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Trading Blog Sunday (late night), June 28, 2020

6/28/2020

MARKETS UPDATE (11:00 pm EDST)

The DOW, S&P 500 and NASDAQ are now late in their medium-term cycles. This means that their final cycle tops are due and to be followed by a sharp correction down to their final cycle bottoms. The DOW and S&P 500 most likely made their tops on June 8 (at 27,580 and 3,233, respectively), but it looks like the NASDAQ made its top last week (at 10,221 on Tuesday). The corrective drops are most likely now in progress so we need to watch for the final cycle bottoms. Our current reversal zone technically ends this Wednesday, but I am going to extend it into the end of the week (July 3) because it is such a strong one. We could see these cycles bottom this week, but that would be a bit early. A better fit for a bottom would be in our NEXT reversal zone coming up July 13-21. Good bottom targets for each index would be around 23,400 for the DOW, 2,700 for the S&P 500, and 8,500 for the NASDAQ. We will now look for a spot to buy in those areas either this week or around mid-July (more likely). A case of intermarket BULLISH divergence (one or two of these indices - but not all three - making new lows) would be a good sign the bottoms are in. We will watch for that as well as our targets. On the sidelines of the broad stock market for now

Note that an increase in COVID-19 cases is now making the market nervous and could drive these indices lower towards our targets. Nevertheless, the Fed seems determined to keep this market buoyant with endless money printing, and that could easily rescue equities and launch another rally if support can establish itself in our target areas within a reversal zone.

Our current gold and silver medium-term cycles are also late stage. There's a good chance they are topping out now and a sharp correction down to the final cycle bottoms could be imminent. A good target for a cycle bottom in silver would be around $16. Gold prices could go as low as $1600, but may only get down to $1670 where there is some strong support. All of these levels may be good places to buy as the longer-term trend in both metals looks quite bullish. As with the broad stock market, these bottoms would ideally happen in our next reversal zone in mid-July. (In fact, there is another reversal zone specifically for the precious metals July 9-17.) If prices push higher this week, we could see a top around Thursday/Friday. Currently on the sidelines of gold and silver.

The sub-cycle patterns in crude oil are a bit ambiguous at the moment, but if prices can push down to around $34 this week, we may have a significant sub-cycle low and a good spot to buy. Let's stay on the sidelines for now.

The U.S. Dollar Index has been a bit indecisive over the last few weeks as it tries to figure out how far the Fed's money printing spree will (or can) go. If the Fed continues to broadcast "dovish" rhetoric, the greenback will lose more value. As I stated earlier, this is what we are expecting the Fed to do (i.e. to "rescue" equity markets - after a sharp correction). Such a drop in the dollar could also ignite a new rally in the precious metals - hopefully from the "buy" targets suggested above. We will watch for this.

Trading Blog Wednesday, June 24, 2020

6/24/2020

BRIEF COMMENT ON THE BROAD STOCK MARKET (4:00 pm EDST)

Yesterday the NASDAQ broke up to a new all-time high while the the DOW and S&P 500 remained below their all-time highs (and below their "gap" zones). This is a strong bearish divergence signal in our current strong reversal zone (that ends next Wednesday). Equities are falling strongly today so we could be seeing a major reversal here. But of course, it has to follow through over the next several days. A good target for a corrective low in the DOW now would be around 23,000. For the S&P 500 a good target would be around 2,800.
Let's see if this market can fall that low. If it does and finds support, we may have a good spot to buy.
Still on the sidelines.

Trading Blog Monday, June 22, 2020

6/22/2020

MARKETS UPDATE (4:30 pm EDST)

Last Thursday I wrote:

"That "gap zone" in the DOW is between 26,300 and 26,900. On Tuesday the DOW rallied to 26,600, but it has been falling from there and closed today just below 26,000. The S&P 500 also hasn't been able to close its gap.
The NASDAQ, however, has closed its gap, but it seems to be pausing now at the top of that gap. We have no intermarket bearish divergence this week as all three indices have made new weekly highs, but if the NASDAQ makes a new all-time high tomorrow or next week (it is very close) and the DOW and S&P 500 remain below their February all-time highs, we WILL have a strong bearish divergence signal. We are approaching the center-point of our current very wide reversal zone (June 8 - 30), but it is still not clear if we are going to get a high that reverses down or a low that reverses up."

