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Trading Blog Thursday, July 30, 2020

7/30/2020

MARKETS UPDATE (6:00 pm EDST)

After the conclusion of this week's FOMC meeting on Wednesday, the Fed, to no one's surprise, left interest rates unchanged and reiterated the idea of keeping rates near zero indefinitely (or until our economy starts to recover from the ill effects of COVID-19 - i.e. not soon). This dovish rhetoric is not new news from the Fed so its effect on equity markets may be somewhat muted. Indeed, even though the broad stock market rallied strongly on Wednesday immediately after the Fed's announcement (around 2pm) into the closing bell, the DOW took a 500+ point dive early this morning. It then recovered about half of this loss by the end of the day. Both the S&P 500 and NASDAQ also dropped steeply this morning. Like the DOW, the S&P 500 recovered a little over half its loss, but the NASDAQ recovered fully and closed with a slight gain - reinforcing the idea that the NASDAQ is a bit more bullish than the other two indices at this time.

This market is still nervous and indecisive. Our preferred labeling for the current medium-term cycles in all three indices says that these cycles are coming to an end and are now taking a steep correction down to their final cycle bottoms. We are betting on that with our current short position in this market. We will stay with that idea unless we see the DOW exceed 27,071 and the S&P 500 exceed 3,280 (our stop loss points). Holding my short position in the broad stock market for now.

It looks like gold and silver prices may be finally topping out after "breaking out" and accelerating up since early last week. As I wrote in Monday's blog:

"We enter a new general reversal zone AND a reversal zone specifically for the precious metals this week (BOTH from July 28 to August 4). That would be a good time for prices to top out and start a corrective move down. Let's watch for that and a buying opportunity."

We will watch carefully now for a corrective low to buy in both metals, especially in silver. There is a strong support zone for silver around $21 so ideally that would be a good buy spot. Gold may not drop very much (there is likely some support around $1900) so we will probably use silver's target to gauge any decision to buy. On the sidelines of both metals for now.

Crude oil is most likely taking its cues from the broad stock market which means it too seems to be indecisive in its direction. Crude seems to be taking a corrective sub-cycle dip from its high of $42.51 (Sept. contract chart) on July 21. If that's true, prices could get down to the $33 area, but if crude is bullish, the correction may just test the 45-day moving average (now around $39.50). In fact, it did test that moving average today and closed back above it. Before getting too bullish on crude, however, we have to keep in mind the huge plunge crude prices took back in April which could be indicative of a bearish longer-term trend. There are several other bearish patterns appearing in crude's longer-term charts that should make us cautious with this commodity. Needless to say, if the COVID-19 pandemic continues to weaken the global economy, and the broad stock market takes a severe correction then demand for oil will decrease and crude prices will suffer. Let's stay on the sidelines of crude for now.

Trading Blog Monday, July 27, 2020

7/27/2020

BROAD STOCK MARKET UPDATE and IMPORTANT UPDATES on GOLD, SILVER and the U.S. DOLLAR INDEX (8:00 pm EDST)

We are now fully clear of our last strong reversal zone (July 13 - 21). There is a very good chance that all three broad stock market indices (DOW, S&P 500, NASDAQ) made their final medium-term cycle tops in that time period and are now starting their sharp descent to their final medium-term cycle bottoms. Ideally, those bottoms would happen somewhere in the first three weeks of August. Our current short position is based on this scenario.

Of course, we don't always see our ideal scenario play out. There is a small chance the DOW and possibly the S&P 500 started their new medium-term cycles with their lows on June 26 and June 29 (respectively). If so, they could be bullish and ready to rally strongly. The NASDAQ, however, is most likely an older medium-term cycle ready to bottom soon, but it too could surge briefly up to a new all-time high before its sharp correction down. To protect our short positions, I suggested a stop loss on Thursday based on both the DOW and S&P 500 breaking above their recent highs (the DOW's 27,071 high from July 15 and the S&P 500's high of 3,280 from July 23). All three indices rallied a bit today but closed well below those highs. The high tech NASDAQ seems to be leading the broad stock market now. It is also the most oversold and most ripe for a sharp correction down. Let's hold our short positions in the broad stock market for now with a close eye on those stop loss lines.

