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Trading Blog Wednesday, July 27, 2022

7/27/2022

MARKETS UPDATE and COMMENT ON TODAY'S FOMC MEETING (7:00 pm EDST)

Today the Fed raised interest rates another 0.75% points as expected. Chairman Jerome Powell emphasized the need for this large hike, and possibly another in September, to combat inflation. He also hinted, however, that rate hikes were dependent on economic data and that a large September hike wasn't a certainty, noting that the central bank would eventually slow the magnitude of rate hikes. It seems that this was enough "dovish" rhetoric to make Wall Street happy, as the broad stock market really took off after Mr. Powell's comments. (The markets also "gapped up" at this morning's opening bell, but then remained relatively flat until the Fed's statements were released in the afternoon.)

But will Wall Street's optimism hold up as today's meeting fades into the background and investors continue to confront the unrelenting stresses of more inflation, the Russia/Ukraine war, and now a new surge of COVID cases along with the threat of monkey-pox? Mr. Powell's "crumbs" of dovish rhetoric may not be enough to pacify jittery investors for long. We shall see as the week wears on whether or not this market wants to turn bullish, at least for a relatively short-term rally into September. To be bullish, the DOW now needs to clear 33,272, the S&P 500 should break above 4.177, and the NASDAQ needs to rise above 12,293 (it is close). We will remain on the sidelines of the broad stock market for now.

The Fed's "slightly dovish" comments seem to have depressed the U.S. Dollar Index and boosted gold and silver prices (at least for today). This was good news for our long position in gold and reinforces the idea that we are starting a new medium-term cycle that should rally some more. We continue to hold our gold long position and remain on the sidelines of silver for now.

Crude oil prices also rallied today, but we still would like to see them fall lower for a potential medium-term cycle bottom near or below $88.23 (Sept. contract chart). There's still time for that to happen as our current reversal zone for crude (July 25 - Aug. 2) is in effect through next Tuesday. Let's see if today's rally can gain any legs. If prices start closing above $102, we may have to accept the low of Jul 14 ($88.23) as the start of a new medium-term cycle.
We remain on the sidelines of crude for now.

Trading Blog Monday, July 25, 2022

7/25/2022

MARKETS UPDATE (6:00 pm EDST)

It is starting to look like all three of our broad stock market indices (DOW, S&P 500, NASDAQ) are new medium-term cycles that started with their lows on June 16-17 (although we still can't rule out the possibility they are older cycles - especially the NASDAQ). If new cycles, they appear to be bullish as they all broke well above their June 27-28 highs last week. Despite this bullishness, they are all now due for a sub-cycle correction - a corrective dip that should bottom sometime over the next 2-3 weeks. The highs could have been last Friday, or they might happen this week (or next). If this sub-cycle correction doesn't go too deep and stays above the June 16-17 lows, we may look to buy the bottom for a potentially strong rally into August and September. (Keep in mind, however, that we don't expect all three indices to make new all-time highs, and we will be ready to cover our long positions and go short at the top of the rally as it appears that a long-term correction in the broad stock market is already in progress - see the "Crash Update" on the Home page).

Another FOMC meeting concludes this Wednesday (at 2pm EDST), and investors are anticipating the announcement of another interest rate hike from a hawkish Fed. Today's shaky stock market and dip may be from jittery investors already "selling the rumor" of the hike. If the market continues down into Wednesday, we may have a subsequent "buy the news (if we get a rate hike announcement - very likely)" bounce back rally. Of course, we could also get a significant sell-off, which would fit in nicely with our sub-cycle correction mentioned above. Any week with an FOMC meeting can easily turn into a roller-coaster ride in equities. We will watch from the sidelines and keep an eye out for a significant corrective dip and potential buy spot.

We went long in gold last Thursday as the low that day appeared to be the bottom of a new medium-term cycle. That idea was reinforced by the strong rally on Friday, and prices seem to be holding above Thursday's low today. Let's hold that long position with a stop loss based on prices going below that low ($1681) if silver also makes a new weekly low (and especially if silver drops below it's low from July 14, i.e. $18.15).

Silver's medium-term cycle is a little more ambiguous than gold's cycle right now, so it's final bottom may still be forming. If silver drops below $18.15 this week (we are still in a reversal zone for silver and gold through Friday) while gold remains above $1681, it would create a strong bullish divergence signal and could be a good opportunity to go long in silver. We will remain on the sidelines of silver for now.