The NASDAQ has still not broken its all-time high (yet), and the DOW and S&P 500 remain well below their all-time highs and below the "gap zone" described above. Bullish and bearish factors seem to be weighing equally on this indecisive market. I am favoring a bearish view at the moment (at least until The DOW and S&P 500 can push through their gaps) which means we could see a significant cycle low happen within what's left of the current reversal zone (it ends NEXT week on Wednesday). That could be a good buy spot. If instead the market decides to rally, we could see a high in that same time frame and a possible shorting opportunity. It's really a coin toss here so we will remain on the sidelines for now.

Gold and silver rallied today. If this is a decisive move up, we could see a strong rally now, but if we do, it would probably top out by the end of this week and be followed by a sharp downturn that should lead to the final bottom of the current medium-term cycle in both metals. That bottom would be an excellent spot to buy. I am tempted to sell short the top of any rally, but this market's current volatility makes that too risky. Let's stay on the sidelines and wait for that final bottom to buy.

Like the broad stock market, crude oil's chart is ambiguous right now and could be bullish or bearish. Because we are in the center of a reversal zone now and prices are rising, we could (should) see a top over the next several days and then a correction down. Any corrective drop that gets below the $37 low of June 12 (June contract chart) might be a good spot to buy. Let's stay on the sidelines of this market for now.

Trading Blog Thursday, June 18, 2020

6/18/2020

MARKETS UPDATE (6:00 pm EDST)

In Monday's blog on the broad stock market I wrote:

"If this market is going to turn bullish, it has to rise now and overcome the heavy resistance at the "gap zone" described above."

That "gap zone" in the DOW is between 26,300 and 26,900. On Tuesday the DOW rallied to 26,600, but it has been falling from there and closed today just below 26,000. The S&P 500 also hasn't been able to close its gap.
The NASDAQ, however, has closed its gap, but it seems to be pausing now at the top of that gap. We have no intermarket bearish divergence this week as all three indices have made new weekly highs, but if the NASDAQ makes a new all-time high tomorrow or next week (it is very close) and the DOW and S&P 500 remain below their February all-time highs, we WILL have a strong bearish divergence signal. We are approaching the center-point of our current very wide reversal zone (June 8 - 30), but it is still not clear if we are going to get a high that reverses down or a low that reverses up. We'll have to wait a few more days to see if equities can clear those "gap" areas, or whether that gap resistance will force the market lower into next week. Still on the sidelines.

Gold and silver prices have been very flat this week. Nevertheless, some technical signals are still suggesting a big move now. The only problem is that, as with the broad stock market, it is not clear in which direction it will be. We will remain on the sidelines for now and wait for a clear top or bottom to trade. This should be forthcoming as we are in the middle of a very strong reversal zone.

Crude oil may have made a significant sub-cycle low last Friday at $37.07 (June contract chart), but the rally from there has not been that strong and seems to be hitting a wall around $40. There's plenty of time for a lower low into next week (as we are still in a strong reversal zone) which might give us a spot to buy. On the other hand, more rallying to a new high (above $42) could also give us an opportunity to sell short. As with the other markets, we will stay on the sidelines and wait for either a top or bottom into next week.

Trading Blog Monday, June 15, 2020

6/15/2020

UPDATE on the BROAD STOCK MARKET and PRECIOUS METALS (4:00 pm EDST)

In last Thursday's blog on the broad stock market I wrote:

"If we look at the chart of the DOW, we will notice a "gap up" in prices on June 4. Today, June 11, prices made a "gap down" in that same range. This creates what is known as a "bearish island reversal" (trading on June 5 -10 appear like an "island" floating above the gap areas on the chart). This is an extremely bearish sign and usually means the market has turned bearish until it rises back above the gap areas (and there is much resistance at those gaps - now around 26,300 - 26,800 in the DOW). This market is now most likely falling to a deep sub-cycle corrective bottom or maybe even a final medium-term cycle bottom. A sub-cycle correction would be completed either this week or next, but a full cycle bottom would likely be longer and bottom sometime in the last two weeks of June."

