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Trading Blog Monday, July 30, 2018

7/30/2018

MARKETS UPDATE (4:30 pm EDST)

Today the broad stock market took a dive which is suggesting the start of a significant correction from last week's Wednesday and Thursday highs. Technically, however, those highs were just outside our reversal zone (July 27 - Aug. 6) so while they could represent a significant top, it would be better to see another high this week (and ideally a new high in one or two of the three major indices- DOW, S&P 500, NASDAQ- but not all three for another bearish divergence signal. If that happens, we will look to short this market again). If equities continue to fall, however, we may have to just wait for a bottom to buy (as long as it doesn't go too low) which could be in this week's reversal zone. This is a very volatile market right now that has the potential to move strongly in either direction, but we are still on the lookout for a cycle top that could happen anytime between now and October to be followed by a very significant correction. On the sidelines of this market for now.

This week also brings us into a reversal zone for the precious metals (July 30 - Aug. 7). The cycle picture for the precious metals is ambiguous and complicated at the moment (please read my July 22 update on gold and silver), but short-term we are looking for a turning point in this reversal zone. The recent lows in both metals on July 19 ($1212 in gold, $15.18 in silver) could be significant bottoms, but July 19 was not in any reversal zone so there is a good chance prices could go lower before a strong rally starts. If one metal breaks below its July 19 low but not the other this week or early next week, we will have a bullish divergence signal and may look to buy. On the other hand, a strong rally this week could give us a top to sell short. We'll stay on the sidelines for now.

Crude oil started a new medium-term cycle with its low of $63 on June 18 and then rallied strongly into early July. It's first sub-cycle correction is due to bottom anytime between now and the third week of August. That bottom could happen in this week's reversal zone for crude (July 27 - Aug. 6), but it could also fall into the next one (Aug 15 - 23). Crude made a new weekly high today so it looks like it wants to rally into the current reversal zone. We may look to sell short if prices stay below $73 (Sept. contract chart), but if they exceed that, we could see crude bypass a sub-cycle correction and go straight to the cycle top in late August. That could also be a good place to sell short. We will stay on the sidelines for now as we watch to see if crude rises or falls this week.

I realize all these markets are a bit confusing right now and are presenting us with a lot of different possibilities (that's why we're on the sidelines), but I will point out when a trading opportunity becomes clear, and we will be using tight stop losses on any trades during this period of high volatility through August and early September.

Trading Blog Wednesday, July 25, 2018

7/25/2018

IMPORTANT COMMENT ON BROAD STOCK MARKET (LONGER-TERM)
and
BROAD STOCK MARKET TRADE ALERT (4:00 pm EDST)

There is currently enormous ambiguity in the short-term analysis of the broad stock market which could give equal merit to the idea of a bullish rally or, alternatively, a bearish fall soon. All three market indices (DOW, S&P 500, NASDAQ) have all made new weekly highs this week, which is bullish, but the DOW is still below its June 11 high of 25,403 while the other two indices have already exceeded their highs from June. Thus a bearish divergence signal is in place (until the DOW exceeds 25,403). (UPDATE - the DOW has just broken through 25,403 - see third paragraph below). We also note that the NASDAQ is now making new all-time highs while the DOW and S&P 500 are still below their all-time highs from late January (26,617 in the DOW and 2,873 in the S&P 500). This is an even stronger bearish divergence signal for this market. But another bullish factor would be the very strong possibility that all three indices started new medium term cycles on June 28. The early part of any cycle is usually strongly bullish.

OK, the short-term technical picture in equities is mixed and confusing now. But what about the longer-term picture?
Thankfully, that is simpler and clearer. We are approaching the end of a long-term (approximately 4 year) cycle in the broad stock market that is due to peak by October this year. This cycle may have already peaked in the DOW and S&P 500 in January, but that can't be confirmed yet as these two indices could still make new all-time highs by October. Once this 4 year cycle high is in, the broad stock market will likely take a very serious correction into 2019 - 2020. This is the reason I have been so keen on short selling this market at potential tops. Any significant top from now through the end of this year could potentially be the final top to this 4 year cycle. Any strong rally into one of our reversal zones over the next several months should be viewed as a potential opportunity to short this market. The month of August may be a little challenging as it has two reversal zones (July 27- Aug. 6 and Aug. 20-28). When two reversal zones are close, the reversal point could come between both, or there could be multiple reversals in the time period encompassing both zones. What this means is that we need to watch for a significant top throughout the entire month of August, and we need to be careful with our trading as there could be a lot of volatility during this time period.