Crude oil's chart is still not telling us whether it wants to be bullish or bearish. We've now entered a reversal zone specifically for crude (July 25 - Aug. 2). As I mentioned in my last blog on crude (July 18), we could be near the end of an old medium-term cycle. If so, a final bottom in this reversal zone around $85 - $87 (Sept. contract chart) would be ideal and a potential spot to buy. But if prices don't get there, and they start to rally now, we may have to assume that the July 14 low at $88.23 was the cycle bottom. Let's stay on the sidelines of crude oil for now.

Trading Blog Thursday, July 21, 2022

7/21/2022

GOLD TRADE ALERT (3:15 pm EDST)

Today gold made a new weekly and monthly cycle low while silver did not, and they are both closing in the upper part of today's range. This is happening in the center of a reversal zone specifically for the precious metals, so it is a strong buy signal. We are going long in gold today as this appears to be the bottom of a new medium-term cycle. We will stay on the sidelines of silver for now as its cycle is not as clear and silver tends to be more volatile than gold.

Trading Blog Tuesday, July 19, 2022

7/19/2022

BRIEF UPDATE ON THE BROAD STOCK MARKET AND PRECIOUS METALS (3:30 pm EDST)

All three broad stock market indices (DOW, S&P 500, and NASDAQ) made new weekly highs today, so our bearish divergence signal from yesterday is negated. We are seeing a hefty bullish rally today. It will become more bullish if the DOW and S&P 500 can close the week above their June 28 highs (31,885 and 3,945, respectively).

Gold prices have stabilized and are holding above $1700, and silver is staying above $18. This reluctance to fall lower is being supported by a sharp correction down in the U.S. Dollar Index. The greenback is in the early stage of a new medium-term cycle and has been very bullish over the last several weeks. It is due for a sub-cycle correction, however, which may be happening now. Nevertheless, the overall trend of the dollar is still quite bullish, so I suspect this corrective drop will be short-term. When the dollar starts to rally again, it should put more downward pressure on the precious metals.

We remain on the sidelines of the broad stock market and precious metals.

Trading Blog Monday, July 18, 2022

7/18/2022

MARKETS UPDATE (7:00 pm EDST)

In last Thursday's blog we observed a bullish divergence signal in the broad stock market, and I wrote:

"We could see some sort of corrective bounce now, but we won't take it too seriously until the DOW and S&P 500 can break above their June 28 highs (31,885 and 3,945, respectively) and the NASDAQ breaks above its high from July 8 (11,690). Until that happens, these indices could fall lower."

Well, we did see a sharp jump in the markets on Friday, and today a large "gap up" in all three broad stock market indices (DOW, S&P 500, NASDAQ) at the opening bell looked very bullish. But not one of these indices has broken above the highs mentioned above, and at today's closing bell, the market lost all its gain and turned bearish. The DOW made a new weekly high, but the S&P 500 and NASDAQ did not, so we now have a BEARISH divergence signal in this market. This market is being very indecisive, and it's still not clear if these indices have started new medium-term cycles on June 16-17 (possibly bullish) or are completing older ones (bearish). We have the rest of the week to see if they want to rally and negate today's bearish signal or continue lower to challenge the lows of June 16 (NASDAQ) and June 17 (DOW and S&P 500). Let's remain on the sidelines of this market for now.

I should emphasize here that our long-term view right now is that equity markets made a major long-term cycle peak in November (NASDAQ) and January (DOW and S&P 500) and that they are now in the process of taking a MAJOR long-term correction that could be quite severe (i.e. crash) over the next several years (see my "CRASH UPDATE" on the Home page). So far, the DOW has dropped 20%, the S&P 500 has dropped 24%, and the NASDAQ has dropped a whopping 35%. Despite these bearish drops, it looks like this market could now take a significant "relief rally" that might persist into September. These indices might challenge or even exceed their all-time highs, although that doesn't seem likely at this point (especially for the NASDAQ).

The question right now is if this relief rally has already started with the lows of June 16-17 (new cycles) or if these indices will make lower lows (soon complete older cycles). Either way, we may look to go long once we're confident a new medium-term cycle has started in order to ride a rally that may be sharply up for a month or two. But our main goal will be to sell short at the top of that rally - as long as all three indices do not make new all-time highs (very unlikely).