We have been waiting patiently for some sort of corrective dip in gold and silver to buy, but unfortunately we haven't been getting it. Gold and silver are clearly in a "blow-off" mode as prices have been rising exponentially since last Monday. Today gold broke and closed above its all-time high of $1920 from 2011. In my Gold Market Update(s) from 9/2/19 and 3/26/20 (see Home tab above for the site's Home Page) I wrote:

From 9/2/19:
"It looks like gold is nearing the end of a long-term 23 year cycle that began with a double bottom low in 1999 and 2001 (around $280) that soared to $1920 in 2011. From that high gold then fell to $1046 in late 2015....
The question now is whether or not that $1920 high in 2011 was the top of the cycle. If it was, this cycle is already in the process of correcting down to the final bottom expected in 2023 - 2024. But gold's recent bullish rallying is suggesting that the top may not be in yet, and the $1920 high may be challenged. If so, it is possible we could see a "blow-off" top to $2300 (or even higher) before the final corrective drop into 2023 - 2024.

From 3/26/20:
"...gold prices could now rise to test the $1920 high of 2011 or go even higher. Although this is medium-term bullish, please note that a final top in the 23 year cycle can happen any time now and will be followed by a very severe correction to the final 23 year cycle bottom due around 2023 - 2024. Where that bottom price ends up depends on the height of the final top."

So that $1920 high has now been broken, and we could indeed see a "blow-off" in gold prices to $2300 or even higher. Needless to say, we want to get long soon in this market. This precious metals market "breakout" may be altering our previous labeling of gold and silver's medium-term cycles. But regardless of the cycle labeling, there is still a good possibility of a corrective dip soon. We enter a new general reversal zone AND a reversal zone specifically for the precious metals this week (BOTH from July 28 to August 4). That would be a good time for prices to top out and start a corrective move down. Let's watch for that and a buying opportunity.

Silver prices have also taken off as prices are now above $25 (although silver is well below its 2011 high of $49.70). As with gold, we should be seeing SOME sort of corrective dip soon. It may not go as low as we would like, but we will watch carefully for a potential buy spot. On the sidelines of both metals for now.

Not surprisingly, the U.S. Dollar Index has been falling, and this has boosted precious metal prices. The willingness of the Federal Reserve to print money endlessly out of thin air to keep equity markets from collapsing and "save" the economy is taking its toll on the greenback. Today the U.S. Dollar Index broke below an important support level at 94. Unless the dollar can snap quickly back above 94, it could drop to the next zone of support around 88 - 90. It now appears that the final top of a long-term 16.5 year cycle in the U.S. dollar (which began in 2008) was made in January 2017 at 103.82. The greenback is thus likely in decline to its final cycle bottom that should happen somewhere between late 2024 and early 2025 and could easily end up below 71 - its cycle low from 2008.

Trading Blog (#2) Thursday, July 23, 2020

7/23/2020

ANALYSIS of our BROAD STOCK MARKET SHORT SELL TODAY (4:30 pm EDST)

My last blog on the broad stock market made it obvious that we were contemplating selling short soon. We have a very strong bearish divergence signal as the DOW and S&P 500 have not exceeded their all-time highs from February while the NASDAQ did this in June and even made a new all-time high this week. That all-time NASDAQ high on Monday was inside a strong reversal zone as was the DOW's most recent weekly high on July 15. The S&P 500 made a new weekly high today (before falling), and even that high is within our extended reversal zone. All three indices fell heavily today and closed with significant losses. These are all bearish signals, and the timing is right for a final medium-term cycle correction in all three indices (with the possible exception of the DOW which could have started a new cycle on June 26).

Let's place a close stop loss on our short trade at today's high in the S&P 500 (3,280) and that July 15 high in the DOW 27,071). If we see those highs break tomorrow or even early next week, it could mean more rallying to a top in our next reversal zone July 28 - Aug. 4 (or even into another reversal zone coming up Aug. 12 - 19). But those reversal zones are not as strong as this week's and especially last week's reversal zones so it seems more likely the market is rolling over now.

As I mentioned in Monday's blog, a strong incentive for selling short here is the strong possibility that the recent NASDAQ all-time high and the February all-time highs in the DOW and S&P 500 represent the final tops in two long-term equity cycles (4 year and 6.5 year). If that's the case, a MAJOR correction in the broad stock market is starting which could last into 2021-2022 with a loss of 20% - 50% or even more. Even if the big correction did not start yet and we see another rally to new all-time highs into the fall, a final medium-term cycle low is still due soon in the S&P 500, NASDAQ, and most likely the DOW. We thus have good reasons to be short now (with a very tight stop loss).

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Trading Blog Thursday, July 23, 2020

7/23/2020

BROAD STOCK MARKET TRADE ALERT (3:15 pm EDST)

It looks like a good time to short sell the broad stock market. Because I'm posting this late in the trade day, I will delay posting an explanation and analysis until after 4:00pm. Selling short the broad stock market now (with tight stop loss to be posted shortly).

