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Trading Blog Thursday (early AM), July 30, 2015

7/29/2015

BRIEF COMMENT ON WEDNESDAY'S FOMC STATEMENT (2:00 am EDT)

Economic analysts who expected the Fed to give some sort of indication as to when they will raise short-term interest rates were disappointed yesterday as the FOMC meeting statement released in the afternoon made no direct references to the timing of the first rate hike. The statement did, however, say that the Fed is seeing some "solid" data in job gains which prompted a hawkish interpretation by some analysts who believe positive employment numbers will lead to a rate hike in September. Most analysts, however, seem to be reading yesterday's statement as neutral (or even dovish - no rate hike yet!). The Fed's rhetoric continues to reiterate that the timing of the first hike will be dependent on economic data. If the economy weakens between now and the next FOMC meeting, the Fed may have a good excuse to delay the hike into the end of the year (or even into 2016).

The broad stock market rallied strongly into the FOMC statement release at 2:00 PM and, after a nervous surge and dip, continued to rally with the DOW closing at 17,751 and a 121 point gain. So Wall Street, at least, seemed to like the Fed's statement. This was good for the long position we entered early on Wednesday. Hopefully, this bullish enthusiasm will now buoy equity markets through the end of the current reversal zone (early next week).

Trading Blog Wednesday, July 29, 2015

7/29/2015

CRUDE OIL TRADE ALERT (3:15 pm EDT)

Crude oil charts are giving us a short-term buy signal today as we approach the end of the current reversal zone for crude (it ends early next week). It looks like yesterday's low at $46.68 could be the bottom of the current medium-term cycle, and if so, we could see a rally back to $55 or higher. I am therefore going to enter a long position in crude today. We can place a stop loss at yesterday's low ($46.68).

Trading Blog Tuesday (night), July 28, 2015

7/28/2015

BROAD STOCK MARKET TRADE ALERT (11:15 pm EDT)

On Monday the DOW broke below its 17,465 low from July 7 which opens up the possibility of a much deeper correction over the next several weeks (and possibly months). A strong bearish momentum signal also appeared in yesterday's DOW chart making this index now 100% bearish. Despite this bearish possibility, the DOW recovered strongly today and closed at 17,603 - far above that 17,465 low. We have been expecting a bottom and reversal in this week's strong reversal zone, and yesterday's low could have been it. The fact that the DOW made a new monthly low while the S&P 500 did not also creates a strong intermarket bullish divergence signal and supports the idea that yesterday's low starts a new medium-term DOW cycle which would be at least initially bullish. Directional momentum in both the S&P 500 and NASDAQ remain nearly 100% bullish which further supports the bullish case. I am favoring the bullish view at the moment, but we need to keep in mind the bearish possibility (i.e. the markets resuming their plunge to significantly lower levels). Reaction to tomorrow's Fed statement could be the determining factor that kicks the market either up or down from here.

The Federal Reserve will conclude its two day meeting tomorrow with a statement release at 2:00 in the afternoon. It seems there will be no press conference following the meeting. Recent economic data has been poor, and many analysts that were expecting the first interest rate hike in September are now speculating that the Fed may delay that hike into November or even December. If the Fed's statement suggests this (or is dovish in any way), stocks could continue their enthusiastic rally, but a more hawkish tone in the Fed's rhetoric might kick the markets back down. A good way to play this is to go long at the opening of Wednesday's market before the Fed statement is released. If the DOW rallies and closes the week in the upper third of this week's range, we will stay long. If markets start to fall and the DOW closes below yesterday's low (17,399) with the S&P 500 also making a new monthly low, we will bail out. The DOW is currently about 1% above that 17,399 low, so should the markets turn south, our loss from a long position would be minimal. Entering a long position in the broad stock market now.

I want to emphasize here that this bullish view of the broad stock market is short-term and that my longer term and even medium-term view of equity markets is bearish. If we do get a rally now, I expect it to be short-term and followed by a significant correction of 10 -15 % or more. If you are a long-term investor or a very conservative, infrequent trader, it is my opinion that you should be out of the broad stock market for at least the next twelve months as this market is very volatile and vulnerable to severe corrections for the rest of the year and well into 2016.

