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Trading Blog Tuesday (night), July 30, 2013

7/30/2013

MARKETS UPDATE (10:30 pm EST)

The markets have not changed much since last Friday's blog. The broad stock market continues to be buoyant and seems reluctant to turn down. Although momentum remains bullish, there are several other factors indicating this market should be turning down soon. This is why I am cautious about going long right now. Of course, market manipulation favors the bulls, and this may explain the market's current buoyancy. This factor must also be taken into consideration when trading. It is possible we could see the market edge up higher into August before we get any serious correction. I am remaining on the sidelines for now as directional signals are ambiguous and we are still in a time period for a strong reversal.

Gold is holding above its support around $1300. Silver broke below its $20 support last week and this is now acting as slight resistance to any price rise. As I mentioned in the last blog, there is a zone of support for silver down to at least $19. The price over the last several days is hovering just under that $20 mark. Medium-term momentum is still bullish, so I am going to stay with my long positions in both gold and silver for now in anticipation of at least a short-term rally.

Crude oil continues to correct down, but it is now approaching a support area around $102 and we are still within a time zone for a reversal which suggests the market could turn back up shortly. The correction so far has been a little over 5% which is smaller than what I was expecting (but it may not be over). Despite this downward correction, momentum in the market has remained almost 100% bullish and this is why I haven't tried to sell it short. If support around $101- $102 holds and momentum remains bullish, then the signals will be telling us to go long. We are still out of this market and will watch now for a possible reversal to the upside.

Trading Blog Friday, July 26, 2013

7/26/2013

MARKETS UPDATE (3:15 pm EST)

Today gold is trading down again near $1320 but is remaining above the support at $1300. Silver, however, has broken below the "psychological" support line of $20 and is closing around $19.80. I am saying "psychological" here because there is always extra importance assigned to round numbers in trading regardless of other technical factors affecting the trade. Even though breaking $20 is significant, there is actually a strong zone of support reaching down to $19 and even lower in the current price chart for silver. Silver's price is also holding just above its 22 day moving average, which offers additional support. We are also right now in the center of a very strong reversal zone (i.e. a time period where all markets can make abrupt changes in direction) and silver is falling into it. Based on all this and the fact that medium-term momentum remains bullish, I am going to stay with my long positions in both gold and silver for now. As I suggested in Tuesday's blog, traders should not be heavily invested in precious metals at the moment. Traders who are heavily long in silver right now may want to consider unloading some of these longs until we are more certain of a bullish rally.

Momentum in the broad stock market remains bullish, but we may be seeing the start of a downturn as the DOW and S&P 500 seem to be declining from a Tuesday/Wednesday peak. Because momentum is strongly bullish, and the reversal zone mentioned above extends through the middle of next week, it is possible we could see a little more rallying to new highs before any reversal begins. With the Federal Reserve offering what now seems to be an endless supply of quantitative easing (QE), it seems we can never overestimate the potential bullishness of this market. I am still anticipating a correction here, but momentum will have to turn more bearish before I will consider selling this market short. Still on the sidelines.

Crude oil prices have been falling from a nearly $109 peak on July 19, but momentum has remained strongly bullish, which is why we haven't gone short. It is a little unclear what medium and long-term direction this market is taking right now, so I am remaining on the sidelines.

Trading Blog Wednesday, July 24, 2013

7/25/2013

BRIEF GOLD AND SILVER UPDATE (2:00 pm EST)

Gold is down a bit from yesterday and is now close to support at $1300 while silver is now resting just on top of its support at $20. They are therefore both at ideal entry points for the short-term trades described in last night's blog.

Trading Blog Tuesday, July 23, 2013

7/22/2013

GOLD AND SILVER (SHORT-TERM) TRADE ALERT (10:30 pm EST)

I apologize for posting a late trade alert here, but I was traveling for most of today and didn't get to analyze the markets until the early evening. Please note that I am presenting this as a short-term trade. My present short-term view of gold is that we will likely see a rally to the $1400 resistance area and then see the price turn down again. If we go long now and that situation unfolds, we would take a small profit at the top (or possibly break even if the turndown is rapid and sharp and brings us back to our entry point). If gold can break through that $1400 area, however, then we would obviously stay long. As I mentioned in yesterday's blog, there is a possibility the final bottoms in gold and silver are already in (although my bias is that they will go lower before the end of the year). If the bottoms are in, prices could take off from here. Long-term traders may wish to just stand aside here, and I would suggest even short-term traders put only a portion of their normal funds allocated to precious metals into this trade. There are not enough bullish signals right now to be certain that we have seen the final cycle bottoms in gold and silver, so I am not ready to go heavy in these metals just yet.