Gold and silver's medium-term cycles are also ambiguous at the moment - it is not clear if they are old or new. In both cases, however, the cycles are bearish and prices should be headed lower. Our goal now is to identify the final medium-term cycle low and go long for a new rally. As with the broad stock market, this new rally will most likely not make new all-time highs, but could be significant and therefore worth buying.

Gold's final medium-term cycle bottom will likely form anytime over the next three weeks. There is a reversal zone specifically for the precious metals coming up July 20-29, so that would be a good time for a bottom. A good price target would be around $1675. Let's watch for this as a possible buy spot.

A good target for silver's bottom would be in a wide range from $15 - $19. Last week's low at $18.15 may have been the bottom already, but it's more likely prices will fall lower into the upcoming reversal zone (which starts on Wednesday). Silver is a little trickier than gold to call right now. Silver prices could rally as high as $21.50 before falling again, so we are not anxious to buy this metal until it falls a bit lower.

We are currently on the sidelines of both metals.

Last week's price plunge in crude oil most likely turned the current medium-term cycle bearish. Because it is late in this cycle, there's a chance that last week's low ($88.23 - we have switched to the Sept. contract chart) was actually the final cycle bottom. If that's true, prices could be very bullish now. I think it's more likely, however, that the final bottom is still ahead at a lower price. There's a reversal zone specifically for crude coming up July 25 - Aug. 2. That would be a better time for a final medium-term cycle bottom. A good price target could be $85 - $87. Let's watch for that. If prices now rally instead and close the week above $102, we may have to assume a new cycle started with last week's low, and we may or may not want to chase that rally. We remain on the sidelines of crude for now.

Trading Blog Thursday, July 14, 2022

7/14/2022

MARKETS UPDATE (5:00 pm EDST)

The broad stock market continues its at least short-term trend down this week, but our three indices (DOW, S&P 500, NASDAQ) are approaching support areas near their June 16-17 lows. Today the DOW and S&P 500 made new weekly lows, but the NASDAQ did not, and all three are closing in the upper part of today's range. This gives us a bullish divergence signal (unless the NASDAQ breaks below 10,852 tomorrow). We could see some sort of corrective bounce now, but we won't take it too seriously until the DOW and S&P 500 can break above their June 28 highs (31,885 and 3,945, respectively) and the NASDAQ breaks above its high from July 8 (11,690). Until that happens, these indices could fall lower.

So our "lines in the sand" are clear right now. Breaking above the highs just mentioned means the market is bullish and will probably rally some more, but breaking below the June 16-17 lows (29,653, 3,637, and 10,565 in the DOW, S&P 500, and NASDAQ, respectively) means the market is bearish. In the latter case, these indices are either new medium-term cycles that are turning bearish early and will be down for some time or they are older cycles that will soon be hitting their final cycle bottoms. We will remain on the sidelines for now.

(We should remember that even if this market turns bullish now, any rallying will probably be short-term and will likely not make new all-time highs. We should plan on selling short the top of any major rallies now that do not exceed the all-time highs from last November in the NASDAQ and January this year in the DOW and S&P 500.)

Gold and silver prices also continued to push lower today as both made new weekly lows. We are definitely not getting any relief rallies to sell short, so we will probably just wait for a final medium-term cycle bottom in gold and consider a long position then. A good target for that bottom may be around $1675. Silver could form a significant bottom anywhere between $17 and $19. There is a reversal zone specifically for the precious metals coming up July 20-29, so that would be a good time for a significant bottom to form in both metals. We will watch for that as a potential buy spot. For now, we remain on the sidelines of gold and silver.

Perhaps taking their cue from the broad stock market, crude oil prices have also moved sharply down this week. Today crude plunged briefly down to $90.56 (Aug. contract chart) but it quickly snapped back and is now closing around $96.50. In my last blog on crude I wrote:

"...last week's sharp drop may have turned the current medium-term cycle bearish. That cycle is getting old and could be due to bottom sometime in August. In the meantime, we may see prices trading in a range defined by last week's low ($95) and $115. If prices can hold above $95 and then break and close above $115, we could be back on track for a bullish run to the $145 - $150 area. But a break below $95 would be a bearish sign that could negate that idea."

