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Trading Blog Thursday, July 31, 2014

7/31/2014

MARKETS UPDATE (6:30 pm EST)

The Federal Reserve's Federal Open Market Committee (FOMC) concluded its monthly meeting yesterday (Wednesday) and released its policy statement, this time without an accompanying press conference by Fed Chairwoman Janet Yellen. The statement had no surprises and basically reiterated the Fed's policy of "staying the course" with the now familiar strategy of continued asset purchase reductions (QE tapering - another 10 billion) and maintaining near-zero short-term interest rates. What seems to be making equity markets uncomfortable now is uncertainty about when interest rates will start to rise and confusion about what economic variables will trigger a rate rise by the Fed. If the Fed continues its QE tapering of 10 billion/month, bond purchasing should end in October. The Fed's statement says that,
"... it likely will be appropriate to maintain the current target range [i.e. near zero] for the federal funds rate for a considerable time [boldface mine] after the asset purchase program ends..."
It also states that,
"... The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time [boldface mine] warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run..."

I guess keeping interest rates low for "a considerable time" and "for some time" is not specific enough to keep investors from getting the jitters. (Understandable since low interest rates are probably the main thing propping up the stock market now). The DOW dropped 32 points yesterday but today plunged a whopping 317 points.
In my last blog I stated, "...if it [the DOW] continues to fall this week it may be headed towards the current cycle bottom, but that bottom may not get below the 16,400 area..." It looks like this is happening. Instead of a high in the first week of August (which I would have preferred), we are now headed for a low into that reversal zone. There is strong support for the DOW in the 16,200 - 16,400 range so we may see a cycle bottom there shortly which could be a good place to buy. Directional momentum in the DOW and S&P 500 has switched from 100% bullish to mixed bullish and bearish today, but, curiously, the NASDAQ, even though it took a bigger percentage loss, is maintaining its 100% bullish momentum. This might be telling us that this correction is not going to be serious. If the DOW starts breaking below 16,400, however, it could mean a more serious correction is underway. For now, though, we will look for support near that level and a good spot to go long in the broad stock market, ideally next week. Still on the sidelines.

Unlike the broad stock market, gold and silver seem to be following my "preferred" scenario of moving towards a significant low in the first week of August. Gold dropped to $1282 today and silver to $20.39. Short-term indicators still look bearish in both metals so we are on track for new lows. There is support for gold in the $1270 - $1280 area. Silver has support just above $20, but there is another strong support level at $19.50. These may be good price levels to buy next week. On the sidelines and waiting to buy.

Not surprisingly, crude oil prices, which often follow the broad stock market, took a dive today and dropped to $97.72. Because prices did not edge higher we did not get an opportunity to sell short. As with the broad stock market, it appears that crude prices will be making a low instead of a high into the first week of August.
Based on the cycle structure in crude charts it looks like this market is turning bearish. This will be especially true if prices break clearly below $96. Because we are in the middle of a timing zone for a likely reversal in crude, we may see a bottom to buy by the end of next week for a short-term rally. However, if this market is turning bearish as I suspect, my longer term strategy will be bearish and I would be looking to cover long positions and sell short at the top of that rally. Still out of this market.

Trading Blog Monday, July 28, 2014

7/28/2014

MARKETS UPDATE (5:30 pm EST)

I am continuing to watch for signs of a major top in the broad stock market to sell short. The DOW has not been able to rise above its 17,152 high from July 17 and is now falling. If it continues to fall this week it may be headed towards the current cycle bottom, but that bottom may not get below the 16,400 area. This would be a substantial dip but not the 8-15% I am expecting to see shortly. If the DOW does continue down now we could see a bottom to buy in the first week of August for another rally before the big correction. A better scenario would be for the market to edge up higher this week and next week to new highs that could be an ideal point to go short. Another Federal Reserve policy meeting is scheduled this week and U.S. employment reports come out on Friday. If these factors don't spook the market we could see more rallying into next week. Still on the sidelines.

Short-term technical studies of precious metal charts continue to show a strong potential for lower prices before the long-term bullish trend asserts itself. This short-term bearishness is especially obvious in silver charts right now so it seems likely this metal will correct down some more. Some analysts feel that gold and silver prices have been forming a baseline over the last several days and are about to break to the upside. While this is possible, directional momentum remains mixed bullish and bearish in both metals and, as stated above, other technical signals are bearish. An ideal scenario now would be for gold and/or silver to form a new bottom in the first week of August while the broad stock market makes a new top. That would be a good signal to buy gold and sell the stock market. On the sidelines and waiting to buy.