Trading Blog Wednesday, July 22, 2020

7/22/2020

MARKETS UPDATE (7:30 pm EDST)

We have a close eye on equity markets this week as we could see a significant top and an opportunity to sell short. Today the DOW, S&P 500 and NASDAQ all managed to rally a bit, with the S&P 500 making a new weekly high, but the NASDAQ closed well below yesterday's high. The market could be getting ready to roll over here. Our strongest bearish signal now is the fact that both the DOW and S&P 500 are still well below their all-time highs from February while the NASDAQ cleared its February high in June and even made a new all-time high this week. The DOW will have to break above 29,568 and the S&P 500 will have to break above 3,389 to negate this bearish divergence. That seems unlikely at the moment (especially for the DOW), but I don't want to underestimate the power of the Fed to print money and keep this market buoyant and even bullish in these economically turbulent times. Let's remain on the sidelines of the broad stock market for now.

The big action in markets today was clearly focused in precious metals. Both gold and silver prices surged up strongly. Gold has now broken several resistance levels and is clearly in a "break-out" mode. We could now easily see gold challenge and even exceed its $1920 high from Sept. 2011. Despite this bullish surge, it is late in the medium-term cycle of gold so a top and a sharp decline down to the final cycle bottom is due soon (over the next three weeks). The top could be this week, but prices could go higher into next week which has another strong reversal zone specifically for the precious metals (July 28 - Aug. 4). It's a little late to be buying into this rally so we will wait for a top, a sharp reversal and possibly a cycle low to buy.

It could also be late in silver's medium-term cycle, but there's also the possibility that silver ended that cycle on June 15 at $16.96 and started a new one from there. If its an older cycle, like gold, silver is ready to take a sharp correction down over the next few weeks to the final cycle bottom. A newer cycle, however, might only take a modest sub-cycle dip before resuming its bullish rally to new highs. Either way, we will be on the lookout for a spot to buy. Still on the sidelines of gold and silver.

Not surprisingly, the U.S. Dollar Index has been dropping as precious metal prices rise. The greenback breaking below its 96 support level on Monday has contributed to the surge in gold and silver. Nevertheless, there is still a lot of support between 94 and 96. If this area can hold the dollar into next week's reversal zone, we could see the greenback reverse back up and push the precious metals down.

We are still waiting for a sub-cycle top in crude oil to be followed by some type of correction and a low to buy (unless prices go TOO low). That top could have happened already on Monday at $42.51 (in our last general reversal zone), but we've just entered another reversal zone specifically for crude today (July 22-30) so we could see a higher top before any correction starts. Either way, we will stay out of this market until we see some sort of corrective low as a possible buy spot. Still on the sidelines of crude.

Trading Blog Monday (late night), July 20, 2020

7/20/2020

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

In last Wednesday's blog on the broad stock market I wrote:

"It is late in the medium-term cycles of all three market indices (DOW, S&P 500, NASDAQ), and because we are in the middle of our reversal zone, there is a good chance we will get a final top over the next several trading days (if it didn't happen today) followed by a sharp correction down to the final cycle bottom where we will be looking to buy. But if this market continues to rally past next Tuesday, we will have to consider the possibility of this reversal zone being a "break-out" which could lead to a "blow-off" final cycle top and then a very sharp correction down. I don't think that will happen, but I don't want to underestimate the bullish potential of this market now, so it is a possibility."

Well, tomorrow is Tuesday and technically the end of the current reversal zone; however, I am going to extend this reversal period into Thursday as there is a strong short-term reversal signal on Wednesday. Today the S&P 500 and especially the NASDAQ were up strongly, but not so much the DOW. The S&P 500 made a new weekly high, but the DOW and NASDAQ did not, and both the DOW and S&P 500 are still below their all-time highs from February. This means we still have strong intermarket bearish divergence and the strong likelihood of a cycle top now to be followed by a sharp correction to a final medium-term cycle bottom to buy. This is our most likely ideal scenario at the moment, but there have been two new developments in our cycle studies that we need to consider now.

First, the longer-term cycle analysis of this market is suggesting the possibility that two long-term cycles (4 year and 6.5 year) could be topping out NOW and could be followed by a MAJOR long-term correction in the broad stock market (i.e. 20%-50% or even more) into 2021-2022. Yes, this could be the "big one". Up until now I had been thinking that after a modest correction in the markets, we would probably see another rally into late summer or fall that would make new all-time highs (well, the NASDAQ is actually doing that now, albeit a bit early) and then see the big correction. Although this is still a possibility, there are some bearish technical and cycle signals suggesting we could be seeing the big top this month (or perhaps by early August). If that is the case, we may be interested in selling this market short soon instead of waiting for the bottom of a medium-term cycle to buy.