All of this still applies as today's break below $95 was intraday and the market closed above there. There's a reversal zone specifically for crude coming up July 25 - Aug. 2. We can watch for a significant price reversal in that time frame, but right now it's not clear if it will be a top or bottom. Let's stay on the sidelines of this market for now.

Trading Blog Tuesday, July 12, 2022

7/12/2022

(5:00 pm EDST)

I have just posted an important long-term update on GOLD.
It is on the Home page (please scroll down past the Stock Market crash update).

Trading Blog Monday, July 11, 2022

7/11/2022

MARKETS UPDATE (4:30 pm EDST)

It still looks likely that the broad stock market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles with their lows on June 16-17, but we can't yet abandon the possibility that they are older cycles getting ready to move down to their final cycle bottoms (especially the NASDAQ). This market rallied last week, but only the NASDAQ made a new weekly high on Friday which created a bearish divergence signal (and negated the bullish divergence signal from earlier in the week). Not surprisingly, the market moved down today, but it is still not clear if this market wants to be bullish or bearish. Even If these are new, young medium-term cycles, they could turn bearish and top out over the next week or two (or they may have topped out already - the DOW and S&P 500 with their highs on June 28 and the NASDAQ with its high on Friday). To be bullish, all three would now have to break above those highs (31,885 in the DOW, 3,945 in the S&P 500, and 11,690 in the NASDAQ). Because the short-term trend is still not clear, we will remain on the sidelines of this market for now.

As with the broad stock market right now, gold and silver's medium-term cycles could be new or old. but in both cases they are looking bearish. Because of this, we are looking to sell short the top of any short-term relief rallies. We won't be looking to buy until we are sure the current medium-term cycles have reached their final corrective bottoms. That might happen in early August. Once gold makes its final medium-term cycle bottom, we could get a significant rally, but that rally most likely will not exceed gold's all-time high of $2070 as that top was most likely the final top to the long-term 23 year cycle in gold that is due to bottom in 2023 -2024 close to $1000. So even though we may look to buy at the bottom of the current medium-term cycle for a strong but short-term rally, we will be ready to switch positions at the top of that rally and go short for a final plunge to the long-term cycle bottom. But I am getting ahead of myself here. For now, we will remain on the sidelines of both metals. We may look to sell short in gold again if prices can rally back up to the $1785 area.

The U.S. Dollar Index is looking VERY bullish and today broke to a new high just above 108. Even though the dollar's cycle and trend are bullish, the greenback has been rising steeply and is entitled to take a breather and corrective dip anytime now. That could take some downward pressure off precious metal prices and give us the bounce in gold and silver we are looking for. We will watch for that.

Last Tuesday we were stopped out of our long position in crude oil with a small loss as prices plummeted below $99 (Aug. contract chart). They have snapped back sharply from there; however, last week's sharp drop may have turned the current medium-term cycle bearish. That cycle is getting old and could be due to bottom sometime in August. In the meantime, we may see prices trading in a range defined by last week's low ($95) and $115. If prices can hold above $95 and then break and close above $115, we could be back on track for a bullish run to the $145 - $150 area. But a break below $95 would be a bearish sign that could negate that idea. For now, we will remain on the sidelines of crude.

Trading Blog Tuesday, July 5, 2022

7/5/2022

MARKETS UPDATE and CRUDE OIL TRADE ALERT (4:30 pm EDST)

We are still holding the belief that that a long-term cycle in the broad stock market peaked in late November last year (NASDAQ) and early January this year (DOW and S&P 500) and that this market will most likely go much lower over the next several years. Nevertheless, there will be ups and downs along the way, and right now we are looking at the possibility of all three indices forming a final medium-term cycle low and starting a new medium-term cycle that could possibly challenge those all time highs from November and January.

The DOW and S&P 500 both made a deep low on June 17 (29,653 and 3,637, respectively), and the NASDAQ did so on June 16 (10,565). These lows were in a strong reversal zone, and these indices rallied strongly up from those lows. This means the lows could represent the start of new medium-term cycles. But significant tops formed on June 27 (NASDAQ) and June 28 (DOW and S&P 500), also in a strong reversal zone, and the indices have been falling from there. If they continue down past the June 16 and 17 lows, it will mean either:

1) The new cycle has peaked early and turned bearish, or

2) We will have to abandon the idea of new cycles and instead assume an older medium-term cycle is in place and moving down to its final bottom.