Trading Blog Monday (early AM), July 27, 2015

7/26/2015

GOLD AND SILVER TRADE ALERT and MARKETS UPDATE (12:45 am EDT)

There are many technical, timing and cycle patterns now suggesting an imminent bottom and reversal in the precious metals, and next week appears to be the perfect time for it to happen. Gold prices made a low near $1777 intraday on Friday, but then snapped back to close the day at $1198. This is very bullish behavior. That low could easily be a double bottom to the $1073 low from July 19, and if so a relief rally in gold could already be starting. Silver gave an equally bullish signal on Friday as prices dipped to $14.38 intraday and then rallied back to close near the day's opening price around $14.65. I am going to enter long positions in both gold and silver tonight for tomorrow's market open. We can place stop losses at or near the recent lows in these metals ($1073 in gold and $14.38 in silver). If this week either gold or silver breaks last Friday's low without the other making a new weekly low, we will have a case of bullish intermarket divergence which could be followed by the start of a strong rally. The rally could get at least up to $1140 (and possibly $1170) in gold and up towards $17 (possibly $18) in silver. Note that even though this rally's potential is substantial and tradable, the medium-term trend for both gold and silver is still bearish, and prices will likely not get above the levels just mentioned before turning back down for a final plunge to a long-term cycle bottom in both metals near the end of the year (see my recent gold update on the homepage). But for now, it looks like the shorter term cycles are bottoming, and I am turning short-term bullish. Entering long positions now in both gold and silver.

The broad stock market fell strongly last week as investors worried about poor earnings reports from major companies such as Apple, IBM, and Caterpillar as well as data showing a slowing growth in the global economy. The DOW is now quickly moving back towards its July 7th low of 17,465 which is altering the current cycle pattern of this index and making it more difficult to interpret. This week is another strong reversal period for the markets, and equities are falling sharply into it so we should be looking for a bottom to buy. However, if the DOW breaks strongly below 17,465, we will have to rethink this strategy as a serious correction could be in progress that could negate any reversal. Directional momentum in the NASDAQ and S&P 500 are still supporting a bullish scenario for equities (they remain 100% bullish despite last week's losses) while the DOW is still mixed bullish and bearish. This month's Federal Reserve meeting is this week, and the market's reaction to it could be a turning point. Still on the sidelines of the broad stock market.

I had some technical problems last week with the data source that I use to analyze crude oil charts. This caused me to enter a long position prematurely and also necessitated an early sell of that position. Crude still appears to be forming a medium-term cycle low, and that could happen this week or next. There is now support for crude around $46.50, but the cycle bottom could go lower. We will continue to watch prices for a possible low to buy either this week or next. On the sidelines of crude oil for now.

Trading Blog Friday, July 24, 2015

7/24/2015

CRUDE OIL TRADE ALERT (2:00 pm EDT)

It appears that the nearby monthly contract chart that I use to track crude oil prices was updated late yesterday (we are now in the September contract) and this calls for a slight adjustment of prices and also our tight stop loss area. The stop loss I suggested yesterday at $48.50 should actually be $49. Unfortunately, prices are breaching this level today and appear to be closing just under this price. Some technical signals in the September chart are also looking a bit bearish. It appears that crude is taking a cue from the sharply falling equities market. For this reason I am going to sell the long position I entered in crude yesterday. Although a reversal is still possible from here or from a low early next week, I believe there is now too much of a risk of a steeper drop into the first week of August. I am not a day trader, and this kind of quick trading is not what I normally do so I apologize for this very short-term trade. Fortunately, the loss here is minimal (less than 1%). Selling my long position in crude oil today.

Trading Blog Thursday, July 23, 2015

7/23/2015

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

Crude oil is near the end of a medium-term cycle, we are at the center of a strong reversal zone for crude, and crude prices appear to be basing near strong support around $48 at an acceptable target for a cycle bottom. For these reasons, I am going to enter a long position in crude today with a tight stop loss on a close below $48.50. If crude does break below $48, we would probably see a cycle bottom by the first week of August (possibly at a much lower price), but right now the chart analysis is suggesting a reversal any day now at the current price level. Crude made a new monthly low today at $49.77 so that may be the bottom. Going long in crude oil today for a possible rally back to $55 or higher.

The broad stock market has been falling since Monday. While it is possible the major correction we've been waiting for is starting, there are not a lot of technical signals supporting this idea at the moment. Directional momentum in the DOW and S&P 500 is mixed bullish and bearish and the NASDAQ is still 100% bullish. The two pivot points for the long reversal period we are now in are (were) July 18 and July 29. Monday's top was close to the 18th, but now markets are falling sharply into the 29th. We could see another reversal up and another top by the first week of August. I am still waiting for stronger bearish technical signals before considering a short position in this market. Still on the sidelines.

