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Trading Blog Thursday, June 27, 2024

6/27/2024

MARKETS UPDATE (5:00 pm EDT)

The DOW, S&P 500, and NASDAQ are now 4 weeks past their first sub-cycle lows from late May and should be making another significant sub-cycle low soon (these are sub-cycles within the longer medium-term cycles which started on April 17 in the DOW and April 19 in the S&P 500 and NASDAQ). We have now entered another strong reversal zone for all markets (June 26 - July 5). This means we could see a significant high or a significant low (or both) anytime through the end of next week that would be followed by a significant correction down or up.

Right now this market looks short-term bullish, and the S&P 500 and NASDAQ are close to making new all-time highs. The DOW, however, seems more reluctant to rally and is still well below it's recent all-time high of 40,077 from May 20. This means we still have a strong bearish divergence signal in this market. If the S&P 500 and/or NASDAQ edge a bit higher and make new all-time highs inside the current reversal zone and the DOW remains below 40,077, we will have a strong set-up for a significant correction down. An alternative (less likely) scenario could see these indices falling from their current levels and making a significant low sometime next week from which another rally would follow. We are remaining on the sidelines of the broad stock market until the medium-term cycle trend (bullish or bearish) becomes more clear.

Gold and silver prices have been down, but gold prices remain above the $2287 low from June 7, which we identified as the start of a new medium-term cycle. We will stay with that idea for now, but we note that silver is breaking slightly below its low from June 13, which we had also labeled the start of a new medium-term cycle. Gold is most likely making a "double-bottom" in our current reversal zone, but since gold is not making a new low, we also have a case of intermarket bullish divergence to silver. A rally in both metals should be imminent as they are most likely starting new medium-term cycles with these bottoms. We are still holding our long position in gold and remaining on the sidelines of silver.

The U.S. Dollar Index has been rising, but it is encountering strong resistance just above 106. A significant high may be imminent inside our new reversal zone with a correction to follow. If that happens, it could kick-start a rally in the precious metals.

Crude oil prices rose steeply last week, but they are encountering strong resistance this week at the $82 level (Aug. contract chart). We are nearing the center of our current reversal zone (which applies strongly to crude), so it seems likely a high and correction down could be imminent here as well. We will probably be looking to buy the bottom of any significant sub-cycle correction as this market seems poised to rally higher into the end of the year. For now, we remain on the sidelines of crude.

Trading Blog Tuesday, June 18, 2024

6/18/2024

MARKETS UPDATE (5:00 pm EDT)

The broad stock market's current short-term trend (bullish or bearish) is still not clear. We are now two days out of our last strong reversal zone, and both the S&P 500 and NASDAQ are making new all-time highs while the DOW remains well below its all-time high of 40,077 from May 20. While the S&P 500 and NASDAQ seem to be "breaking out" instead of reversing, we still have a strong bearish divergence signal between these indices which could turn this market down anytime.

We have a new strong general reversal zone coming up next week (June 26 - July 5). If these indices can rally a bit more into the end of next week, we could see a significant top then (or in the first week of July) and then a significant correction down. If that happens with new all-time highs in the S&P 500 and NASDAQ but with the DOW unable to exceed 40,077, this market could quickly turn bearish. But if all three indices make new all-time highs in that reversal zone, then equity markets could still be bullish into late summer. The DOW seems to be struggling to break above its 15-day and 45-day moving averages, so I am leaning towards a bearish view of this market at the moment. That could change, however, over the next two weeks. We are staying on the sidelines of this uncertain market for now.

Gold and silver also seem reluctant to rally strongly at the moment. But gold is remaining above its isolated low of $2287 from June 7, and silver is staying above its isolated low of $28.72 on June 13 (both lows were inside a strong reversal zone). Those lows are still good candidates for the starting points of new medium-term cycles in both metals. If the old cycles are still in place, however, its possible one or both metals could make a new low in the new upcoming reversal zone (June 26 - July 5). We are betting that gold's low is in with the long position we entered last Thursday. Let's hold that position in gold as we stay on the sidelines of silver for now.