Now back to our short-term picture. As I write this paragraph (around 3:30 pm EDST), the DOW is having a late day surge and is breaking and closing above its June high of 25,403. This means we should cover (unload) our short positions in the broad stock market as bullish forces seem to be overriding bearish factors. It is too late to pull out today so I am going to place an order to unload my short position at tomorrow's market open. If the market doesn't gap up, we may even get a better price then. We are taking a loss of about 1.5% here (which is not too bad and is more than compensated for by our recent profits in crude oil).

Of course, there is a possibility we are getting "whipsawed" out of our short position as we are entering a reversal zone on Friday and could soon see a top followed by a significant correction. But if bullish factors prevail, that top could come late in the reversal (through Aug. 6) and this market may even bypass this first reversal zone to make a significant top anytime in August (see discussion above). The DOW breaking its June high and negating a bearish divergence signal today is a reasonable stop loss parameter and is worth executing now, especially as it entails a minimum loss on our trade. If a rally continues into August, we will be looking to short this market again as the 4 year cycle top is due anytime now.

Trading Blog Sunday (late night), July 22, 2018

7/22/2018

IMPORTANT UPDATE ON GOLD and SILVER (11:30 pm EDST)

In putting together my own analysis of financial markets, I follow a handful of financial analysts whom I respect greatly and who usually agree, in broad terms, on the general condition and direction of specific markets. This frequent agreement is a good sign they are on the right track as they are all quite diverse in their backgrounds and in the methodologies and techniques they use to predict market movements. Over the last several years, however, there seems to be some disagreement on the course of the precious metals gold and silver. On the positive side (at least for gold bulls), all of them seem to agree that there is a long-term cycle (around 20 years) in both metals that is due to bottom relatively soon. When this low is in, it will be a "golden opportunity" to buy gold and silver for a bullish run that could last many years and take prices to new all-time highs. The difference of opinion here is that some analysts believe that long-term low is happening now (or has already happened with the $1045 low in gold in December 2015) while others feel it is coming five to seven years from now and gold will go lower than $1045 (perhaps to the $700 area). I had been leaning towards the idea of gold's long-term cycle bottom being that $1045 low from 2015, but recently the precious metals market has been showing signs of breaking down.

Those who read this blog regularly will recall my recent discussion of the near completion of giant inverted "head and shoulders" chart patterns forming in both gold and silver since 2013. This kind of pattern is an extremely bullish signal, but, like all chart patterns, it can abort and break down if bearish forces take over. We may be seeing that now (see my June 17 blog on gold and silver). A strong signal pointing to lower gold prices over the next several years would be to see gold break and close below $1045. A close below $1125 or even $1200 would also not be a good sign (we are getting close to $1200). It should become more clear over the next month or two if gold's long-term cycle is going lower.

Shorter-term, both gold and silver may have made significant bottoms last week (gold at $1212 and silver at $15.18), and we could see prices rally significantly now into the end of this week (possibly due to President Trump's criticism of the Fed's plan to continue raising interest rates, a critique that depressed the U. S. dollar last week and boosted precious metal prices). The following week starts another reversal zone for these metals (July 30 - August 7) so a strong rally into that time could set up a shorting opportunity. If we don't get a strong rally, we may just wait to buy a medium-term cycle bottom (as long as prices don't go too low) in one or both metals which could be coming up near the end of August. Currently on the sidelines of both metals.

Trading Blog Friday, July 20, 2018

7/20/2018

MARKETS UPDATE (2:45 pm EDST)

That resistance zone around 25,200 - 25,280 seems to have turned down the DOW on Wednesday, but will the broad stock market continue down into the next reversal zone that starts next Friday (July 27 - August 6) to make a significant bottom? Maybe, but even if equities start rising again, they only have four days before they enter that reversal and likely turn down again. As long as the DOW stays below that resistance area, I think I will be holding my short position in this market.

After falling steeply this week, gold and silver prices are taking a breather today with a relief rally. We are not in a reversal zone for precious metals (the next one is July 30 - August 7) so I don't think this rally will gain any legs. Both metals broke important support levels this week and are looking quite bearish. As I stated on Wednesday, I will comment on the longer-term picture of gold and silver sometime this week-end. We are out of both gold and silver for now.