Gold and silver charts are still looking quite bearish and it looks like prices could still go lower before reversing.
On the sidelines but waiting to buy a cycle bottom soon, ideally next week.

Trading Blog Tuesday, July 21, 2015

7/21/2015

UPDATE on PRECIOUS METALS (6:00 pm EDT)

After a sharp plunge in the overnight market on Sunday, gold and silver prices seem to be stabilizing with gold just above $1100 and silver above $14.70. The Sunday night lows (gold down to $1072 and silver to $14.55) may have been medium-term cycle bottoms, but there are no strong signs of reversal yet, and it is possible to see lower lows (or a double bottom) later this week or into next week. I am looking to go long at this bottom because it will likely be the start of new medium-term cycles in both gold and silver, and the start of a new cycle is always bullish. I want to point out, however, that this will probably be a short-term trade. The fact that gold broke and closed well below the $1143 low of March 17 suggests that the overall cycle trend is turning bearish. This means that after a sharp but probably brief rally, the new cycle will likely turn down again and make lower lows (possibly below $1000). Based on current cycle and timing data, that lower bottom could be later this year (Nov.- Dec.).

Those who have been reading my blog for some time may recall that over a year and a half ago I had
been anticipating a major long-term cycle bottom in gold (and silver) from which a major long-term rally would begin that would take the precious metals to new all-time highs. That bottom had seemed imminent in September 2013 until gold prices were apparently manipulated twice in early October 2013. In my blog on Oct. 15, 2013 I wrote: "It appears that last week gold prices were manipulated down again by someone selling 800,000 ounces of gold on COMEX while the New York markets were closed. Prices had been stabilizing above $1300 earlier in the week, but by Friday they were pushed down close to $1250. (A similar market manipulation occurred on Oct. 1, the first day of the government shutdown, when gold broke its $1300 support and dropped nearly $50.) So it is possible there are some people in high places who wish to keep gold prices from taking off right now..."
The timing of the long-term gold cycle may have been delayed by this manipulation, but the cycle is still valid, and it looks like that final long-term bottom could be later this year. If so, we will have another "golden opportunity" to go long in the precious metals at that time.

In the meantime, we are still watching for a medium-term cycle bottom to buy now for a short-term, but tradeable rally
that could last for several weeks and take gold prices back to $1140 or higher. If we miss a good buy spot here, we will wait to sell short from the next cycle high into that final bottom expected later this year. More conservative traders may want to stand aside any buying now and just wait for that short sell. On the sidelines of gold and silver at the moment.

Trading Blog Sunday (night), July 19, 2015

7/18/2015

MARKETS UPDATE (11:30 pm EDT)

Despite violent protests in the streets of Athens last week from anti-austerity supporters who wanted Greece's parliament to reject the harsh austerity reforms demanded by EU officials in return for a third bailout, Greek officials capitulated to the eurozone with their vote on late Wednesday to approve the tough new austerity measures for their country. Greece's banks will reopen on Monday after a three-week shutdown as talks on the new bailout begins.

The broad stock market was up on Thursday, the first trading day following the Greek Parliament's vote, but the rally was modest. This suggests that the market's strong rally on Monday and Tuesday had anticipated and already factored in Greece's approval of the new bailout plan. The DOW was down a bit on Friday but remained above 18,000, a resistance level it broke on Tuesday (which should now act as support). We are now entering the last two weeks of July when there is a strong likelihood of a major reversal in equity (and other) markets. The DOW, S&P 500 and NASDAQ are all rising sharply from their July 7 lows so we should be looking for a top in these markets to sell short any time now. Longer term cycle patterns are also suggesting that any correction now could be very significant (10-15% or more). The big question is, how high can these indices go before reversing? If all three break to new
all-time highs (the NASDAQ made a new all-time high on Friday) then we could see the DOW up to 18,800 or higher and the S&P 500 to 2200. But there are a lot of technical, cycle and timing factors right now that suggest the markets will not get that high before turning down and making a major correction. Momentum signals are now mixed with the DOW mostly bearish, the NASDAQ bullish and the S&P 500 mixed bullish and bearish. We will watch carefully for signs of a top in these markets, ideally before the end of July. On the sidelines of the broad stock market for now.

