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Trading Blog Friday, June 30, 2017

6/30/2017

MARKETS UPDATE (3:00 pm EDT )

We are now at the center of a reversal zone for the broad stock market (it extends into next Wednesday), and equities continue to seesaw up and down. Yesterday all three market indices (DOW, S&P 500, NASDAQ) dropped steeply and made new weekly lows, but they seem to be rising a bit today (at the time of this writing - around 2:30 pm EDT). Right now it looks like this market wants to make a low in this reversal zone but is perhaps being buoyed by the upcoming holiday week-end in the U.S. (4th of July). Trader optimism often rises before holiday week-ends. Yesterday directional momentum in the S&P 500 and NASDAQ changed from nearly 100% bullish to mixed bullish and bearish which suggests a correction is in progress (although the DOW is still nearly 100% bullish). The DOW is still quite far above our corrective target range of 20,600 - 20,800 so I think this market could drop lower and get closer to that range within the current reversal zone by next Wednesday or Thursday for a possible spot to buy. On the other hand, if these indices push higher into that time, we may instead have a shorting opportunity (especially if one or two, but not all three, indices make new highs - i.e. intermarket bearish divergence). Still on the sidelines of the broad stock market.

In Tuesday's blog on the precious metals I wrote:

"...gold's sudden drop below a support line at $1240 introduces the possibility of a sharp sub-cycle correction into the upcoming reversal zone for gold and silver (June 28 - July 6). If such a correction sends gold below $1214, the overall trend could turn very bearish. If yesterday's "accidental" sell order produces only a short-term downward glitch in gold's chart then I will take off my tin foil hat and reconsider more bullish strategies for trading."

Gold got up to $1254 on Wednesday, but prices are back down again testing the $1240 level so it is still not clear if this market is going to turn bearish. We are now in the center of a reversal zone for both gold and silver which ends next Thursday so prices could easily make a new low by then, but first gold has to break clearly below support at $1240. We will watch for that and an opportunity to buy next week as long as gold prices stay above $1214 (and silver above $16.07). An ideal buy situation will set up if gold makes a new low next week and silver stays above this week's low (bullish divergence). On the sidelines of gold and silver.

Crude oil prices have been rising quite steeply this week and are now approaching a resistance level at $46 (Aug. contract chart). Because we are now entering a reversal zone specifically for crude (all next week), we will watch for an opportunity to sell short. In Tuesday's blog I wrote:

"If prices continue to rise into next week's reversal zone, we could see them turn down and fall lower into the second half of July closer to our target of $40 for the end of the cycle. Let's go with that scenario for now with the idea of buying a cycle bottom near $40."

We will still watch for that bottom near $40 which could be the end of a longer-term cycle and thus a very good buying spot, but this week's significant rally into a reversal zone may be giving us a good short-term shorting opportunity as well. Conservative longer-term traders may want to just wait for the cycle bottom near $40 to buy. Still on the sidelines of crude oil.

Trading Blog Tuesday, June 27, 2017

6/27/2017

MARKETS UPDATE (3:00 pm EDT)

We are about to enter another reversal zone for the broad stock market (and other markets) from June 28 - July 5. The DOW, S&P 500 and NASDAQ still have time to make either a high or low in this period. The upcoming holiday week-end (Fourth of July -Independence Day- in the U.S.) suggests a high (equities often rally into holiday week-ends), but a correction in these markets is imminent so we cannot rule out a low. If these indices do drop, we would probably look to buy around 20,600 -20,800 in the DOW and 2,400 in the S&P 500. Still on the sidelines of the broad stock market.

Yesterday's strong drop in gold prices in early morning trading was apparently caused by a large sell order "given by mistake" according to some news sources. It is known that gold prices are sometimes manipulated by unknown traders who place such orders. The recent gold cycle has been setting up a pattern where it could "break out" and embark on a major rally if prices break above the $1300 level. A major surge in gold prices could make equity markets vulnerable to a sell-off and tank the U.S. dollar among other things so there are reasons to suggest a possible manipulation here. This is not a "conspiracy" website, however, so we will focus mostly on the technical ramifications of yesterday's price drop. As I stated in yesterday's blog, gold's sudden drop below a support line at $1240 introduces the possibility of a sharp sub-cycle correction into the upcoming reversal zone for gold and silver (June 28 - July 6). If such a correction sends gold below $1214, the overall trend could turn very bearish. If yesterday's "accidental" sell order produces only a short-term downward glitch in gold's chart then I will take off my tin foil hat and reconsider more bullish strategies for trading. In the meantime we will stay on the sidelines of gold and silver and watch how prices move into the end of the week and early next week.

