stock market. (We sold our long positions earlier today - see below).

Trading Blog Monday, June 29, 2015

6/29/2015

BROAD STOCK MARKET TRADE ALERT (3:30 pm EDT)

Our stop loss in the DOW at 17,700 has been breached today, and it looks like the market will close below that mark.
I am therefore going to sell my long position in the broad stock market today. I will post more analysis later this evening.

Trading Blog Sunday (night), June 28, 2015

6/28/2015

BRIEF UPDATE ON GREECE DEBT NEGOTIATIONS (11:30 pm EDT)

The Greek debt crisis has escalated this weekend and is being referred to by at least one financial analyst in Brussels today as ".. a pretty big mess right now." An emergency meeting of eurozone finance ministers broke down on Saturday when Greece's Prime Minister Alexis Tsipras requested an extension to his country's existing bailout program past a Tuesday deadline. This extension would allow Greece to hold a national referendum on July 5 to let voters decide whether or not the country should accept bailout aid under the current terms of Greece's creditors. While Mr. Tsipras and his popular anti-austerity Syriza party oppose these terms, many political analysts feel that Greek voters might accept them in order to prevent Greece's exit from the eurozone. The Greek people are clearly worried about the safety of their money as many stood in lines at banks and ATM machines last week and on Saturday to withdraw savings. The European Central Bank denied Tsipras' request to expand emergency funds to Greece but did not cut off support entirely, thus leaving room for more negotiations next week. To prevent a run on its country's banks, Tsipras and Greece's president Prokopis Pavlopoulos have declared next week a " Bank Holiday Break" when all banks will be closed and severe restrictions will be placed on ATM withdrawals. The Athens stock exchange will also be closed on Monday.

Needless to say, this "pretty big mess" is not good news for global financial markets worried about a possible Greece default and exit from the eurozone currency. As I've stated in recent blogs, a breakdown in Greek debt negotiations could send equity markets down, so we need to be ready to bail out of our long positions in the broad stock market next week if necessary, especially if the DOW starts to break below 17,700. A Greece default could also boost the dollar and push down precious metal prices. At the moment gold and silver charts are starting to look a little more bearish than bullish, so a deeper correction in these metals is a real possibility now.

This week should be an interesting one for all financial markets, and we will be especially alert and diligent in our trading.

Trading Blog Thursday (night), June 25, 2015

6/24/2015

MARKETS UPDATE (11:45 pm EDT)

Most financial markets were at a near standstill early in today's trading as they waited for the latest news on the Greek debt crisis. A key meeting of eurozone finance ministers broke up today without any agreements reached between Greece and its creditors. There could be another meeting on Saturday. Greek Prime Minister Alexis Tsipras expressed optimism before the meeting Wednesday night saying that. "... I am confident we will reach a compromise." Much to the annoyance of eurozone officials, however, Greece seems unwilling to compromise on its previously submitted anti-austerity proposals. It seems this standoff may push into the 11th hour with the approaching deadline for Greece's debt payment next Tuesday.

The broad stock market seemed unhappy as it digested this news, and the DOW started to drop in the afternoon, closing the day with a loss of 75 points. My suggested stop loss when we entered our long position in the broad stock market on June 10 was 17,700 in the DOW. The DOW touched this level on June 15 before starting a major rally. That appears to be a significant bottom and the start of a new cycle in this index. If so, then this week (according to cycle timing) is too early for a reversal and subsequent move below that 17,700 mark. If the DOW does break below that level, it means the old cycle is not over yet and the market could continue down for several more weeks, possibly bottoming in mid-July. The Greek debt crisis may be the factor that will resolve this current ambiguity in cycle labeling. If the crisis is resolved, stock markets could soar and would likely make new highs. A Greek default and exit from the eurozone, however, could sink the DOW below that 17,700 mark. Right now I am favoring the more bullish idea of a resolution to the Greek crisis and more rallying in the markets. I should note, however, that even in that scenario we could be looking at a market surge to new highs in July from which a major correction (10% or more) would follow. (We will want to cover any longs and go short if that happens). Maintaining my long position in the broad stock market for now.

Precious metal prices seemed unmoved by today's news on the Greek debt crisis. Like Greece and its creditors, gold and silver bulls and bears seem to be at a stalemate. Technical signals in the charts of both metals are currently mixed. Some of them support the possibility of a rally in prices now, but others are suggesting an imminent drop. We are now on the sidelines of both gold and silver.

The small rally in the U.S. Dollar Index early this week didn't get very far and now seems to be leveling off.
A resolution of the Greek debt crisis would likely weaken the dollar and push it back down towards support around 93. If that support is breached, the dollar's recent correction could become much more serious. A weak dollar would be bullish for gold and silver.

Crude oil prices fell a bit today along with the stock market. As I mentioned in my last blog on crude, the short-term technical and cycle picture in crude charts is unclear at the moment. As with the other markets, the outcome of Greece's standoff with its creditors over the next several days will probably determine the short-term directional trend for crude. Out of this market for now.