In last Tuesday's blog on precious metals I wrote: "Gold and silver prices may have made significant bottoms last week (gold at $1147 and silver at $14.75), but the strong bearish directional momentum in the charts of both metals now is suggestive of still lower prices.... but the bottom of the current cycle should be in by the end of the month."
Well, gold and silver prices are going lower. As I write this (Sunday, July 19, 11 pm) gold prices have fallen to $1108 and silver to $14.60. We should be looking for a reversal in this market any time now, ideally this week or next. We will watch for signs of a medium-term cycle bottom to buy in both gold and silver in this time period. On the sidelines of gold and silver but looking to buy soon.

I am anticipating a medium-term cycle bottom in crude oil as well over the next several weeks, and this week's reversal zone is especially strong for crude. Prices seem to be stabilizing at $50, but directional momentum is still 100% bearish in this market so prices could still go lower. I would like to see a stronger bullish momentum signal in crude charts before considering a long position. We may get that this week. Out of this market for now.

Trading Blog Wednesday, July 15, 2015

7/15/2015

BRIEF MARKET UPDATE (4:30 pm EDT)

The broad stock market had a bit of a roller coaster ride today but ended the day nearly flat. China's economic figures released in the morning were weak but better than expected, and this likely pushed the market up into mid-day. Janet Yellen's comments to the House Financial Services Committee didn't faze markets very much. She seemed optimistic about the economy and reiterated her intent to raise interest rates "at some point this year".
The DOW plunged in mid-afternoon apparently in response to news reports and videos of violent protests in the streets of Athens by anti-austerity supporters who feel betrayed by Greek Prime Minister Alexis Tsipras's acceptance of the EU's latest austere bailout terms. It seems this reminded investors of the possibility that Greece could reject the new bailout. The DOW recovered, however, and closed the day with a loss of only 3 points.

Today's debate in Greece's parliament on whether or not to approve tough new economic measures for its country in return for a desperately needed bailout could go on until midnight. Most analysts expect the reforms to be approved. We shall have to wait until tomorrow to see what effect this vote will have on the markets.

Trading Blog Tuesday, July 14, 2015

7/14/2015

MARKETS UPDATE (7:00 pm EDT)

Several factors could create volatile trading for many financial markets tomorrow. Of course, Wall Street continues to worry about the Greek debt crisis. On Wednesday the Greek government must decide whether or not it wants to adopt the harsh reform measures being demanded by its international creditors to qualify for new bailout money. These austerity reforms are unpopular with the Greek people, but rejecting them could lead to a collapse of the Greek economy and Greece's exit from the euro. As if that isn't enough to worry about, a report on China's second-quarter economic growth comes out tomorrow morning and threatens to reignite more fears about that country's collapsing stock market. Finally, Federal Reserve Chairwoman Janet Yellen is scheduled to speak to the House Financial Services committee concerning the central bank's current view of the economy and how it might affect the timeline for raising short-term interest rates (a subject that always makes Wall Street nervous). It is probably a good thing that we are now on the sidelines of all the markets.

Gold and silver prices may have made significant bottoms last week (gold at $1147 and silver at $14.75), but the strong bearish directional momentum in the charts of both metals now is suggestive of still lower prices. The cycle structure and timing signals in these charts allow for lower prices over the next three weeks, but the bottom of the current cycle should be in by the end of the month. The question right now is whether or not last week's lows were were early cycle bottoms. If they were, we could get a sharp rally now in both gold and silver with gold possibly rising back up to $1200 and silver to $17.50. Unfortunately, it is not clear at the moment what direction this market will take. Because of the potential for high volatility in the current trading environment, I am remaining on the sidelines of the metals for now.

The chart of the U.S. Dollar Index is also giving us mixed signals at the moment. Last week the dollar appeared to be breaking out of a downtrend, but so far its rally has not been able to break above resistance at the 97 level. Like other markets, it appears the dollar is taking its cues from the ongoing Greek debt crisis. Any negative news on this crisis (such as Greece rejecting austerity reforms on Wednesday) could weaken the euro and boost the dollar.

Crude oil prices also seem to be in the process of forming a significant bottom that could happen anytime over the next few weeks. This bottom will likely mark the end of the current medium-term cycle and the start of a new one. Even though directional momentum is mostly bearish for crude right now, a cycle bottom could be a good place to buy for at least a short-term rally back to $55 or higher. We will watch for a new low near $49 or lower this week and next. On the sidelines for now.

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