Gold did not pull back today (as I would have liked) and it ended up closing around $1343. Nevertheless, I am going to go long here with a stop loss point just below the support at $1300.

Silver did pull back a bit today and closed at $20.32. I am going to go long here with a close stop loss just below the support at $20.

I am placing these trades tonight and hoping prices do not gap up when the markets open tomorrow. Any traders reading this blog Wednesday morning after the markets open should avoid the trade if prices have risen significantly. (UPDATE- Wednesday, 7/24, 1:30 pm EST- Gold has fallen a bit more today and remains above $1300 support while silver is resting right on top of support at $20, so entry points for the short-term trade described above are now ideal. Momentum remains medium-term bullish.)

Trading Blog Monday, July 22, 2013

7/22/2013

MARKETS UPDATE (4:45pm EST)

Gold and silver are the main news in the markets right now. For the first time in five months of showing nearly 100% bearish momentum, both gold and silver price charts are now flashing medium-term bullish signals. As I suggested in a recent blog, there is a good possibility gold and silver will be moving up and down in a fairly narrow range over the next few months as it forms a strong "base" before finally and decisively "breaking out" and taking off towards a major long-term rally marking the start of a new long-term cycle in these metals. Although the final bottom of this base may already be in (at $1183 in gold and $18.25 in silver), my research and analysis point to a possible deeper low in gold (and maybe silver) which could bring it closer to $1000 before the end of the year. Long-term investors may wish to wait for more definite signals of the final bottom being in, but short and medium-term traders can now be alert for some profitable trading as a momentum shift is in progress. There is some resistance in gold around $1350 and then at $1400. Today gold is up strongly (spot price reached $1339), but market conditions continue to be volatile for all of this week, and there are some technical indicators suggesting a price pullback tomorrow or Wednesday. We will therefore wait for a small pullback to possibly go long for a rally towards $1400. Note that my strategy is twofold here: first, to take advantage of a possible short-term rally, and second, to start putting at least some money in precious metals should the cycle bottoms already be in. Once we are more certain of the final cycle bottoms, we can put more money into this market with confidence knowing that both gold and silver are likely to hit new all time highs soon and will probably greatly exceed those highs over the next several years (see An Overview of Financial Markets for the Next Six Months). Still on the sidelines today but looking to go long on a brief pullback.

The broad stock market negated its intermarket bearish divergence signal from last week as both the DOW and S&P 500 both broke to new all-time highs by Friday. Nevertheless, I feel that some sort of correction is imminent and that this reversal will occur by the middle of next week. Because momentum is still strongly bullish we may get a little more rallying this week into resistance areas around 15,620 in the DOW and a little over 1700 in the S&P 500. Still on the sidelines here, but we may sell short soon if these resistance zones hold and we get a bearish shift in momentum.

Crude oil prices dropped significantly today, and it's looking like Friday's high at a little over $109 may be the high from which our anticipated correction begins. Momentum is still 100% bullish, however, so we will stay on the sidelines for now. Friday of this week is the centerpoint of another time zone for likely reversals in all markets so, as with the broad stock market, we may see crude prices edge up a bit more into the end of the week before reversing.

Trading Blog Wednesday, July 17, 2013

7/17/2013

MARKETS UPDATE (8:00 pm EST)

The markets have been quiet recently which is why I have not posted any updates since last Thursday. This could be "the quiet before the storm", though, as we are in a time period (through July and early August) where major reversals in all markets can occur.

The broad stock market continues to show bullish momentum and therefore could rally some more before making a significant correction, but there are other technical, cycle, and timing signals suggesting that we are quite close to that correction. It is significant to note that while the NASDAQ is making new yearly highs, the DOW and S&P 500 have not yet exceeded their recent May 22 highs (they are close). This is called intermarket bearish divergence and may indicate a reversal is imminent. (This signal is negated, however, if the DOW and S&P 500 exceed those May 22 highs).   As I mentioned in my previous blog, if the DOW corrects down a bit more and momentum remains bullish I will consider going long for a short-term trade into a final rally that would precede a more significant correction. The markets, however, have been relatively flat this week, and since we are moving into the center of a time zone for major reversals, it might be best to just stand aside (as we have been) and wait to sell this market short when the momentum trend reverses. Our position is therefore unchanged - still on the sidelines of this market.