Trading Blog Tuesday, June 23, 2015

6/23/2015

SILVER TRADE ALERT (3:15 pm EDT)

Silver has broken below our tight stop loss at $15.80 and, as per yesterday's blog suggestion, our stop has been triggered and we have sold our silver long position with a minor loss (about 1.5%). While it is still possible for silver to rally here, the chances of a steep drop are now too high to make this trade viable. Sold my long position in silver today and now on the sidelines of both gold and silver.

Trading Blog Monday, June 22, 2015

6/22/2015

MARKETS UPDATE (6:15 pm EDT)

This is the last week for negotiations and an agreement to be reached between Greece and its creditors before Greece risks defaulting on its debt and possibly having to leave the euro currency zone. Today's talks seemed to generate some optimism of a quick resolution to the crisis as Greece submitted new proposals to eurozone finance ministers after what one EU official referred to as five months of deadlock. While this looks promising, it is still uncertain whether or not a deal will be made by the end of the week. If Greece defaults and is forced to leave the eurozone, it could have a severe impact on many financial markets.

A Greek default would almost certainly weaken the euro and as a result strengthen the U.S. dollar. The U.S. Dollar Index is now sitting on a support level at 94 (there is additional support down to 93) so it is ideally positioned for a rebound should Greek debt negotiations break down. Our main concern now is how this will effect the price of gold and especially our current long position in silver. A quick resolution of the Greek crisis would likely boost gold and silver prices while a Greek exit from the eurozone could send them tumbling down. Today gold prices dropped significantly but held above a support level around $1180. Curiously, silver remained stable and even rose a bit, closing the day at $16.22. Short-term technical signals are mixed for both these metals right now, and their cycle structures are also ambiguous. There is still a chance for a strong rally in silver now, but gold's drop today may be a bearish warning. I am going to hold my long position in silver for now, but we will maintain an extremely tight stop loss for this trade on a break below $15.80. Traders should set up an automatic trigger of this stop as silver can move very quickly and generate significant losses in a short period of time (especially if you are using leveraged funds).

The broad stock market rose again today as the DOW, S&P 500, and NASDAQ all made new monthly highs. This rally triggered a major bullish momentum signal in the chart of the DOW making directional momentum in all three of these indices now 100% bullish. This is good news for our current long position in the stock market, but this week finds us in the middle of another significant reversal zone so we need to be wary of a possible top to this rally and a potential reversal. We want to watch now for a new all-time high in the DOW and/or S&P 500 (the NASDAQ has already made a new monthly, yearly, and all-time high). If both the DOW and S&P 500 can make these highs (they are close) then we could see a rally continue for at least several more weeks. If only the DOW or only the S&P 500 makes a new all-time high but not both, we would have a case of bearish intermarket divergence. This could signal a top in the market to be followed by a significant correction (possibly 10-15% or even more). A resolution of the Greek debt crisis this week would favor a strong multi-week rally, but a Greek default and exit from the eurozone might be the trigger for that major correction. We will maintain our long position in the broad stock market for now and wait for stronger technical signals of a top forming before considering closing our longs or even selling short.

The short-term technical and cycle picture for crude oil is still a little unclear. Despite a strongly bullish directional momentum, crude seems reluctant to rally strongly. A rise now towards $63 could be followed by another correction into the $53 - $57 area, but if crude doesn't rally it could just fall directly into that price range over the next several weeks. Any low that forms over the next 2-5 weeks that stays above $47.50 may be a good spot to go long. Out of crude oil for now.

Trading Blog Thursday, June 18, 2015

6/18/2015

MARKETS UPDATE (4:15 pm EDT)

The Federal Reserve and Janet Yellen are well aware of how overbought and unstable equity markets are right now. They realize how sensitive these markets are to their policy statements. This is why their policy rhetoric is usually highly nuanced and carefully balanced so as not to appear excessively hawkish or dovish. They want to give the appearance of being fiscally responsible (more hawkish) but also accommodating to financial markets (more dovish). They were able to strike this balance with yesterday's statements, although the tone was a little more on the dovish side, which was probably a good thing as stock markets are ripe for a major correction right now.

The wording of the Fed's statement was little changed from previous statements and reiterated the Fed's strategy of letting economic data determine the time of the first rate hike and avoiding specific references to a timetable.
Ms. Yellen was also evasive when asked about the timing of the hike and said: "...the importance of the timing...is something that should not be overblown...". She went on to explain that the overall path of the interest hike once it starts is more important than when it starts. Although neither the Fed nor Ms. Yellen referred to a specific time for the hike, the so called "dot plot" data that was released with the Fed's statement suggests that there could be two rate hikes this year and that 15 of 17 FOMC members expect the first hike before 2016. Many financial analysts also feel there could be a hike in September and possibly December. Will this happen or will the Fed continue to postpone a rate hike based on poor economic data? It is too early to tell, but we can be certain of at least one thing. When the first rate hike does arrive, it will have a negative impact on equity markets.