Crude oil prices have now broken clearly and strongly above their 45-day moving average and also above a strong resistance line at $80. It seems likely the low of June 4 at $72.48 (July contract chart) was the start of a new medium-term cycle. It's a little late to be chasing this steep rally, so we will wait for a significant sub-cycle correction for a better spot to buy. We might not have to wait long for this as we could see a significant top in our next reversal zone which starts on Wednesday next week. We are currently on the sidelines of crude oil.

Trading Blog Thursday (late night), June 13, 2024

6/13/2024

UPDATES ON THE BROAD STOCK MARKET and CRUDE OIL (11:30 pm EDT)

The broad stock market continues to give us mixed signals as to its short-term trend. In last Thursday's blog I wrote:

"All three of our broad stock market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles with their lows in mid-April and are relatively young. After rising from there to new all-time highs on May 20 (DOW), May 23 (S&P 500), and May 28 (NASDAQ), these indices made their first sub-cycle correction with lows on May 30 (DOW) and May 31 (S&P 500 and NASDAQ).The DOW's correction was considerably longer and steeper than those for the S&P 500 and NASDAQ, and because of that the DOW's subsequent rally is still well below it's all-time high from May 20 (40,077). The S&P 500 and NASDAQ, however, are pushing ahead with new all-time highs. This means we now have a very strong case of intermarket bearish divergence between these indices, and it is happening as we rally into a strong reversal zone.

Unless the DOW can surge higher very quickly to a new all-time high, it looks like this market's trend could be turning bearish. The DOW still has not broken above its 15-day moving average and would need to climb over 1000 points to clear its 40,077 all-time high. It seems unlikely this will happen by the end of next week (the end of our reversal zone). A more likely scenario would see the DOW topping out sometime inside our reversal zone BELOW its 40,077 high and then turning down (with the other two indices) for another correction. If that happens, the DOW's medium-term cycle would be turning bearish, and it may lead the S&P 500 and NASDAQ into a bearish sell-off."

Well, despite yesterday's attempt to break above the 15-day moving average, the DOW closed back below it today, and this index is still well below its May high (40,077) while the S&P 500 and NASDAQ continue to soar above their May highs. Thus our strong bearish divergence signal remains intact, and tomorrow is the last day in our reversal zone. A correction down seems imminent for all three indices. This could be bearish for the DOW if the correction goes below the start of the current medium-term cycle (37,611 on April 17). The DOW is not far from there, so this is quite possible. The S&P 500 and NASDAQ, however, are far above the start of their cycles on April 19, so it seems unlikely they will turn bearish.

As I mentioned in my last blog, we are expecting a long-term (4 year) cycle to end by the end of this year with a steep 16 - 26% correction. It is not unusual to get a strong rally - even a "blow-off" top - just before such a dramatic correction. If the DOW manages to stay above 37,611 and not turn bearish, we may consider going long at some point over the next several weeks to ride what may be a strong rally that could take the DOW as high as 44,000 and the S&P 500 to 5,800 over the summer. After that (if it happens), however, it would be "look out below" for a 16-26% correction. Let's stay on the sidelines of this market for now as we watch for a reversal from a top no later than Friday.

Crude oil may have made its final medium-term cycle bottom on June 4 at $72.48 (July contract chart), but that low was not inside any reversal zone, which we like to see at the bottom of a cycle. Another thing that makes me uncomfortable is the fact that crude prices have rallied strongly into our current reversal zone (which ends tomorrow). A correction may already be in progress from Wednesday's high ($79.32 - near the 45-day moving average). Let's see how far this correction goes. If it stays above $72.48, we may have to acknowledge that low as the start of the new cycle, and we would then be looking to buy. For now, we are staying on the sidelines of crude oil.

Trading Blog Thursday, June 13, 2024

6/13/2024

GOLD TRADE ALERT (3:00 pm EDT)

We've been waiting for the final medium-term cycle bottoms in both gold and silver, and it's highly likely they are happening now. As I wrote in last Thursday's blog:

"The final cycle top in gold was most likely on May 20 at $2449, and for silver it was $32.38 on May 21. We usually expect a 2-5 week decline from the top to the final bottom, and we are now in the 3rd week for both metals. We note that we are now entering a strong reversal zone that continues through the end of next week. This would be the ideal time for a final cycle bottom."