All of this is still valid. Today equity markets plummeted in early trading (the DOW lost over 600 points) but then recovered that loss and made a slight gain by the closing bell. If this market is going to turn bullish, it has to rise now and overcome the heavy resistance at the "gap zone" described above. Although anything is possible in these volatile times, that doesn't seem likely. For now, we will stay with the idea that this market will fall some more and give us an opportunity to buy over the next two weeks. Still on the sidelines of the broad stock market.

Gold and silver are EXTREMELY volatile right now with technical signals being very ambiguous in both charts. It looks like a strong move is imminent, but the direction could be either up or down (I know - not very helpful, right?). The odds, however, are slightly favoring a strong rally. A rally could surge into next week, but would be pushing into a strong reversal zone which could limit its height and cause it to top out. There is strong resistance in gold around $1800 so that could turn out to be the peak. On the other hand, prices could fall now. Ideally, we would like to see both metals fall sharply into the end of this week or into early next week which would give us very good spots to buy, but at the moment we just can't rule out the possibility of a sharp rally. How prices move into the end of this week (the center point of our current wide reversal zone - June 8-30) will determine what cycle pattern is unfolding and how we will trade. We will stay on he sidelines for now.

Trading Blog Thursday, June 11, 2020

6/11/2020

BROAD STOCK MARKET UPDATE (6:00 pm EDST)

In yesterday's blog I wrote:

"Unless we see a "sell on the news" effect here with the market taking a correction now, I suspect we will see more rallying into next week as the Fed is making sure people understand that they are now dovish and will do all they can to prop up these markets."

Well, "sell on the news" may be a factor here, but today's massive plunge in equities seems more related to the Fed's pessimistic view of the economy that they articulated yesterday to justify their dovish policy of more bond buying and keeping interest rates near zero into 2022. Usually bad news about the economy is bullish for the broad stock market as it encourages dovish policy from the Fed (as it did yesterday), but more bad news about a second wave of COVID-19 today was enough to trigger a big sell-off on Wall Street. Furthermore, our technical analysis showed a very strong bearish divergence signal early this week as the NASDAQ made new all-time highs with the DOW and S&P 500 well below their all-time highs from February. Yeah, I know I was predicting more rallying into next week, but hey, at least we were wise enough not to chase and buy into the recent rally! (I have no regrets in being on the sidelines of ALL markets now in this EXTREMELY VOLATILE financial marketplace!)

So where do we stand now? If we look at the chart of the DOW, we will notice a "gap up" in prices on June 4. Today, June 11, prices made a "gap down" in that same range. This creates what is known as a "bearish island reversal" (trading on June 5 -10 appear like an "island" floating above the gap areas on the chart). This is an extremely bearish sign and usually means the market has turned bearish until it rises back above the gap areas (and there is much resistance at those gaps - now around 26,300 - 26,800 in the DOW). This market is now most likely falling to a deep sub-cycle corrective bottom or maybe even a final medium-term cycle bottom. A sub-cycle correction would be completed either this week or next, but a full cycle bottom would likely be longer and bottom sometime in the last two weeks of June. Either bottom may be a good spot to buy for a short-term rally (assuming the correction doesn't go too low). We will watch for this now.

Longer-term, if any rallying now cannot get back above this new "gap zone", it would mean that the final longer-term tops are already in (that would be this week's all-time high in the NASDAQ and the February all-time highs in the DOW and S&P 500). In that scenario, the market has already started what will become a VERY big long-term correction, and our main focus would be to sell short at the top of any significant rally. I know these cycles can be a bit confusing, but I will clarify them in more detail whenever I make any trade recommendations.
For now, we will remain on the sidelines of the broad stock market.

Trading Blog Wednesday, June 10, 2020

6/10/2020

MARKETS UPDATE (4:30 pm EDST)

The Fed announced today that it will keep interest rates low into 2022 as well maintain its current bond purchasing program. Formerly hawkish Fed Chairman Jerome Powell has now turned fully dovish in response to the damage COVID-19 has inflicted on the economy. Dovish rhetoric from the Fed is usually bullish news for the markets; nevertheless, equities dropped significantly after the Fed's announcement, and the DOW and S&P 500 closed in the red. The NASDAQ, however, closed with a slight gain and also closed above the psychological milestone of 10,000 with a new all-time high. (The DOW and S&P 500 are still below their February all-time highs). Unless we see a "sell on the news" effect here with the market taking a correction now, I suspect we will see more rallying into next week as the Fed is making sure people understand that they are now dovish and will do all they can to prop up these markets.
Let's remain on the sidelines for now.