Gold and especially silver are moving down a bit this week after mostly bullish rallying from last week. Momentum signals are still strongly bearish in both metals so we might see them correct down a little more before some sort of rally begins.  I am not selling short here (despite the bearish momentum) because I think we are close to at least a temporary bottom (and maybe the long-term cycle bottom), and a short sell would not capture a significant profit. Note that gold and silver could move up and down in a narrow range in coming weeks, and we may try to take advantage of some short-term trades if they look promising; however, we need to keep in mind the more important long-term picture of gold (and silver) making a long-term cycle bottom, probably before the end of this year.  In fact, these bottoms may already be in with gold around $1183 and silver around $18.25, but there are some cycle, technical and timing factors suggesting they could go lower (especially gold). We are, therefore, long-term bullish on the precious metals, and a good entrance point for long-term investors should be presenting itself soon. For now, momentum remains strongly bearish, and we are still on the sidelines.

Crude oil, like all the markets we are following now, is susceptible to a significant reversal over the next several weeks.  The recent steep rise in crude oil prices seems to be leveling off and, while the price of crude could edge a bit higher, we should be watching now for a significant correction to sell short. We will therefore continue to stand on the sidelines here and wait for technical signals to short this market.  News about Egypt's political turmoil and Syria's civil war has cooled down somewhat in recent weeks, but these conflicts are far from resolved, and we always need to keep in mind the "wild card" bullish effect any flaring of these conflicts can have on oil prices - especially when selling short. Hopefully, the correction I am expecting soon in crude prices is indicative of at least a temporary lull in the recent turmoil in these regions.

Early this month the U.S. Dollar Index flashed very bullish momentum signals and appeared to be recovering from its May/June "breakdown". It may be correcting again, however, as it gapped down dramatically on July 10 and today flashed a medium-term bearish signal in its chart. I think this correction could be temporary as long-term momentum is still bullish. Of course, when the dollar gappped down the Swiss Franc jumped up in value, but, curiously, at the moment it has the same momentum pattern as the U.S. Dollar : long-term bullish but medium-term bearish. This seeming conflict will probably resolve itself soon with one currency becoming more bullish (probably the dollar) and the other more bearish (probably the Swiss Franc). These markets are ambiguous right now, and it is probably best to avoid trading them until their directions are more clear. I trade currency very conservatively on this website (see Alternative Investor Strategy) and will only go long in the Swiss Franc when technical signals, cycles and timing indicate it is moving towards 100% bullish. This is not the case right now so I am still out of the Swiss Franc.

Trading Blog Thursday, July 11, 2013

7/11/2013

MARKETS UPDATE (6:30 pm EST)

Yesterday U.S. Fed Chairman Ben Bernanke spoke in Cambridge, Massachusetts about Federal Reserve policies and the state of the U.S. economy and, not surprisingly, seemed to be tempering the optimism of his speech from last month (which had sent markets tumbling due to the spectre of QE tapering). In yesterday's speech he stated that the central bank will likely keep at least some of its easy-money policies going "for the foreseeable future". The DOW cheered this news today with a 169 point rally (more QE - yes!) and momentum indicators for the DOW, S&P 500 and NASDAQ are now strongly bullish. This could be the stimulus that kicks the broad stock market to new all-time highs (or at least to a double top at 15,542).  On the other hand, the "Bernanke Effect" is sometimes dramatic but temporary (as it was last month) so I am suspicious of any strong rally now.  Many technical, timing, and cycle studies point to the broad stock market making a major correction soon (this month or early August), so the big question is how high can the market go before a significant correction kicks in? Current technical analysis shows possible upside targets around 1700 in the S&P 500 and 15,700 -16,000 in the DOW, but markets are very volatile right now and may not achieve these levels. If the market moves down a bit, I will consider going long for a short-term rally, but for now I am going to take a conservative stand as a long-term trader and wait for the top of this rally to sell short.