Like the broad stock market, crude oil prices have been coming down a bit but seem reluctant to take a deep plunge. If crude can muster a rally into the end of this week to $104 or higher, we might have an ideal spot to sell short. Out of this market for now.

Trading Blog Thursday, July 24, 2014

7/24/2014

BROAD STOCK MARKET and PRECIOUS METALS UPDATE (4:45 pm EST)

We are now touching my target area for a high in the S&P 500 (1990) but are still a little short of my 17,300 target for the DOW. Directional momentum remains strongly bullish in both these indices but is weakening a little. I want to see at least a short-term sell signal before shorting this market. We may get that any day now as we are at the center of another timing window for a likely reversal (July 25), but August 8th is another likely reversal time so it is still possible for the broad stock market to rally a little more before taking what could be a substantial correction of
8-15% (and possibly more). On the sidelines and watching this market closely now for a top to sell short.

In my last blog I mentioned that silver was looking a little more bearish than gold. Today both metals fell, but the plunge in silver was stronger as it dropped over 2% (gold fell less than 1%). This sudden drop in precious metal prices should not be a surprise to regular readers of this blog as I had been warning of potential short-term downside in these metals before a long-term bottom to buy. Gold is at my target price of $1290 but silver is still significantly over my $20 target. Short-term signals are leaning towards bearish at the moment and the cycle structure in silver charts indicates that this correction could go as low as the $19.50 area. For these reasons I am holding off on any buying today. If gold can stabilize in the $1280-$1290 area while silver drops to the $19.50 - $20.00 area, we could see a good buy spot shortly. On the other hand, if gold prices take a cue from silver and start to break down we might be looking into early August for a bottom in precious metals. Still on the sidelines and waiting to buy.

Trading Blog Monday, July 21, 2014

7/21/2014

MARKETS UPDATE (7:15 pm EST)

As I stated in Friday's blog, I am anticipating a high in the broad stock market at some point over the next several weeks to be followed by a significant correction to sell short. According to some chart patterns in the analysis of this market, this high is way overdue, but there is also some ambiguity now in the market cycles which would allow for a little more rallying before a downturn. Directional momentum (still nearly 100% bullish in the DOW, S&P 500 and NASDAQ) supports this latter idea. If the DOW rallies to the 17,300 area and stalls, that may be a good point to sell short. A good target price in the S&P 500 would be the 1990 area. We are not far from these targets so we could see them this week. Still on the sidelines.

Gold and silver prices are still looking short-term "toppy" and seem like they could correct down some more. The $1290 area may be a good target price to go long in gold and perhaps the $20 area in silver. At the moment silver seems a little more bearish than gold. Still waiting to go long.

The U.S. Dollar Index broke through a resistance level at 80.40 last week. The dollar is now sitting just atop that level (which is now support) and if it bounces here it could help push precious metal prices lower. Directional momentum in this index is still quite bullish so more rallying in the dollar seems likely.

We are seeing a strong rally in crude oil being fueled by the geopolitical repercussions of last week's downing of a Malaysia Airlines jet over Ukraine, but we have now entered a time period (which will last into the first week of August) when crude can make a strong trend reversal, so this rally could top out anytime now. Directional momentum is still mixed bullish and bearish in this market which makes me reluctant to trade in any direction (and I am also wary of trading what is at the moment a news driven market). If this market is going to turn bearish prices will likely not exceed the $106 -$107 area before turning down. However, ongoing tension between Russia, Ukraine and the West, the recent takeover of Iraq by ISIS militants, and even the continuing civil war in Syria (also involving ISIS) are all contributing to potential volatility in oil prices now, so we cannot rule out more price surging. I will continue to monitor this market for stronger directional signals. Out of this market for now.

Trading Blog Friday, July 18, 2014

7/18/2014

MARKETS UPDATE (6:30 pm EST)

News of the downing of a Malaysia Airlines jetliner over eastern Ukraine seemed to have at least a short-term influence on several financial markets yesterday. This horrific incident, of course, is now exacerbating tensions between Russia, Ukraine and the West and could lead to longer-term instability in markets as well. Today's markets, however, seem calmer so yesterday's surges and dips may have been "knee-jerk" reactions to the news. My deepest sympathies go out to the victims of this senseless tragedy.