It seems like Wall Street is focusing mostly on the soothing dovish tones of Janet Yellen and is paying little or no attention to the hawkish implications of the Fed's "dot plot" data. The nervous DOW was down 100 points by early afternoon yesterday, but then it quickly recovered after the release of the Fed's statement and Ms. Yellen's subsequent press conference. Today the DOW was up 180 points. This is good news for our long position in the broad stock market, but we now have to watch for a possible top as we move into another important reversal zone early next week. The NASDAQ is already making a new yearly high, but can the DOW and S&P 500 follow suit? If one does but the other does not, we may have another case of bearish intermarket divergence and a signal to cover our longs. Holding my long position in the broad stock market for now.

Gold and silver also seemed to like the Fed's policy statement (and/or Ms. Yellen's comments). In Tuesday's blog I wrote: "If the Fed and Janet Yellen's statements are dovish (i.e. not in a hurry to raise interest rates), this could weaken the dollar and kick gold and silver prices up." Both precious metals rallied today while the U.S. Dollar Index broke below its round number support at 94. We will now wait and see if this rally in the metals can gain any legs. If it does, we will start to look for a top in silver around $17. Holding my long position in silver but out of gold for now.

The technical and cycle patterns in crude oil are a little ambiguous right now so I am going to remain on the sidelines of this market for now. If crude can make a new monthly high by early next week and stay under $63, it is possible another correction could follow and take prices well below $55. Any close above $63, however, would be bullish. Current directional momentum supports the bullish case.

Trading Blog Wednesday, June 17, 2015

6/17/2015

SILVER TRADE ALERT (11:45 pm EDT)

We are a few hours away from the release of the Fed's policy statement, and the price of silver has remained stable at $16. I am going to open a long position in silver ahead of the statement release and Janet Yellen's press conference this afternoon for the reasons described in yesterday's blog. We can set a stop loss on a close below $15.60 or $15.80 depending on your risk allowance. This would allow a 1.25% - 2.5% loss for a possible 6 - 7% gain.
As I stated yesterday, I expect this to be a short-term trade so longer-term investors may wish to stand aside. Going long in silver ahead of the Fed (and staying out of gold for now).

Trading Blog Tuesday, June 16, 2015

6/16/2015

UPDATE ON PRECIOUS METALS, BROAD STOCK MARKET and (POTENTIAL) SHORT-TERM SILVER TRADE ALERT (5:15 pm EDT)

There are several technical and timing indicators right now that are suggesting a strong upward move in silver is imminent. This may be a short-term rally, but the move could be significant (possibly up to $17.25) and therefore worth trading. It is very possible this move could be triggered by the Fed's policy statement tomorrow and/or news concerning the Greek debt negotiations. As I mentioned in my last blog, gold and silver have been giving mixed signals recently and have been indecisive in their directional trend. Tomorrow's Fed policy statement could change that. If the Fed and Janet Yellen's statements are dovish (i.e. not in a hurry to raise interest rates), this could weaken the dollar and kick gold and silver prices up. (A resolution of the Greek debt crisis could have the same effect.) On the other hand, if Ms. Yellen and the Fed turn hawkish (i.e. get very decisive and specific about hiking rates, probably sooner than later), then the dollar could turn up and send precious metal prices down. (A breakdown in Greek debt talks would also more than likely strengthen the dollar and weaken gold and silver.)

So which will it be? Of course, we won't know until the Fed's statement is released tomorrow, but silver prices are currently sitting close to a strong support level at $15.60 - $15.80 and, as I stated above, there are several short-term technical signals strongly suggesting a rally in this metal now. Especially significant is the fact that a strong bearish signal appeared in the chart of the U.S. Dollar Index today which makes directional momentum in the dollar now 100% bearish. A bearish dollar is bullish for the precious metals. If we set a tight stop loss on a break and close below the $15.60 support, we will have a good risk/reward ratio for a trade on the long side. The reason I'm not considering a gold trade here is because we are most likely looking at a short-term trade with a percentage gain in silver of possibly 6-7%. The percentage gain in gold would be smaller and perhaps not worth trading considering the risk of a reversal instead of a rally. I am going to wait until early in tomorrow's trading to open a long position in silver as the price could drop further before the Fed statement is released in the afternoon. Longer-term investors may wish to stand aside this trade as the rally may be brief and could be followed by another reversal and correction down. Traders should also keep in mind that silver is more volatile than gold. Price movements can be rapid so stop loss points should be tight and carefully monitored. On the sidelines of gold and silver today but anticipating going long in silver sometime tomorrow morning if technical signals look appropriate.

Greek Prime Minister Alexis Tsipras addressed the Greek Parliment earlier today with a fiery speech in which he accused Greece's creditors of trying to "humiliate" the Greek people and even suggested that the International Monetary Fund had "criminal responsibility" for the current debt crisis. Despite these inflammatory remarks and Tsipras' seemingly uncompromising attitude during the debt negotiations, many analysts still feel a resolution to this financial crisis is just around the corner as none of the players involved wish to see Greece withdraw from the single currency eurozone. This idea seemed to be supported by today's equity markets which rebounded strongly from yesterday's losses. The DOW gained 113 points. We may still be on track for a new high into next week so I am holding on to my long position in the broad stock market with a stop loss on a break and close below 17,700.

<<Previous

Archives

LEGAL and DISCLAIMER