Note that we are still in a reversal zone that ends this week. Today the DOW made a new weekly low while the S&P 500 did not, and all three indices are rallying up from their lows. This gives us an intermarket bullish divergence signal in a reversal zone and supports the idea that we have new medium-term cycles. To verify this we now need to see these indices break above their highs from June 27 (11,675 in the NASDAQ) and June 28 (31,885 and 3,945 in the DOW and S&P 500, respectively). After this week, there are no reversal zones for the rest of this month. Therefore, whatever trend (up or down) establishes itself early next week will likely be in effect for at least three more weeks. If it looks bullish, we may look to go long for a rally that could potentially challenge the all-time highs in this market. We will stay on the sidelines for now.

Crude oil prices took a cue from today's early plunge in equities and also tumbled down. Unlike the broad stock market, however, they didn't snap back up. We had set a stop loss for our long position in crude on a break below $102. Today's prices are closing just below $100, so our stop has been triggered and traders should be out of this market now. It's possible that any low forming this week could be a sub-cycle bottom that will snap back up, but even if that's the case, it's likely that the current medium-term cycle has turned bearish and will not challenge the early June high of $120 (Aug. contract chart). (Traders who didn't get out today can do so tomorrow and may even get a better price as we could see at least a short-term bounce from today's low.)

Gold and silver prices also plummeted dramatically today confirming that both metals are moving to the final bottoms of older medium-term cycles. It looks like we got out a little too early when we covered our short positions in both metals on Friday (but still got a good profit), but we are still in a reversal zone for the precious metals (it ends tomorrow). That means prices could be bottoming now and ready to reverse back up for at least a short-term rally. If that happens, we may look to short both metals again as the overall trend is looking quite bearish. We are now on the sidelines of gold and silver.

The dramatic plunge in the precious metals today was not surprisingly accompanied by a surge up in the U.S. Dollar Index. Although inflation is high in the U.S., it is apparently not as high as it is in many other countries, and so in a basket of international currencies, the U.S. dollar may be the "least rotten apple" of the bunch. This is why many investors who are nervous about a collapse in equity markets may now be fleeing to U.S. dollars as a safe haven investment as they did during the 2008-2009 "crash". It looks like the U.S. dollar may be aborting its normal 15-16 year cycle and is instead following a U.S. "political cycle". I wrote about this in more detail in my April 27 blog earlier this year. I am re-posting this blog below for those who wish to read it again:

(April 27, 2022) We are at an important turning point in our analysis of the U.S. Dollar Index. Please refer to my blog post from earlier this month (April 9) on the U.S. Dollar.

Today the U.S. dollar is testing and challenging it's two "double-top" highs (103.82 from Jan. 2017 and 102.99 from March 2020). It rose to 103.28 earlier today, and is closing a bit below 103. As I explained in my April 9 blog, those two earlier highs could have been the final tops to a long-term 15-16 year cycle in the dollar that started with the low of 70.69 on March 2008. Today's high may be creating a "triple-top" to this cycle. If so, the dollar is ready to take a very steep fall to the final cycle bottom which is due anytime over the next two years (we are 14 years from that 2008 low).

But as I mentioned in my April 9 blog, there's also the possibility that the greenback is not following a normal 15-16 year cycle and is instead following a "political cycle" related to which political party is currently in the U.S. White House. The dollar tends to rise during a Democrat administration, and indeed, it has been rising sharply since Jan. 2021. It's still possible an older "normal" cycle is in place and is ready to fall from this "triple-top". However, if this index breaks clearly above $104 and continues to rise, we may have to assume the political cycle is taking over, and we will have to relabel the cycle as a younger, bullish one.

Although a bullish dollar seems to contradict current inflation, the dollar may be viewed right now as a "safe haven" from a potential stock market crash (as it was in 2008-2009). As I wrote in my April 9 blog:

"It will be interesting to see which cycle (the regular 15-16 year cycle or the political cycle) prevails here. The current rise in the U.S. Dollar Index seems to contradict current rising inflation, but fears of a crash in equity markets could be driving investors into the greenback as a safe haven hedge, just as it did during the 2008-2009 "crash". We will keep a close eye on that 104 level for the rest of this year. If the U.S. dollar can't break above there, and especially if it starts closing below 88, we will stay with the idea of a bearish dollar falling into the 55 - 60 range into 2023 - 2025."

Let's keep our eyes on that 104 level.

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