After making a high at $75.27 on July 3, crude oil fell to a low of $67.03 (August contract chart) on Tuesday this week and prices have been rallying a bit from there. That low was too early to be a significant sub-cycle bottom, and we are not in a reversal zone for crude so I suspect prices will turn down again soon. Let's wait to see if we get another low in the next reversal zone (July 27 - August 6, same as for the broad stock market) for another opportunity to buy. On the sidelines of crude oil.

Trading Blog Wednesday, July 18, 2018

7/18/2018

BROAD STOCK MARKET UPDATE and COMMENT ON JEROME POWELL'S PRESS CONFERENCE
(3:30 pm EDST)

Yesterday new Federal Reserve Chairman Jerome Powell gave a press conference in which he delivered generally upbeat comments on the state of the U.S. economy and also stated that the central bank plans to continue raising interest rates once every three months, at least "for now". These statements were likely intended to ease Wall Street fears and "talk up" a jittery stock market, and it seems they were effective, at least short-term, as equity markets had a healthy rally yesterday. We need to note here that Powell's inclusion of "for now" in his statement indicates the possibility of pulling back on rate hikes and perhaps even stopping them if economic conditions require it. Another cautious note was struck when he commented on the uncertain outcome of current trade wars and fiscal policies being implemented by the Trump administration. Perhaps Wall Street was salivating a bit at the prospect of slower rate hikes (or even no hikes) and this inspired yesterday's rally. The next several days will tell us how confident the market is and whether or not trade wars and other fears will reassert themselves in the investor psyche.

From the standpoint of technical analysis, yesterday's and today's rally in the DOW has taken this index up to a strong resistance area around 25,200 - 25,280, and the DOW is still below its June high of 25,403 while the S&P 500 and NASDAQ have already exceeded their June highs (bearish divergence). At the time of this writing (3:30 pm EDST) it seems that these latter two indices are reluctant to rally so there is still a chance this market could turn down at this resistance area in the DOW. The alternative scenario (also very possible) is to see all three indices continue rallying into the next reversal zone July 27 - August 6 (which starts on next week's Friday). If that happens, we will watch for another strong case of bearish divergence which is already setting up as the NASDAQ is now making new all-time highs but the S&P 500 and especially the DOW are well below their all-time highs (that would be 26,617 in the DOW and 2,873 in the S&P 500 - both made on Jan. 26 this year). For now, I am going to use a close above 25,280 as a stop loss for my short position in the DOW. Holding my short position in the DOW today.

Gold and silver prices are continuing to break down today. It looks like we may be back on track for a longer-term downturn in the precious metals. I will analyze and discuss in more detail what is going on in this market over the upcoming week-end. We are now out of both gold and silver.

Trading Blog Tuesday, July 17, 2018

7/17/2018

GOLD AND SILVER TRADE ALERT (1:00 pm EDST)

Gold and silver are both breaking below last week's lows so it looks like they are breaking down instead of breaking up. We are therefore going to unload our long positions in these metals today. Selling my long positions in gold and silver.

After dropping early this morning, the broad stock market is rallying again. The S&P 500 and NASDAQ are making new highs, but the DOW is still below its June high of 25,403 and still below the resistance zone at 25.200 - 25,280.
I am going to hold my short position here for now.

Trading Blog Sunday (late night), July 15, 2018

7/15/2018

UPDATE ON THE BROAD STOCK MARKET and PRECIOUS METALS (11:30 pm EDST)

All three broad stock market indices (DOW, S&P 500 and NASDAQ) took a steep plunge last Wednesday (in the middle of our reversal zone) but then recovered Thursday and Friday to close the week at new weekly highs (with the NASDAQ making a new all-time high). This sudden bullish surge near the end of the week could be a warning that last week's reversal zone will be bypassed, and we could instead see the rally continuing into the next reversal zone coming up July 27 - August 6 (a stronger one). While this is now a strong possibility, the market could still turn down from a high early this week. We still have an intermarket bearish divergence signal as the S&P 500 and NASDAQ exceeded their June highs last week while the DOW still has not (it must break above 25,403 to do this). As long as the DOW stays below that high, a top and reversal down could be imminent. There is also a resistance area in the DOW around 25,200 - 25,280. Let's see if that will hold back the rally early next week. For now, we can use a break above that resistance as our stop loss parameter for our short DOW position.