The DOW dropped 161 points yesterday from a new all-time high (but recovered smartly today and rose 122 points). The news of yesterdays airline crash was likely responsible for the plunge as geopolitical instability always makes the stock market nervous. The S&P 500 has still not exceeded its July 3rd all-time high so we still have a case of potential intermarket bearish divergence with the DOW (which will be negated if the S&P does make a new high). We are now at the center of a timing window for a likely reversal down in the broad stock market, but directional momentum and some other short-term indicators continue to suggest more upside so I am not ready to sell short yet. I am still anticipating a significant high anytime by early August to be followed by an 8 -10% correction and will continue to watch for an ideal spot to sell short. Still on the sidelines.

Panic in equity markets will usually boost the price of precious metals, and yesterday's surge in gold and silver following the DOW's drop was therefore not surprising. These metals are down today, however, so investors may not be that worried about the problems in Ukraine. The big question continues to be whether or not the precious metals are starting to break out now. Could we see more downside in prices before finding a bottom to buy? Well, yes we could. The recent bottoms in gold and silver (on July 15 and July 16 respectively) were a little early and did not reach down to ideal target prices, directional momentum is still mixed bullish and bearish for both metals, and several other short-term indicators are bearish. Ideally, gold and silver prices will move lower into early next week and give us a good spot to buy. If the precious metals are breaking out now we should soon see bullish changes in momentum to confirm it and that will also alert us to go long. On the sidelines and waiting to buy.

Crude oil prices surged dramatically yesterday on the airline crash news. This is yet another example of synchronicity between market cycles and global events. The cycle structure in recent crude charts was suggestive of an imminent sharp surge in prices. I haven't gone long because other technical indicators are suggesting that this rally could be short-lived and followed by a significant correction (I try to avoid short-term trading). We are now in a timing zone (over the next three weeks) when crude could make a significant directional trend reversal. If prices continue to rise we may see this market suddenly turn bearish (perhaps in sync with the broad stock market). Out of this market for now.

Trading Blog Wednesday, July 16, 2014

7/16/2014

MARKETS UPDATE (7:30 pm EST)

U.S. Federal Reserve Chairwoman Janet Yellen testified before the Senate Banking Committee yesterday with an update on the economy and Fed policy. Ms. Yellen chose her statements carefully and seemed to avoid delineating any specific time for the raising of short-term interest rates. She strongly defended the Fed's current near-zero interest rate policy and hinted that rates could start rising around the middle of next year and maybe even sooner if the economy starts to improve faster than expected. However, she also said that rate hikes could be delayed if the economy slows down again. Ms. Yellen's current assessment of the economy seems to be cautiously optimistic. She noted, referring to the current economic recovery, that the Fed has been fooled in the past by "false dawns". Although the DOW seemed a little shaky with the release of the Banking Committee testimony yesterday, it closed the day with a five point gain suggesting that Ms.Yellen's carefully modulated rhetoric was effective in keeping the markets stable.

Today the DOW is up another 77 points and making yet another new all-time high. The S&P 500 closed at 1982, just below its all-time high of July 3rd (1986). Some NASDAQ charts also made new highs. Until all the charts in all three indices make new highs there is the possibility here of intermarket divergence. This is bearish and suggests a market turndown. That might happen, but I think it is more likely these indices will all make new highs as directional momentum is still strongly bullish in all three. Cycle and timing factors point to a significant top in the broad stock market by mid-August and then a correction in the range of 8 -15%, so we are looking for an ideal spot to sell short before then. We may get that before next Tuesday. The two most likely turning points for this correction would be July 18-21 and August 8-11. At the moment it looks like the market can go higher. Still on the sidelines.

July 18-21 is also an ideal time for a reversal in precious metal prices. Since prices are falling steeply into this time period I am looking to buy a low in gold and silver any day now. Directional momentum in both gold and silver is now mixed bullish and bearish, and several short-term technical signals are currently suggesting some more downside in prices. If gold finds support above $1260 and silver above $19.50 over the next several days we may have an ideal buy spot. Stay tuned. On the sidelines and waiting to buy.