Last Friday's low in gold ($2287) is holding, but silver is breaking to a new weekly low today ($28.72). This gives us a case of bullish divergence between the two metals with silver's low happening 4 weeks after its cycle top. The lows for both metals are inside a general reversal zone (June 6-14) that ends tomorrow. This looks like a good time to buy.
I am going to buy gold and stay out of silver for now. Why? Right now silver has the potential to fall considerably lower, but even if the medium-term cycle bottoms here, there's a good chance the next medium-term cycle will be bearish and not exceed the $32.38 high silver made on May 21. Gold's prospects look a little more bullish at the moment, and there's a good chance gold could make a new all-time high in its next medium-term cycle. For these reasons, I am going to enter a long position in gold today and remain on the sidelines of silver. There's a chance gold could dip lower tomorrow and maybe even make a new weekly low. We won't worry too much if this happens, but if prices push lower next week (after leaving the reversal zone), we may have to pull out of our trade. In other words, our initial stop loss will be based on prices falling below $2287 next week.

Trading Blog Thursday (night), June 6, 2024

6/6/2024

MARKETS UPDATE (10:30 pm EDT)

Today we enter a new strong reversal zone for crude oil, equities, precious metals, and currencies (June 6 - 14). This is the only major reversal we will see in the month of June, so let's see where we are in our market cycles.

All three of our broad stock market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles with their lows in mid-April and are relatively young. After rising from there to new all-time highs on May 20 (DOW), May 23 (S&P 500), and May 28 (NASDAQ), these indices made their first sub-cycle correction with lows on May 30 (DOW) and May 31 (S&P 500 and NASDAQ).The DOW's correction was considerably longer and steeper than those for the S&P 500 and NASDAQ, and because of that the DOW's subsequent rally is still well below it's all-time high from May 20 (40,077). The S&P 500 and NASDAQ, however, are pushing ahead with new all-time highs. This means we now have a very strong case of intermarket bearish divergence between these indices, and it is happening as we rally into a strong reversal zone.

Unless the DOW can surge higher very quickly to a new all-time high, it looks like this market's trend could be turning bearish. The DOW still has not broken above its 15-day moving average and would need to climb over 1000 points to clear its 40,077 all-time high. It seems unlikely this will happen by the end of next week (the end of our reversal zone). A more likely scenario would see the DOW topping out sometime inside our reversal zone BELOW its 40,077 high and then turning down (with the other two indices) for another correction. If that happens, the DOW's medium-term cycle would be turning bearish, and it may lead the S&P 500 and NASDAQ into a bearish sell-off.

Based on all the above, we certainly do not want to be long in equities right now. In fact, if this market turns bearish, we could see a very severe correction unfold as we are near the end of a longer-term 4 year cycle in equities that is expected to bottom by the end of this year, probably sometime around September-October. That correction would likely be a 16 - 26% decline. If we are going to see the end of a 90 year cycle, the correction could be much more severe (i.e. major crash). It is still not clear if this 90 year cycle is going to unfold. I will discuss this in more detail in future blogs. For now, we are focused on a potential 16-26% decline into the end of a more clearly defined 4 year cycle by the end of this year.
We are still on the sidelines of the broad stock market, but we may be looking to sell short at some point if the market turns bearish.

It is near the end of the current medium-term cycles in both gold and silver, and we are still waiting for the final cycle bottoms. The final cycle top in gold was most likely on May 20 at $2449, and for silver it was $32.38 on May 21. We usually expect a 2-5 week decline from the top to the final bottom, and we are now in the 3rd week for both metals. We note that we are now entering a strong reversal zone that continues through the end of next week. This would be the ideal time for a final cycle bottom. Gold made an isolated low on Monday, silver did the same on Tuesday, and prices have been rising up from there.