A second new development in our analysis is the possibility that a new medium-term cycle in the DOW might have started with the low on June 26 at 24,971. If that is the case, the DOW could rally for many more weeks before topping out. This would actually support my original idea of another strong rally into late summer.

OK, I know these cycles are confusing, but that's why I'm here - to sort them out and turn that into trading advice.
If the market shows strong signs of topping out this week, we will consider going short with a tight stop loss. On the other hand, if all three indices continue to make new highs into Friday and next week, we will hold off trading and see how the market moves into early August. And we are certainly still open to our original scenario of a sharp but modest correction down to the end of old medium-term cycles in all three indices in which we look to buy in the target areas of 23,400 in the DOW and 2,700 in the S&P 500. A correction that breaks significantly below these targets would suggest that the longer-term tops are in and a more serious correction is in progress. Stay-tuned for updates.
We are still on the sidelines of the broad stock market.

Trading Blog Wednesday, July 15, 2020

7/15/2020

MARKETS UPDATE (6:00 pm EDST)

We are now entering the center of our new strong reversal zone (July 13-21) for the broad stock market (and other markets). Positive news of progress on a COVID-19 vaccine most likely helped propel equity markets up today. The DOW pushed through its "gap zone" today (but closed a tad below the gap's upper limit of 26,938). The S&P 500 also broke briefly above its June 8th high (3,233) but then closed slightly below it. Some of our bearish signals are thus being negated, but even if the DOW also succeeds in breaking above its June high this week, both the DOW and S&P 500 are still below their all-time highs from February (29,568 and 3,393, respectively) while the NASDAQ made a new all-time high earlier this week. That is still a strong bearish divergence signal.

It is late in the medium-term cycles of all three market indices (DOW, S&P 500, NASDAQ), and because we in the middle of our reversal zone, there is a good chance we will get a final top over the next several trading days (if it didn't happen today) followed by a sharp correction down to the final cycle bottom where we will be looking to buy. But if this market continues to rally past next Tuesday, we will have to consider the possibility of this reversal zone being a "break-out" which could lead to a "blow-off" final cycle top and then a very sharp correction down. I don't think that will happen, but I don't want to underestimate the bullish potential of this market now, so it is a possibility. For now, we will stay on the sidelines as we wait for the final cycle bottom to buy.

It is also late in the current medium-term cycles of gold and silver, and both metals are rallying into this week's general reversal zone. We are also in the center of a reversal zone specifically for the precious metals (July 9-17) so it is very likely a top is now forming and will be followed by a sharp correction down to a final cycle bottom in both metals soon. Silver made a new weekly high yesterday, but gold is still below its high from last week so we are seeing bearish divergence. Let's wait to see if these metals can turn down now and allow us to fish for a final corrective bottom to buy in our target zones (around $1675 in gold and $16 - $17.50 in silver). Still on the sidelines here.

The U.S. Dollar index seems to be finding support at a baseline near 96. We are in a reversal zone so if that support can hold, we could see the dollar bounce and rally now. If this happens, it will help push gold and silver prices back down.

Taking its cue from the broad stock market, crude oil rallied today and broke above its previous cycle high of $41.45 from June 23 (June contract chart). Nevertheless, it is rallying into the current reversal zone and is thus susceptible to topping out this week. If instead prices push higher into next week, there is a reversal zone specifically for crude July 22-30 that starts next Wednesday, and we might see a top then. Either way, we will wait for a significant sub-cycle correction in crude before considering any trade. Still on the sidelines of this market.

Trading Blog Monday, July 13, 2020

7/13/2020

MARKETS UPDATE (5:30 pm EDST)

Today we entered day one of our new general reversal zone for all markets (July 13-21). The NASDAQ made a new all-time high, the S&P 500 closed its "gap zone" and exceeded its June 8th high, but the DOW remained below its gap zone and well below its June 8th high. This keeps alive our strong intermarket bearish divergence signal. After an early morning rally, all three indices took a dive later in the afternoon with the DOW losing all of its morning gain and the S&P 500 and NASDAQ in negative territory - also a bearish sign. The correction we've been expecting could be starting now unless the DOW can muster some strength and push higher over the next several days. Whether a top is already in or will happen later this week, we are waiting for a correction that should take us to a low that will be the final bottom to the current medium-term cycles in all three market indices and thus a good spot to buy. Our targets are still around 23,400 in the DOW and 2,700 in the S&P 500. Still on the sidelines of the broad stock market.