It looks like the S&P 500 and especially the NASDAQ probably started new medium-term cycles with their lows on June 28. If that is the case then both indices could be very bullish now and easily rally into that July 27 - August 6 reversal zone. But there is also a chance that these indices are completing older cycles and could reverse down sharply next week to complete their final cycle bottoms. It could go either way, but the odds are slightly favoring the idea of newer (bullish) cycles. In contrast, the DOW also may have started a new cycle on June 28, but more likely it is still completing an older one (bearish). The main point here is that we'll have to watch this market carefully next week for a sudden reversal down. If we don't see that early in the week, we will go with the idea that a rally will continue for another two or three weeks in all three indices. Holding my short position in the DOW for now with a stop loss based on a break above 25,280.

The precious metals market is also at a turning point. We were expecting a bottom and a reversal up in both metals in last week's reversal zone. We may still get that, but if gold and silver move lower after Monday, we will have to assume these metals are breaking down instead of reversing. Both metals are finding support near their Dec. 2017 lows so ideally we will see some sort of rally now. Another good signal for a rally would be to see one metal break below last week's low but not the other (bullish divergence) early next week. If both break their lows from last week (i.e. $1237.92 in gold, $15.765 in silver), we may have to bail out of our long positions. Holding my long position in gold and silver for now.

Trading Blog Tuesday, July 10, 2018

7/10/2018

TRADE ALERTS for BROAD STOCK MARKET, GOLD, SILVER, and CRUDE OIL (2:30 pm EDST)

Based on my analysis from yesterday's blog post, today looks like a good time to sell short the broad stock market. We are in the dead center of a reversal zone (which ends Friday), and the S&P 500 is breaking above its June high today while the DOW and NASDAQ are still below their highs from June so we now have our bearish divergence signal to sell. (The NASDAQ is actually on the verge of breaking above its high and could easily do so before the week is up, but the DOW is well below its high.) As I mentioned in yesterday's blog, any correction here will probably be the strongest in the DOW (because the S&P 500 and NASDAQ may have already started new cycles on June 28). For that reason it would be best to short sell the DOW (using an inverse DOW index fund or ETF) for this trade. Entering a short position in the broad stock market (DOW) today. I am going to set a stop loss for this trade on a weekly close above 25,150 in the DOW or if the DOW exceeds its June high (25,403) any day this week.

It also looks like a good time to buy gold and silver for a possible short-term (but steep) rally in both metals from an isolated low this week as discussed in yesterday's blog. We are in the center of a reversal zone for precious metals (it ends Friday), and that isolated low may be forming now as gold and silver prices are down today. I am going to go long in both metals today with a stop loss based on both gold and silver breaking below their December lows. That would be $1236 for gold and $15.638 for silver. Entering a long position in gold and silver today.

Crude oil prices are edging up to $74 today so I am going to take profits here and sell my long position in crude. Last Tuesday's high at $75.27 could easily be a top even though we could still see a higher price (or double top) in this week's reversal zone. We have done well with this trade (we bought crude on June 5 at $65) so it seems like a good time to take profits (especially considering the broad stock market could turn down now and possibly pull crude down with it). Selling my long position in crude today.

Trading Blog Monday, July 9, 2018

7/9/2018

MARKETS UPDATE (3:30 pm EDST)

Today's strong rally in the broad stock market confirms that this market is rising into the current reversal zone (today and tomorrow are the center of it), and we should be looking for a top to sell short this week. Ideally, we would like to see a case of bearish divergence where one or two of the three major indices (DOW, S&P 500, NASDAQ), but not all three, break above their June highs (that would be 25,403 in the DOW, 2,791 in the S&P 500, and 7,803 in the NASDAQ). The S&P 500 and NASDAQ are already very close to their highs, but the DOW is not so this bearish divergence signal could easily happen over the next day or two.

In terms of cycles, it is very possible that all three indices are making their final medium-term cycle tops now and that this will be followed by a sharp correction down to their final cycle bottoms which will happen most likely in our next reversal zone (July 27 - Aug. 6). Our trading strategy, therefore, will be to sell short the top this week for a corrective fall and then to reverse position and buy at the bottom (probably in late July/early August). There is also a possibility that the S&P 500 and NASDAQ (probably not the DOW) already made their final cycle bottoms on June 28. If true, they would both be very bullish now as they start a new cycle. Even if that is the case, however, this week's reversal should push them back down a bit where we could buy them close to their bottoms as we also buy the DOW at its final bottom in late July/early August. Considering all of this (yes, it's a little confusing), it will probably be best to focus on the DOW for any short selling this week as its fall will be steeper if the other two indices have already started new cycles. Still on the sidelines of the broad stock market but now looking to go short this week.