Not surprisingly, dovish "coos" from the Fed did not help the U.S. Dollar Index. It fell lower and closed below a support line at 96. The dollar could break down here, but there is a support area down to 95 that might enable the greenback to bounce back - especially as we are now in a reversal zone.

A dive in the dollar is usually bullish for precious metals, and gold and silver prices did not disappoint today. Both metals rallied strongly, which was not completely unexpected. As I wrote in Monday's blog:

" Friday's low was at $1672... there's a chance that gold will rally strongly from that low (or from a slightly lower low this week). It could go either way (up or down) based on mixed technical signals now....(although) It's a good time for gold to turn up from a bottom."

A good time for silver to turn up as well. This rally could be very sharp, nevertheless, prices are rising into a strong reversal zone so a significant top could be imminent. If the dollar finds support and bounces as I described above, it could send gold and silver back down. We'll keep an eye out for a top to possibly sell short in gold and/or silver, but our main focus will be on buying a final medium-term cycle low that may be coming soon after a strong correction. Staying on the sidelines for now.

Crude oil prices were relatively flat today. We are now approaching the center of a reversal zone specifically for crude (June 9 - 17). It would be nice if prices could fall into a sub-cycle dip into our target range of $34 - $37 (June contract chart) within this time frame for a good spot to buy. But crude could also rally up to a sub-cycle top. We'll remain on the sidelines of crude until we see a good buying or short-selling opportunity.

Trading Blog Monday, June 8, 2020

6/8/2020

MARKETS UPDATE (6:00 pm EDST)

The broad stock market is looking amazingly bullish and is continuing its strong rally driven by money printing from the Fed. On Friday last week the NASDAQ made a new all-time high surpassing its previous high of 9,838 earlier this year on February 19. The DOW and S&P 500, however, remain below their Feb. all-time highs. This gives us a strong intermarket bearish divergence signal (until those highs are exceeded in both the DOW and S&P 500), and it is happening as we enter our new wide reversal zone (June 8 - 30). What this means is that we could see a top any time now and a sharp downturn. If that happens, we could see a deep correction into the end of the month to a final medium-term cycle bottom that would be a good spot to buy.

But this market seems very bullish now. In fact, it may be rising parabolically (which opens up the possibility of a parabolic "blow-off", especially if the DOW and S&P make new all-time highs). Instead of falling, I think it's more likely this rally will continue into the mid-point of this new reversal zone around June 19-22 where we may see a final top in the current medium-term cycle. This will be an especially good place to sell short if either the DOW or S&P 500 (or both) are still below their all-time highs. That top would be followed by a deep correction into the final cycle bottom sometime in July. Based on all of the above, our strategy now will be to wait for either a top to sell short or a bottom to buy in that June 19-22 time frame. We will stay on the sidelines of the broad stock market for now.

Gold and silver are giving us LOTS of mixed signals right now. Gold broke and closed below a support line around $1700 on Friday last week. Friday's low was at $1672. If that low breaks this week, prices could continue lower for another week or two. But there's a chance that gold will rally strongly from that low (or from a slightly lower low this week). It could go either way based on mixed technical signals now. Today and tomorrow are the last two days of a reversal zone specifically for precious metals (and the first two days of a very general and broad reversal zone for ALL markets - June 8 - 30). It's a good time for gold to turn up from a bottom.

Silver also made a low on Friday and could be ready to turn up here. But as with gold, there's a chance prices could continue lower into a final medium-term cycle bottom over the next few weeks. There are technical signals supporting both ideas. It's just too risky to trade at the moment. Ideally, I would like to see prices move lower over the next week or two for a final cycle bottom to buy in both metals. If we get a strong rally first, we may have to wait a bit longer for those cycle bottoms. A strong rally into this new reversal zone could also give us a good shorting opportunity for the final correction into the cycle bottoms. We will remain on the sidelines for now.