Gold and silver are rising this week, but momentum remains bearish in both metals and a short-term reversal in price direction is likely this week. In Monday's blog I suggested that if precious metals moved lower this week there could be a reversal up, but since gold and silver have been rising, that reversal (if it occurs) may be down instead.
I don't think the final long-term cycle bottom in gold is in just yet. (It may be, but I would like to see it closer to 1100).
One possible scenario that could unfold now is for gold to rally significantly (perhaps to the $1350 area) before turning back down again to make a final bottom.  Directional signals are still mostly pointed down at the moment, so we are still on the sidelines of this market.

There is nothing more frustrating in market timing than to be "whipsawed" out of a good trade in an equity or commodity and then watch it take off like a rocket. This happens when a stop loss is triggered but then the price "changes its mind" and reverses back up (or down if you are selling short) and continues strongly in the direction you originally anticipated. After going long in crude oil on June 19, the following day saw "fallout" from Ben Bernanke's speech push the price abruptly lower causing me to sell as it broke below several stop loss levels. Within a few days, however, the price was back up and running, and it is now rising steeply, being fueled by the fires of conflicts in Egypt and Syria, unfortunately with us on the sidelines.  Even with good technical analysis and cycle timing, predicting the direction of a market that is strongly impacted by volatile current events is difficult at best. The good news is that even volatile markets still move within the restrictions of certain broad technical parameters, and we can use these to calculate our trading strategy moving forward. Chasing this current news driven steep rally is not a good idea, especially as all markets are unusually volatile through the end of this month, and we are still expecting a significant correction in crude oil soon.  We will therefore remain on the sidelines, at least until the current rally takes a short-term breather.

Trading Blog Monday, July 8, 2013

7/8/2013

MARKETS UPDATE (10:30 am EST)

With the dramatic exception of crude oil, last week's markets were rather flat into the Fourth of July holiday, but then they reacted on Friday to the better than expected jobs report which indicated the U.S. labor market added 195,000 new jobs in June (although the unemployment rate remained unchanged at 7.6%).

The broad stock market seemed to cheer the job numbers with a 147 point rally, but perhaps this was just post holiday optimism fueled by beer, barbecue, and fireworks. After all, just a few weeks ago positive news about the economy from Ben Bernanke sent the market plummeting for fear of the tapering off of QE. We will find out this week if Friday's optimism can be sustained. Momentum in this market is still mixed (bullish and bearish), and I am still expecting a significant correction to begin within the next 3 or 4 weeks. My strategy now is to watch for signs to sell this market short. It is possible that the DOW high of 15,542 on May 22 is the top already, but directional momentum is currently ambiguous, and we could still make a new all-time high (or double top) before any serious correction begins. Still on the sidelines of this market.

Momentum signals in gold and silver price charts continue to be strongly bearish, and these two metals seem to want to correct down some more. On Friday both metals dropped on news of the positive job numbers, but (as mentioned above) optimism about the economy may be short-lived, and gold and silver are clearly valuable assets in our currently very unstable global economy. As I've been stating in recent blogs, we are likely seeing a significant bottom forming now in the precious metals, and I am waiting for bullish technical signals to go long. These could come as early as next week as there are strong timing factors for a possible reversal in the middle of the week, and gold is dropping again towards our ideal price range (around $1100 - $1200) for a bottom. Still on the sidelines here and waiting to go long.

The price of crude oil soared last week and this was clearly the result of the political turmoil in Egypt. With Mohammed Morsi now ousted from his presidency by the military, it is not clear how soon political stability will return to this country. This instability coupled with the ongoing civil war in Syria is driving a dramatic surge in oil prices. It is interesting to note how crude oil's reaction to these global events (along with its negative reaction to Ben Bernanke's recent speech) created a technical chart pattern in crude oil prices that I identified in a blog on 6/21 when I wrote: "...There is a cycle pattern that may be occurring here which typically manifests as a sudden sharp price drop that briefly interrupts a rally and then quickly snaps back up with a resumption of the rally to higher levels..." This chart pattern is indeed playing out. Unfortunately, the drop in price did not reach my projected target (it came close), and the subsequent sharp rally entered a time window where strong reversals can occur (we are still in it). In my analysis early last week I felt that this potential reversal factor and the lack of a confirmed bottom target decreased the likelihood of the rally moving very high, so I did not enter the market. Of course, I was wrong as the "wild card" factor of Egypt's political conflict took the reins and drove the price to over $103 on Friday. We are, however, still in that time window for a reversal (it ends on Tuesday but could possibly extend into Friday), and we have been anticipating a major correction in crude oil in July or August (same as the broad stock market) so my strategy now will be to wait for a bearish signal to possibly sell this market short. Can the price go higher from here? Of course it can, especially with major conflicts arising in the Middle East, but cycles, timing and technical studies can point us towards the next predictable major move, and that move should be down. We are still out of this market.