In conjunction with the recent correction of gold and silver, the U.S. Dollar Index appears to be "breaking out" again. This index looks quite bullish at the moment, and the dollar's strength may drive precious metal prices lower over the next several days. I should note here that even though precious metal prices and the dollar usually move in opposite directions, there are times when they can both move up at the same time. Of course, if this dollar rally turns out to be another "fake out" then it will reverse and help propel gold and silver into a strong rally.

Crude oil prices may have bottomed yesterday at $99 as a short-term bullish signal appeared in crude charts and the price closed over $101 today. It is a little early for this market to be making a major reversal (ideally we should see this in the last two weeks of July or even the first week of August), and since directional momentum is still mixed bullish and bearish I am avoiding going long here. Prices could rise sharply now, but such a rally may be short-lived and lead to another severe correction down. Crude could be falling into a pattern here similar to that of the broad stock market, that is, it could rally a bit more to a significant top and then fall into a major correction. If that scenario unfolds, we will be looking to sell short at that top. Out of this market for now.

Trading Blog Monday, July 14, 2014

7/14/2014

MARKETS UPDATE (6:15 pm EST)

Anyone who has been reading this blog for the last few weeks will know that even though I am long-term bullish on gold and silver I have been cautious about going long recently as several technical, cycle, and timing factors have been pointing to the possibility of an imminent sharp correction in prices. Today we are seeing that correction as gold prices dropped over 2% and silver lost nearly 2.5%. It appears that gold price manipulators may have engineered the recent gold rally into what had appeared to be a breakout in terms of several technical indicators. This may have been to get many buyers in just before selling gold short and reaping a big profit from the "fake out". Fortunately, we were not deceived by this as there were other technical signals that made me suspicious of the rally. It looks like the ideal situation of a significant low in precious metals into the second half of July may be setting up here so we are now on the lookout for signs of a bottom to buy. There is strong support for gold in the $1280 - $1300 area which may hold this correction. If prices move lower we could see a new bottom for the long-term cycle, but timing now is more important than price and I will be looking to buy at some point over the next few weeks. Still on the sidelines and waiting to buy.

The broad stock market continues to look bullish (directional momentum in the DOW, S&P 500 and NASDAQ is still nearly 100% for all three indices) and the DOW gained 111 points today. Rallying could continue into the end of this week, but we are entering a time period (from now into the first half of August) when a major reversal in this market is likely. It is late in the chart cycles of the DOW, S&P 500 and NASDAQ so a significant correction in these markets is due soon. New highs into the end of this week could create an ideal spot to sell short so we will look for that. A less likely (but possible) scenario would be for the market to pull back a bit into Friday and then rally again for new highs into late July/early August. In either case we are looking to sell short soon what could be a significant correction of perhaps 8 -15%. On the sidelines for now.

Crude oil prices seem to be finding support just above $100. Ideally, a significant reversal in this market would be towards the end of this week. This and the fact that directional momentum in crude charts is now mixed bullish and bearish makes me hesitant to go long at the moment, even though we are at my price target for a bottom. If prices rise strongly into Friday we could be setting up for another major move down and the market could turn bearish. I am going to wait and observe a few more days of price movement before making a trade here. Still on the sidelines.

Trading Blog Wednesday, July 9, 2014

7/9/2014

MARKETS UPDATE (8:00 pm EST)

The U.S. Federal Reserve released the minutes of its June policy meeting this afternoon and, as has been the case with most FOMC meetings recently, there were no surprises or major changes to the ongoing policies of bond purchase reductions (QE tapering) and low interest rates. The Fed did, however, specify an end date for its asset purchasing program in October as long as, quote, "... the economy progresses about as the Committee expects...". The Fed minutes were less specific in indicating when the end of the current near-zero interest rate policy would come, but there was much discussion on how this could be accomplished. The Fed has recently stated that it will not begin raising interest rates until "a considerable time" after the asset purchase program (QE) ends. Although the Fed is vague on this time, many economic analysts anticipate that rate hikes could begin in the summer of 2015. Of course, as with the asset purchase reductions, everything is dependent on how well the economy is doing. The minutes of the meeting show Committee members expressing different opinions on the future of the U.S. economy with concern focused on economic developments abroad and their potential impact on U.S. monetary policy. Some members pointed to the asset purchase programs of Japan, England and Europe as boosting the potential economic outlook of these countries and helping to moderate inflation in the U.S. while others expressed concern that these programs will have a negative long-term effect on the global economy. ( I agree with the latter. Interestingly, a market analyst that I follow recently pointed out that the chart of the London Financial Times Index (FTSE) seems to be forming a giant triple top pattern which may indicate it is about to enter a major bear market).