Silver rallied strongly this morning and made a new weekly, monthly and cycle high at $19.35 before backing down near the end of the day. Gold, however, did not even get above last week's high before backing down and closing in the lower third of today's range. This is a strong bearish divergence signal and it could be the start of a significant correction that, like the broad stock market, will take us down to the final medium-term cycle lows in both gold and silver (which are due soon). These will be good buy spots, especially if gold gets close to $1675 and silver down to $16 (although silver may not fall that far - maybe only to $17.50). We will watch for these targets to buy. On the sidelines of gold and silver for now.

Crude oil seems to be finding resistance just below its high from June 23 at $42.26 (June contract chart). It may be ready to turn down now, or it could push higher to a new top in this week's reversal zone. Either way, we will wait for some sort of sub-cycle correction (due soon) before contemplating any trade. Still on the sidelines of crude.

The U.S. Dollar Index may be finding some support just above 96, and if so, we could see it rally from a bottom in this week's reversal zone. Any rally now could be the trigger that sends precious metal prices down to the targets mentioned above. We will watch for this.

Trading Blog Tuesday, July 7, 2020

7/7/2020

UPDATE on GOLD, SILVER, and the U.S. DOLLAR (3:30 pm EDST)

Gold is making a new weekly (and cycle) high today while silver is not. This gives us a bearish divergence signal and the possibility of both metals turning down now; however, there are other technical signals that are bullish - especially for silver. We are approaching a reversal zone specifically for the precious metals later this week (July 9-17) which is also overlapping with our strong general reversal zone for all markets (July 13-21). The precious metals need to start falling now if we are to see a significant cycle bottom in those reversal zones. If prices keep edging up into the end of this week and next, we will probably see a top instead and then a turn down moving to the cycle bottoms later in the month. Either way, our primary trading strategy now will be to buy the final cycle bottoms, hopefully near the target prices mentioned in yesterday's blog ($16.20 in gold and $15 - $17 in silver).

If the broad stock market turns down soon (as we are expecting), it could easily take the precious metals into a similar sharp correction. Traditionally, gold and silver are considered to be a hedge against a falling equity market, but the "crash" of 2008-2009 showed us that nervous investors are prone to sell "everything" during an equity market sell-off and will probably do so if we have another one. Although the correction we're expecting now in equities is probably not yet the "big one" (that may be a little later this year), it could be enough to push gold and silver into our target areas. The bottom line here is that both the precious metals and the broad stock market could either rise into next week's strong reversal zones for a cycle top or fall into a cycle bottom. We are primarily interested in buying both markets at their bottoms.

The U.S. Dollar Index which usually (but not always) moves opposite the precious metals has been falling, but it is close to a strong support zone between 96 - 97. If that support holds, a new rally could start which would most likely drive gold and silver prices lower. We will watch for this.

Trading Blog Monday, July 6, 2020

7/6/2020

MARKETS UPDATE (6:00 pm EDST)

As we return to the workweek from the July 4th U.S. holiday weekend, equity markets are surging. The S&P 500 is rising through resistance at its "gap down" area (3,123 - 3,181), but the DOW, despite its 400 plus point surge, made little progress into its gap zone ((26,294 - 26,938). The NASDAQ closed its gap two weeks ago, and that index is also making a new all-time high today while the DOW and S&P 500 remain below their Feb. all-time highs. What all of this means is that we still have a strong bearish divergence signal and at least one index (the DOW) resisting its gap. We could therefore still be topping out here, but if rallying continues over the next several days, it is more likely we will see a top in our next reversal zone coming up July 13 -21 (next week). So we will just have to wait and see if next week brings us a major cycle top to possibly sell short or a significant cycle bottom to buy. Right now, it looks like it could go either way so we shall stay on the sidelines of the broad stock market.

Not surprisingly, crude oil is taking its bullish cues from the broad stock market and is rallying. Today crude attempted to push above its June 23 high of $42.26 (June contract chart) but failed. It could easily fall now into a significant sub-cycle bottom (around $37 or lower), but if it keeps rallying and can exceed that $42.26 high this week, we could see prices surge to the $50 mark or higher before it tops out. We'll watch for a sub-cycle correction to possibly buy, but if prices rally instead, we will have to wait longer before making a trade. As with the broad stock market, this market could go either way. Still on the sidelines of crude oil.

Gold and silver both may have made significant medium-term cycle highs last Wednesday. If so, they are now falling to their final corrective cycle bottoms (due over the next several weeks - possibly next week or the last week of July). We are still waiting for the final cycle bottoms to buy both gold and silver. A good target now for gold could be around $16.20. Silver could fall anywhere between $15 - $17. Still on the sidelines of the precious metals.

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