Today both metals closed above their 15-day and 45-day moving averages, Did we just see the final cycle bottoms early this week? Maybe...but those lows were not inside a strong reversal zone (although Tuesday was a potential "pivot point" for gold). Our ideal target price for a bottom in gold would be around $2274. Monday's low was only $2315 - a bit high. Silver's ideal target range would be around $27 - $29. Tuesday's low got to $29.41 which was close, but still a little high. There's still time for these prices to push lower into the current reversal zone, so I am going to hold off buying for now. Let's remain on the sidelines of both metals for now.

Crude oil prices sank lower after we were stopped out of our long position on Monday, June 3. They got down to $72.48 (July contract chart) on Tuesday but are now rising again. Tuesday was not inside any reversal zone, but we have now entered a strong reversal zone for crude, equities and precious metals. If crude is forming a final medium-term cycle bottom (it is due/overdue), it would ideally be inside this new reversal zone (June 6 - 14). As with the precious metals, let's wait to see if prices can push lower over the next several trading days before we think about going long again. We will stay on the sidelines of crude for now.

Trading Blog Monday, June 3, 2024

6/3/2024

CRUDE OIL TRADE ALERT (2:30 pm EDT)

Crude oil prices are dropping sharply today and will almost certainly be closing below our stop loss point of $75 given in yesterday's blog. I am therefore going to unload (sell) my long position in crude today. We are pulling out with a 6% loss, but there is now a danger of prices falling lower, so it is best to get out as we reassess our cycle analysis.

Two things could be happening here. It's possible the old medium-term cycle could be expanding beyond its normal range, and the final bottom could end up in our next general reversal zone - June 6 - 14. In that scenario, prices would have 3- 9 more trading days to fall lower. A second possibility would be even more bearish. If the isolated low on May 15 ($76.36 - July contract chart) was indeed the final bottom to a medium-term cycle, it would mean the cycle has already peaked (at $80.62 on May 29) because prices are now well below the start of the cycle and would be pointed down for at least several more months.

Right now, I think the first possibility is most likely. If that's the case, we may look to buy again at a lower price in the upcoming reversal zone, as long as prices stay above $64 (that was the low of May 2023 which was likely a long-term 4 year cycle low).

Trading Blog Sunday (night), June 2, 2024

6/2/2024

MARKETS UPDATE (10:30 pm EDT)

It looks like we were a bit premature in going long in crude oil last Wednesday. Prices fell sharply on Thursday and Friday which puts our trade in the red. I am holding my long position, however, because the May 24 low ($76.15) was in the center of a strong reversal zone, and more importantly, the final medium-term cycle low in crude was (is) due (overdue). Next week we enter another strong reversal zone for both crude and our other markets (June 6 - 14). Crude may now be forming a triple-bottom with the lows from May 15 and May 24, and there is a strong line of support around $75. Let's continue to hold our long position with a stop loss based on a close below $75.

Gold and silver prices continued to fall last week with gold breaking below its 15-day and 45-day moving average and silver closing between its 15-day and 45-day moving average. Both metals seem headed for their final medium-term cycle bottoms, and we will look for that inside this upcoming general reversal zone June 6 - 14. It will likely be a good spot to buy. We are still on the sidelines of both gold and silver.

On Friday all three broad stock market indices (DOW, S&P 500, NASDAQ) may have made their first significant sub-cycle corrections in their current (young) medium-term cycles (which began with their mid-April lows). The DOW closed below both its 15-day and 45-day moving averages, while the S&P 500 and NASDAQ closed between their 15-day and 45-day moving averages. Although the DOW is practically making a double-bottom to its mid-April low, the S&P 500 and especially the NASDAQ are well above their April lows. Because Friday was not inside any reversal zone, it's possible these indices could fall further to make deeper sub-cycle bottoms in next week's reversal zone, which starts on Wednesday. If Friday was a sub-cycle bottom, however, we could see this market rally strongly into the upcoming reversal zone. In either case, I am not interested in a long position right now in this market. Let's remain on the sidelines of the broad stock market for now.