Crude oil prices have been rising from last week's low of $42.05 (Aug. contract chart), but we are entering a reversal zone specifically for crude all next week. Last Thursday I wrote:

"Crude oil prices have now broken below the May 5th low of $44.45 (August contract chart) which most likely indicates that a long-term cycle is bottoming and prices will continue lower for at least 3 more weeks (possibly longer). The final cycle low could be in the $40 area. There are two reversal zones specifically related to crude coming up in July. That would be in the first week of July and the last two weeks of July."

If prices continue to rise into next week's reversal zone, we could see them turn down and fall lower into the second half of July closer to our target of $40 for the end of the cycle. Let's go with that scenario for now with the idea of buying a cycle bottom near $40. Still on the sidelines of crude oil.

Trading Blog Monday, June 26, 2017

6/26/2017

GOLD TRADE ALERT (3:00 pm EDT)

Gold and silver appear to be starting sharp sub-cycle corrections with today's sudden plunge in the price of both metals. Early in the day gold prices broke below our stop loss level of $1240 so traders may now be out of their long positions. If not, it is probably a good idea to get out now. Prices are closing back above $1240 at the moment, but could easily fall lower over the next few days. We can pull out now with a very small loss of < 1%. There is still a strong reversal zone specifically for precious metals coming up later this week and early next week. It looks like there is a good chance that prices will fall into that reversal as this current sub-cycle correction could be very steep (but probably brief). Depending on how far gold (and silver) prices get, we might buy again at the end of the week or early next week. We don't want to see gold fall below $1214, however, as that would suggest the overall trend is turning bearish. Directional momentum in gold is currently mixed bullish and bearish, but silver is nearly 100% bearish. This makes a strong case for the bearish view right now. Selling all long positions in gold today and still out of silver.

Trading Blog Thursday (late night), June 22, 2017

6/22/2017

MARKETS UPDATE (11:30 pm EDT)

The broad stock market appears rather indecisive this week as to the direction in which it wants to move. After making new all-time highs early in the week, the DOW and S&P 500 have edged downwards a bit. The NASDAQ has remained below its June 9th all-time high and has been relatively flat this week. The next reversal zone for this market is June 28 - July 6. All three indices could still fall steeply into this time period (which would be ideal timing for a corrective bottom), but they seem reluctant to move down (which is not surprising as directional momentum in all three charts is still 100% bullish). If equities move lower into late next week and the July 4th holiday week-end, we will look for an opportunity to buy. But equity markets often rally into holiday week-ends so we may instead see this market push higher next week. In that case we will again look for a top to sell short as we are still expecting a significant correction (possibly 10% or more) to start from a high any time within the next several weeks. Still on the sidelines of the broad stock market.

Gold seems to have found some support just above $1240 (our stop loss point) early this week, and prices now appear to be rising. Any rally, however, may not get that far as next week (and the following week) could be a reversal zone for the precious metals. This means that any new high that forms next week through July 6 could be a pivot point for another downturn and correction. We currently have a long position in gold that we entered on June 16. Today's rally took gold back up to that entry point. Let's see if we can move higher at least into early next week before we sell that position. If we're lucky, this rally could take gold to the $1270 area where there is some resistance. If we get there next week, that may be a good spot to unload our longs. This week silver prices got a bit below our $16.50 target for a bottom, but now this metal also appears to be rallying. I am avoiding buying silver here because of the reversal zone coming up next week which could make any rally very short-term (we are generally not day traders). If we get a case of intermarket bearish divergence next week (or the following week) where gold or silver (but not both) make a new weekly high, we may consider going short in both metals. Holding my long position in gold but still out of silver.

Crude oil prices have now broken below the May 5th low of $44.45 (August contract chart) which most likely indicates that a long-term cycle is bottoming and prices will continue lower for at least 3 more weeks (possibly longer). The final cycle low could be in the $40 area. There are two reversal zones specifically related to crude coming up in July. That would be in the first week of July and the last two weeks of July. We will look for a good buying opportunity if prices get closer to $40 in either one of those time periods. Still on the sidelines of crude.