Trading Blog Tuesday, July 2, 2013

7/2/2013

BRIEF UPDATE ON THE U.S. DOLLAR AND SWISS FRANC

This week the U.S. Dollar Index is flashing a strong bullish momentum signal while the chart of the Swiss Franc is showing strong bearish momentum. Although these trend signals are not 100% yet, it appears that the dollar is recovering from its recent breakdown, which is not surprising as the European economy continues to be in dire straights and is not showing any signs of recovery. Of course, the U.S. economy is not doing very well either (although the mainstream media and many Wall Street talking heads might disagree with this), but the economies of Europe and Japan are worse, so desperate global investors are likely seeking refuge in U.S. dollars. This may, however, only be a short to medium-term situation as the long-term (i.e. 1-2 years and beyond) technical picture of the U.S. dollar continues to look troublesome.

One major concern investors may have about a bullish U.S. dollar right now is the impact it could have on precious metal prices. Gold and silver prices often drop when the dollar is strong, but this isn't always the case. Because we are in unstable economic times, normal patterns in the marketplace don't always apply, and we could easily see gold and silver rise along with the dollar, especially if European and U.S. stockmarkets break down and make another major correction or crash similar to that of 2008-2009.

I live in the U.S. so the dollar is my "default" currency, but I also have a savings account with a bank that allows me to convert my money into the foreign currency of my choice (usually the Swiss Franc) when I feel the dollar is falling in value (see Alternative Investor Strategy - discussion of Swiss Franc and U.S. Dollar). I am currently out of the Swiss Franc. For those who trade currencies, I would suggest stepping aside the Swiss Franc for now due to the strong bearish momentum signal appearing this week. Traders considering short positions in the Swiss Franc should be cautious as this market is not yet 100% bearish.

Trading Blog Tuesday, July 2, 2013

7/1/2013

MARKETS UPDATE (2:52 am EST)

This is a holiday week in the U.S. (not the whole week, but the upcoming Fourth of July weekend) which usually means light trading in financial markets and often an optimistic bullish mood in the broad stock market (but not always). Traders and investors need to be alert, though, because this month of July may see some major turning points in all financial markets according to technical studies, cycles and timing factors. This should be encouraging for traders who are tired of sitting on the sidelines recently (myself among them) due to the fact that many markets are not giving us clear directional signals.

We are right in the middle of a time window (which extends to early next week) for major reversals in all financial markets so we need to be especially alert this week for directional changes. The broad stock market indices (DOW S&P 500, NASDAQ) all made new weekly highs early today before turning down and losing much of their gain by the end of the day. This is bearish behavior so we could see more downside into the end of the week, although holiday optimism may temper any correction and even push prices a bit higher into the week. Momentum and technical signals are still rather mixed (bullish and bearish) so I am not ready to commit to any trade at the moment. Still on the sidelines of this market (but expecting some major changes soon).

My recent blogs on gold and silver have pointed out that precious metals are currently in the process of forming a major cycle bottom from which a major long-term rally will start. It is very likely we are at or close to that bottom right now and are therefore looking for signs to go long. One of those signs is upward momentum, and we still don't have that so we are not buying yet. There is some strong technical data now indicating that the final bottom in gold could be in the $1100-$1200 range (it broke a little below $1200 last week so we are there). We will wait for a shift in momentum as a signal to go long in this market. On the sidelines for now.

Crude oil seems to be recovering from its abrupt drop after Ben Bernanke's speech the week before last, but there is resistance in the $99 area and, as mentioned above, we are in a time period when major market reversals can occur and oil prices are rising into it. We will therefore stay on the sidelines and wait to see if this market will turn down from here. Momentum is still bullish.

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