I have rambled a bit here so let me get back on track and give a brief update on today's markets. The broad stock market seemed unfazed by the Fed's announcement of ending QE in October, and even a discussion of the inevitable raising of interest rates didn't stop the DOW from rallying 79 points. This market seems very bullish and we could see more rallying into the end of the month. If we do, it could lead to a "blow off" top from which a significant correction would follow. On the other hand, the market is very overbought and susceptible to panic selling, and this may temper any rally (or turn it down prematurely). July 15 -31 could see a major directional turn in the broad stock market, and ideally it will be from a high. Since we are so close to entering that timing window, my main trading strategy is still to wait for a high later this month to sell short. Still on the sidelines.

Gold and silver metals and mining company stocks continue to look bullish but are still susceptible to a correction right now. There are technical signals suggesting some volatility in the precious metals this week so we don't want to get too concerned over the next few days with minor price fluctuations. Ideally, I still want to see a low over the next several weeks to buy, but there is a possibility of gold and silver taking off from here. There is important resistance for gold around $1370 - $1380, and until that level is breached there is a good chance for another correction. If precious metal prices rise over the next two weeks but stay under $1400, then we could get a top instead of a bottom to trade and a good opportunity to short sell these metals as they fall into their final cycle bottoms. My bias, however, is still for a low by the end of the month and an opportunity to go long. Still on the sidelines.

The cycle picture for crude oil is now indicating the potential for a correction as low as $100. Supporting this is a major bearish momentum signal that appeared in crude charts on Monday. Directional momentum is now mixed bullish and bearish again which makes me a little cautious about going long. However, if prices do get to $100 and find support, that could be an ideal spot to buy. We will wait and see how low this correction will go. Out of this market for now.

Trading Blog Monday (early AM), July 7, 2014

7/6/2014

MARKETS UPDATE (1:30 am EST)

As I had expected, equity markets were optimistic last week as we moved toward the Fourth of July weekend with the DOW reaching a new all-time high and closing over 17,000 on Thursday. The S&P 500 and NASDAQ also made new highs, and momentum in all three indices remains nearly 100% bullish. The cycle picture and other technical signals for the broad stock market, however, are suggestive of a significant correction soon. The question is whether it will start now or later this month. Ideally, I would like to see new highs into the middle of this month and a top to sell short. The market's current bullish momentum supports this idea. The DOW could pause now and back down a bit (perhaps to the 16,800 - 16,900 area) before moving higher, or it could just continue up to a new high over the next two or three weeks in a strong rally. Any short-term dips might be worth buying now (especially if this market is in a blow-off mode), but our main focus is still to look for a top to sell short later in the month. On the sidelines for now.

Directional momentum in several gold and silver metal charts turned 100% bullish last week as did several precious metal mining company stock indices and ETFs. This is a very positive sign that we are close to (or have already reached) the final bottoms in the long-term cycles for gold and silver. Short-term technical signals, however, are still pointing to some sort of correction that would bottom ideally in the third or fourth week of July. Silver looks especially vulnerable to a brief but sharp correction. Any significant corrections now in gold and silver will be potential buying spots so we have to watch these metals carefully over the next several weeks for the ideal price and timing parameters. My overall strategy for the precious metals is bullish now. Prices may be a bit volatile this week in this market. On the sidelines and waiting to go long.

In last Sunday's blog I wrote that, "...it would not be surprising to see it [ the U.S. Dollar Index] bounce significantly up any day now...". This did indeed happen as the dollar found support at 79.8 on Monday and Tuesday and then shot up to close over 80.2 on Friday. The dollar surge pushed gold prices down a bit but did not have much effect on the price of silver. This dollar rally seems to have some steam so if it continues we could see lower gold and silver prices this week.

Crude oil prices dropped to $104 last Wednesday and they seem to be leveling off there. If the price can drop to $103 or lower we may have a good setup to go long. Still out of this market.

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