Right now we also have a mixed and somewhat ambiguous picture with the cycles of gold and silver. Silver's cycle is more clear than gold's cycle at the moment. Silver most likely started a new medium-term cycle on May 1 at $16.07. Because silver traded lower than $16.07 last week, prices will probably move even lower before the final cycle bottom is in (due in 3 - 11 weeks). Gold, on the other hand, could have made a very significant low last week at $1238. That could have been the end of a medium-term as well as a longer-term cycle, and if so gold could be very bullish now and about to embark on a very strong rally (new cycle). The alternative view is that, like silver, gold will move lower to complete a final cycle low later (due in 4 - 7 weeks).

So what can we do with this (rather confusing, I know) information? Well, we are now at the center of a reversal zone for precious metals (it ends Friday), and both gold and silver are rallying into it. We could see a pull back here. There also happens to be some strong technical signals this week that suggest a strong rally could commence from an isolated low in both metals sometime before Friday. If we get a modest pull back (say to the $1245 area in gold) before Friday, it may be worth going long in both metals for a brief but possibly strong rally. If gold is starting a new cycle as described above, then its rally could be very strong. Even if gold and silver are still completing older cycles, there is still the possibility of a strong short-term rally now before prices move down to their final lows. We will watch for this pullback to buy this week. On the sidelines of gold and silver.

As far as gold and silver aborting their massive bullish inverted "head and shoulders" chart formations, a subject I discussed recently on the blog (see June 17th blog), this is still a possibility, but it could take many more weeks (even months) to confirm this. If gold is starting a new long-term cycle now (as discussed above), we may see these bullish chart formations remain intact. Stay tuned for updates on this.

Last week's high in crude oil at $75.27 (Aug. contract chart) on Tuesday was a bit too early to fall into the current reversal zone for crude (July 4 - 13) so there's a good chance prices could push back up to that level or higher this week for a significant high. We will watch for that and a chance to take profits near $75 and sell our long position (which we bought near $65 on June 5). If last week was the high and prices fall, let's use a close below $72 as our stop loss for our longs. Holding my long position in crude oil for now.

Trading Blog Thursday, July 5, 2018

7/5/2018

MARKETS UPDATE (4:30 pm EST)

We are now entering a new reversal zone for the broad stock market (July 4 - 13), and we will have to wait and see if this reversal will be a turn up from a new low or a turn down from a new high. (At this moment it looks like it could be either one.) Not much has changed since my blog on this market last Sunday. If we get a good rally into next week, we will probably look to sell short. But if this market turns south and drops down to test or even break below last week's lows in next week's reversal zone, we will look to buy what could be a final medium-term cycle bottom for all three market indices - DOW, S&P 500 and NASDAQ. Still on the sidelines here.

Gold and silver prices dropped dramatically early this week with gold making a new low at $1238 and silver a new low at $15.78. Prices have been rising from those lows, but they are rising into a new reversal zone for the precious metals that began yesterday (July 4 - 13). Thus this rally may not get very far before turning down again. It would not be unreasonable to say these bottoms occurred just a bit early (a day or two) in the reversal period (reversal date ranges do not represent absolute cut off points for a reversal - they are just areas of high probability for a reversal) and so these may be significant lows. Nevertheless, prices could still rise into the center or end of the reversal next week, and we could get two reversals in one reversal zone (sorry if this is confusing). The bottom line here is that I think we are now seeing a brief corrective sub-cycle bounce in both metals that will be followed by a reversal back down to lower lows. If silver rallies to the $16.20 - $16.40 area next week and stalls, it may be a good spot to sell short. Gold reaching the $1270 - $1280 area next week may also be a good place for a short position. An intermarket bearish divergence signal (i.e. one metal making a new weekly high but not the other) would also encourage us to short these metals next week. Remaining on the sidelines of both metals for now.

We are still very early in the current medium-term cycle of crude oil which started with the June 17 low of $63.40 (August contract chart). Since we entered a long position in crude on June 5 near that level, the price has soared to over $75 this week (Tuesday) so we have been doing well with this trade. Today prices are dropping a bit below $73 as this rally takes a breather. Tuesday's top was just outside a new reversal zone for crude (July 4- 13 - same as for the broad stock market and precious metals) so it is possible prices could push higher into next week for a more significant top. If that happens, we will take profits and sell our long position. Another possibility is a new weekly low in next week's reversal zone. As long as that low stays fairly close to $70, we will hold our long position for more rallying, possibly to the $78 area or even a bit higher. Holding my long position in crude for now.

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