Trading Blog Monday, June 19, 2017

6/19/2017

BROAD STOCK MARKET TRADE ALERT and MARKETS UPDATE (3:15 pm EDT)

Last Wednesday we entered a short position in the broad stock market in anticipation of an imminent significant correction. In Friday's blog I described a stop loss for that trade:

"On Wednesday I suggested a stop loss based on both the S&P 500 and NASDAQ making new highs next week. I am going to change that to both the S&P 500 and DOW making new highs. The reason for this is that it is possible the NASDAQ's correction is already underway, and it could fall into early July while the DOW and S&P 500 push higher. Because our short trade has been made in index funds tied to the DOW or S&P 500 (not the NASDAQ - see Wednesday's trade alert), we don't want to see these indices break higher after this week."

The DOW and S&P 500 are both making new highs today so our stop loss condition is being met and we should now cover (unload) our short positions in this market. We are just above last Wednesday's index values and should be able to get out here with an insignificant loss (<1%). There is a possibility we are being "whipsawed" prematurely out of this trade (i.e. the market could still fall over the next day or two), but as disciplined traders we will stick to our stop loss parameter which is designed to minimize our loss. It appears that this market is bypassing an overdue subcycle and will move directly to the next one which could peak in early July. If this is happening, the overdue correction is even even more likely to take place from any high that forms then. Our strategy now will be to watch for a peak to again sell short which could be as early as late next week. This correction could be as much as 10% or more. Covering (unloading) my short position in the broad stock market today.

On Friday we entered a long position in gold while staying out of silver. I was hoping for a scenario where gold prices would stay above last week's low while silver prices would make a new low this week (bullish divergence) closer to our target price of $16.50. Well, today silver is making a new low and touching that $16.50 mark, but gold prices are also falling to new lows so we are not going to get that intermarket bullish divergence signal. We have not yet breached our stop loss point for our gold trade ($1240), but we are getting close. There are some short-term technical signals suggesting a possible reversal by Wednesday so I am going to hold my long position in gold for now. As with the broad stock market, gold and silver could be bypassing an overdue subcycle low and moving directly to the next one which could bottom late next week into the first week of July.

Gold and silver's fall today is being driven by a rise in the U.S. Dollar Index. As I have stated in recent blogs, the chart of the dollar is looking very weak right now. Today's rally has the greenback again pushing against a set of strong resistance lines from 97.50 all the way up to 100. In other words, there is a lot of overhead pressure on the dollar to put a damper on any rally it may attempt. If the dollar does attempt to "break out", it could push precious metal prices lower so we will keep an eye on this.

Crude oil prices continue to move lower and are now testing the low of May 5. The cycle pattern in this market is still not clear so we will remain on the sidelines of crude for now.

Trading Blog Friday, June 16, 207

6/16/2017

GOLD TRADE ALERT and MARKETS UPDATE (2:30 pm EDT)

Gold and silver prices dropped significantly this week. Gold is now at the lower end of our target price range for a bottom to this correction ($1250 - $1260) while silver hasn't yet touched our target price of $16.50 (it is close). There are several technical signals suggesting a reversal in these metals could start anytime between now and next Wednesday with a significant rally to follow. Curiously, directional momentum in silver is at the moment strongly bearish while gold is strongly bullish. An ideal set-up for a rally would be to see silver make a new low early next week closer to $16.50 with gold staying above this week's low for a case of intermarket bullish divergence. Gold is now close to a support line at $1250 (and another at $1240) so I am going to enter a long position in gold today but hold off buying silver until we see how prices move into early next week. We can set a close stop loss for gold on a close below $1240.

After rallying last week (perhaps in anticipation of this week's Fed meeting and an expected interest rate hike), the U.S. Dollar Index fell into Wednesday's rate hike announcement but snapped back up Thursday. Today the dollar is testing a strong resistance level at 97.50. If it does get through this, there is an even stronger resistance zone at
98 - 99.50. This downward pressure on the dollar (directional momentum is still strongly bearish) could force the greenback lower in coming weeks, and this would be bullish for gold and silver.

Crude oil prices continued lower this week, and they are now testing the May 5 low of $44.13. Directional momentum in this market is now 100% bearish. If that $44.13 low breaks, crude prices could continue lower for at least several more weeks. We are on the sidelines of crude for now.