Crude oil prices are edging higher into our target range of $40 - $45. We enter a reversal zone specifically for crude tomorrow (June 9 - 17). We may see a sub-cycle top soon and some sort of correction. If prices dip into the $34 - $37 area, I may consider buying as it is still early in this new medium-term cycle and this market could be taking bullish cues from the broad stock market. Out of crude oil for now.

Trading Blog Thursday, June 4, 2020

6/4/2020

MARKETS UPDATE (4:00 pm EDST)

The broad stock market has been rallying this week, and all three indices (DOW, S&P 500, NASDAQ) are making new weekly highs which negates our bearish divergence signal from Monday. We are not in a reversal zone this week, but we enter a big one next week (June 8 - 30). This makes me think the market will rally a bit more to form a top in the early part of that reversal. If I'm wrong, and the market turns south now, we may see a corrective low instead in that early reversal period. Either way, we will wait for the reversal period before considering any trade, long or short. Still on the sidelines of this market.

Gold and silver are still tricky to call right now. Both prices are falling, and gold seems to be testing the $1700 level successfully, BUT there are other technical factors that are still bearish. We are in the center of a reversal zone specifically for the precious metals (June 1 - 9) so we could see gold turn up here. Silver, however, is still above our ideal target for a bottom (around $17). I am not comfortable going long now, especially considering we enter that other major reversal zone next week (which could also affect these metals). We'll remain on the sidelines of gold and silver for now.

In my last update on the U.S. Dollar Index (May 26), I wrote:

"...the dollar broke below a support level around 99. This could be the start of at least a short-term downturn in the greenback."

That's turning out to be the case as the dollar has fallen significantly since then. But the greenback is now approaching a support level around 96 which may halt the fall, at least temporarily. If that 96 area holds into next week's reversal zone, we may also see some sort of rebound. Of course, that may not be good for gold and silver prices so we will keep a sharp eye on that 96 support, especially next week.

Crude oil prices have been edging up this week and are very close to $40 (June contract chart) which may offer some resistance now. (There is a considerable band of resistance form $40 - $45.) There is a reversal zone coming up next week specifically for crude (June 9 -17). I am going to wait to see if that will correspond to a new high (perhaps in that $40 - $45 range) or a corrective low (assuming crude starts to fall now). We will consider trading then (from either a top or bottom). Still on the sidelines of crude oil.

Trading Blog Monday, June 1, 2020

6/1/2020

MARKETS UPDATE (5:30 pm EDST)

The broad stock market is giving us mixed bullish and bearish signals at the moment. There is a chance the market could take a corrective dip now into the end of this week or into early next week. If that happens, we might look to buy. Good targets would be around 24,600 in the DOW and 2,850 in the S&P 500. Today the NASDAQ made a new weekly high while the DOW and S&P 500 did not. That gives us a bearish divergence signal and suggests a reversal down now. If instead the market stays bullish and continues to push higher, we will probably start looking for a new high somewhere in the very wide upcoming reversal zone of June 8- 30 (likely turning points could be June 16 and/or June 22). That high could be the final crest in the current medium-term cycle and would likely be a good point to sell short. Even if we get a brief correction down now and buy, we will still be looking for that high in the reversal zone to unload our long positions and go short. (Remember, despite being short-term bullish, this market is very ripe for a serious correction soon). Still on the sidelines of the broad stock market.

Gold and especially silver prices are up today, which is the first day of a reversal zone specifically for the precious metals (June 1 - 9). We also note that silver is making a new weekly (and monthly) high while gold is not (bearish divergence). As with the broad stock market, this could be a set-up for a brief but sharp correction down. If so, we will be looking to buy. Gold could move down to the $1600 level or even lower, but may only test $1700. (It's also possible gold already put in its low last Wednesday at $1694). Silver could be a good buy around $17. It is still early in this new reversal zone so both metals could go higher before turning down. Let's stay on the sidelines of the precious metals for now.

Crude oil prices pushed just a bit higher today. The new medium-term cycle for this market started on 4/22 at the low of $29 (June contract chart) from which crude has rallied to just under $39. A sub-cycle correction is due over the next week or two. If prices dip down to around $35 or even a bit lower this week or next, I may consider buying. But more rallying, especially into late next week would probably be a set-up for a short sell. A reversal zone specifically for crude is coming up June 9 - 17 so we will watch that time frame carefully for a significant high or low to trade. Still on the sidelines of crude.

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