We are now short in the broad stock market based on the idea that this week's high in the DOW and last week's high in the S&P 500 and NASDAQ all represent a significant sub-cycle top from which a significant correction will now unfold. So far the NASDAQ has fallen significantly, but the S&P 500 and especially the DOW seem reluctant to move down. Starting next week there are no reversal zones until the first week of July so these indices will likely move down into that time. I am going to change my stop loss parameters on this short trade. On Wednesday I suggested a stop loss based on both the S&P 500 and NASDAQ making new highs next week. I am going to change that to both the S&P 500 and DOW making new highs. The reason for this is that it is possible the NASDAQ's correction is already underway, and it could fall into early July while the DOW and S&P 500 push higher. Because our short trade has been made in index funds tied to the DOW or S&P 500 (not the NASDAQ - see Wednesday's trade alert), we don't want to see these indices break higher after this week. Holding my short position in the broad stock market (DOW and S&P 500).

Trading Blog Wednesday, June 14, 2017

6/14/2017

BROAD STOCK MARKET TRADE ALERT (3:15 pm EDT)

Yesterday and today the DOW made new weekly highs while the S&P 500 and NASDAQ remained below their highs from last week. We are thus getting another intermarket bearish divergence signal in the broad stock market. Even though the S&P 500 is very close to last week's high and could break through tomorrow or Friday, the NASDAQ is not likely to do so as it is a good distance from last week's high. As I stated in Monday's blog:

"The strength of the NASDAQ's fall today suggests a correction is starting in that index, but the DOW and S&P 500 are not falling as much. If the DOW and/or the S&P 500 can poke above last week's high(s) this week, we could get another bearish divergence signal that would give us another opportunity to sell short."

We are getting that signal now. There are several cycle, timing, and technical factors that still point to a significant correction now so I am going to again enter a short position in the broad stock market today. Traders using index funds should avoid short selling the NASDAQ and instead short sell funds tied to the DOW or S&P 500 as the NASDAQ's correction may already be underway. We can set a stop loss for this trade based on the S&P 500 and the NASDAQ both making new weekly highs, especially if that happens next week.

The Fed announced another interest rate hike after its meeting today which was expected by most analysts and investors. Equities fell sharply after the announcement but seem to be stabilizing at the time of this writing (3:15 pm EDT).

Trading Blog Monday, June 12, 2017

6/12/2017

MARKETS UPDATE (5:30 pm EDT)

All three major market indices are down today (DOW, S&P 500, NASDAQ). This could mean that the reversal we had been expecting has started from last Friday's highs. Because those highs broke our intermarket bearish divergence signal, we were stopped out of our short positions on Friday. As I stated in Friday's blog:

"There is a chance we are being "whipsawed" out of this trade too early...The next reversal zone for this market is coming up around July 1, but if we get another case of intermarket bearish divergence next week, I might consider going short again."

OK. The strength of the NASDAQ's fall today suggests a correction is starting in that index, but the DOW and S&P 500 are not falling as much. If the DOW and/or the S&P 500 can poke above last week's high(s) this week, we could get another bearish divergence signal that would give us another opportunity to sell short. Otherwise, we may have to wait for a corrective bottom to buy. Longer-term analysis of this market still shows a strong possibility of another strong rally into the summer that would likely start from any corrective bottom that forms over the next several weeks. On the sidelines of the broad stock market for now.

Gold and silver prices have been falling sharply from last week's reversal zone specifically for precious metals (centered on June 7) and we should now be watching for the bottom of this correction and a good spot to buy. That may come this week as the Fed is expected to announce another interest rate hike after its meeting this Tuesday/Wednesday which could be a turning point for the precious metals. Directional momentum in gold charts is now nearly 100% bullish which supports the idea of an imminent rally (silver is still mixed bullish and bearish). A good target for a bottom in gold would be around $1250 - $1260. A good silver target would be around $16.50. We will watch for those levels over the next two days as potential spots to buy. Still on the sidelines of gold and silver.

The U.S. Dollar Index made a bottom at 96.54 on June 6 near the center of a reversal zone specifically for currencies. In last Monday's blog I wrote:

"...the U.S. dollar seems to be in trouble. Directional momentum in the dollar chart is still nearly 100% bearish. This reversal zone could possibly be a turning point for the dollar to stage a rebound rally, but that rebound may be short-lived as other technical signals are suggesting the dollar could move quite a bit lower. If we do get a short-term dollar rally, that could be just the thing we need to push precious metal prices back down..."

The dollar's "rebound" rally has so far not been able to get beyond a strong resistance line around 97.50. Can the dollar "break out" here? Possibly, but directional momentum is still nearly 100% bearish for the dollar, and if the dollar's longer-term cycle began in February (this is still not confirmed) then the cycle is bearish and will go lower. This week's expected interest rate hike may be driving the dollar's rally from last week's bottom (a rate hike is generally bullish for the dollar), but if and when they do announce a hike on Wednesday, we could see the adage "buy the rumor, sell the news" play out with the dollar turning back down again. That would be bullish for the precious metals.

Last week on June 8, crude oil made a bottom at $45.20 (July contract chart) in the center of a reversal zone specifically for crude. Prices have rallied from there so that could have been a sub-cycle bottom. Normally we would look to buy such a bottom, but last week directional momentum in crude turned 100% bearish. This means that the current medium-term cycle in crude may have started back on March 22 (not May 5) at $48, and if so it would be bearish until it ends, which could be in several more weeks or even much longer. We will stay on the sidelines of crude until the cycle becomes more clear. Any break below the May 5th low of $44.13 will confirm that the cycle has turned bearish.

Trading Blog Friday, June 9, 2017

6/9/2017

BROAD STOCK MARKET TRADE ALERT and MARKETS UPDATE (1:30 pm EDT)

Today the DOW and S&P 500 are breaking to new weekly highs so this triggers our stop loss for the short position in the broad stock market that we entered on Tuesday. Traders should be out of this market. Because we entered our trade very close to our stop levels (21,225 in the DOW and 2,440 in the S&P 500) we are getting out with an insignificant loss (<1%). There is a chance we are being "whipsawed" out of this trade too early. Even though we are technically out of our reversal zone (it ended Wednesday), turning points can sometimes happen outside these zones. The next reversal zone for this market is coming up around July 1, but if we get another case of intermarket bearish divergence next week, I might consider going short again. Otherwise, it seems like this market might bypass this reversal and rally to new highs over the next several weeks. We are on the sidelines of the broad stock market for now and will watch how the DOW, S&P 500 and NASDAQ move next week before considering another trade. Sold our long positions in the broad stock market today as stop loss levels were triggered.

In Monday's blog on precious metals I wrote:

"...prices are rising into a strong reversal zone specifically for precious metals this week (the center point is Wednesday), and while gold made a new weekly high today, silver did not so we have an intermarket bearish divergence signal...There is still time for both metals to push higher before reversing (the reversal zone extends through Friday), and gold may do that."

Gold and silver both pushed higher into Tuesday near the center of our reversal zone and have been falling sharply from there. We will watch for a spot to buy once this correction is complete, possibly next week. On the sidelines of gold and silver for now.

Crude oil prices made a new low yesterday ($45.20 - July contract chart) right in the center of a reversal zone specifically for crude (which extends into early next week). Crude seems to be testing its low from May 5 ($44.13) which started the current medium-term cycle. Because prices still have time to push lower in this reversal zone, and because crude's directional momentum switched to 100% bearish this week, I am going to put off buying on what could be an imminent turning point. If prices break below $44.13, it would mean the overall trend is turning bearish and we would have to reevaluate our trading strategy. Still on the sidelines of crude.

Trading Blog Tuesday, June 6, 2017

6/6/2017

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

The DOW, S&P 500 and NASDAQ are all down a bit today (at the time of this post - 3:30 pm EDT) so our intermarket bearish divergence signal from yesterday (when the NASDAQ made a new weekly high but the DOW and S&P 500 did not) is still valid. We are also nearing the end of the current reversal zone for the broad stock market (it technically ends Wednesday). If this reversal zone is going to be valid, these markets should turn down now. The cycle structure in all three indices is also suggesting that a significant correction should start now. If equities are going to bypass this reversal and instead stage a "breakout", we could see these indices rise into early July before any significant correction. That bullish scenario has a low probability, but markets have recently been very nervous, volatile and unpredictable so anything is possible. What we can do here is sell the broad stock market short today with a stop loss based on the DOW and S&P 500 both breaking above last week's highs (21,225 in the DOW and 2440.23 in the S&P 500). Those highs are very close to today's positions and would result in a very minimal loss if triggered. New highs would be especially significant after Wednesday as we would be out of the current reversal zone, and we wouldn't expect any significant corrections until the next one (around July 1). Entering a short position in the broad stock market today with the stop loss conditions stated above.

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