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Trading Blog Friday, August 29, 2014

8/29/2014

GOLD, SILVER, and CRUDE OIL UPDATE (5:15 pm EST)

As we enter the first week of September and the center of a timing window for a likely gold and silver trend reversal, we find these metals rising sharply. This is suggesting a reversal down from a top rather than up from a bottom (although we could get both if gold falls steeply now and forms a bottom sometime next week). Some analysts see gold and silver prices forming a base over the last two weeks from which a major rally and breakout will occur. This is possible, but gold will first have to break through a resistance barrier at $1300 -$1310 to confirm this idea. There have been some strong bullish signals appearing in silver charts over the last few days lending support to the idea of precious metals taking off now. The alternate scenario is for gold to move down to a low by the end of next week. If this happens, it could be an ideal buy spot as there is the possibility of a strong rally in the precious metals in the second week of September. Directional momentum is mixed bullish and bearish in gold and silver charts but the gold and silver mining company stock indices HUI and XAU are now 100% bullish. The U.S. Dollar Index is showing no signs of backing off from its recent bullish surge and momentum in its chart remains 100% bullish. As the dollar's movement is usually inversely related to the direction of precious metals, this is bearish for gold and silver. My purpose for stating the conflicting data here is not to confuse the reader but to point out the ambiguous signals in this market right now and the logic in remaining on the sidelines for the moment. As I mentioned in the last gold blog, I am trading these metals short-term until I am more confident that the long-term cycle bottoms in gold and silver have been established. Once those bottoms are in, we will be more comfortable with long positions in both metals.

On the sidelines of gold and silver for now but on the alert for significant short-term trades (buying and short selling) over the next several weeks.

We are getting a fairly strong rally in crude oil prices from an August 21 bottom just above $92, and today prices surged into an area of resistance at $96. This could be a good setup for a short sell, but some short-term technical signals are suggesting the rally could go higher. I will analyze crude charts in more detail over the weekend to determine whether or not to go short in this market sometime early next week. If the broad stock market starts to fall,
crude oil could go with it as these two markets often move hand in hand. Still out of this market.

Trading Blog Thursday, August 28, 2014

8/28/2014

BROAD STOCK MARKET TRADE ALERT (2:30 pm EST)

We are approaching the start of a holiday weekend (Labor Day in the U.S.) which tends to be bullish for equities as investors are usually in an optimistic mood as they look forward to a three day weekend and what is often a final summer outing for the year. We are also at the center of a timing zone (last week of August - 1st week of September) when there is a high probability for a major reversal in this market. The DOW was up this week when it finally made a new all-time high of 17,154 on Tuesday, but then it closed below it and is now moving lower. Short-term bear signals are appearing in the S&P 500 and NASDAQ charts today and a significant correction is overdue in this market so this appears to be a good setup to sell short. I am going to open short positions in the broad stock market today with a tight stop loss into next week. It is important that this market reverse by the end of next week for this trade to be valid. Otherwise we have to assume that unusually bullish forces (including possible market manipulation - see last Friday's blog) are at play here and distorting normal corrective cycles. Selling the broad stock market short today.

I will update other markets later tonight or tomorrow (no position changes in gold, silver, or oil today).

Trading Blog Friday, August 22, 2014

8/22/2014

MARKETS UPDATE (8:30 pm EST)

My decision to bail out of gold positions on Tuesday based on negative COT charts and a bullish looking U.S. Dollar Index has turned out to be a good one. Gold prices broke support at $1290 yesterday and plunged to a new monthly low at $1274 intraday. It is significant that gold also broke below $1280 because, according to cycle studies, this now means that prices will be moving lower before the current short-term cycle is over. The end of next week and the first week of September is a major reversal zone for gold so we won't have to wait long for some sort of bottom that could be a good buy spot. Please note that my trading of gold and silver is going to be short-term until we have strong evidence that the final long-term cycle bottoms of gold and silver are in. That might not be until early next year, but there should be good short-term trading opportunities before then. I want to emphasize here that the long-term bullish picture of gold and silver remains very much intact and that once the long-term gold cycle makes its final bottom (somewhere above $1000), gold and silver will be starting multiyear rallies that should take both metals to new all-time highs. For now, however, we will focus on the first week of September for a likely trend reversal and a possible bottom to buy. On the sidelines of this market.

The broad stock market continues to look bullish with the S&P 500 and NASDAQ making new yearly highs and showing near 100% bullish momentum. The DOW's directional momentum is now mixed bullish and bearish (it had been 100% bearish earlier this week), but it still refuses to break above its all-time high of 17,152. It came close yesterday but today backed down and closed the day with a 38 point loss. As I have stated in recent blogs, I am expecting a high towards the end of next week and the first week of September from which a significant correction of 10% or more could follow. This correction is overdue and is seemingly being delayed by an unusually strong bullishness in the markets recently. One reason for this could be the collapsing European economy (made worse by the recent instigation of a new Cold War with Russia) and the flight of capital out of Europe and into U.S. equities (as well as dollars, hence the dollar's recent bullishness). Without sounding too much like a conspiracy theorist, another reason for the stock market's recent bullishness could be market manipulation. There are definitely people in high places with lots of power who have a vested interest in keeping the stock market from crashing right now. I'm mentioning this because the rise in the DOW since August 7 has been in a suspiciously straight line (this can be seen on any daily chart of the DOW) which can sometimes be a "fingerprint" left behind when markets are being manipulated (normal market movements are more irregular or wavy). My concern here is that if this market is being propped up artificially, we might see a smaller "truncated" correction instead of the normal 10% or more that would be imminent in an unmanipulated market. This speculation aside, it still looks likely that we will be getting a high over the next week or two to sell short, and so I will continue with that strategy. If the DOW remains below its all time high of 17,152 into the end of next week, that would be a good bearish sign (i.e. intermarket divergence with the S&P 500 and NASDAQ which have already made new yearly highs) and a good signal to go short. Still on the sidelines here.

Crude oil is nearing the end of its current short-term cycle and may be in the process of forming a bottom in the $91 - $92 area. Any significant rally now into the end of next week may present a shorting opportunity for a fall into the final bottom, but more than likely the bottom is forming here and we should wait until that is confirmed. Interestingly, the steep fall of oil prices since late June may be a more accurate reflection of the economy than the steeply rising August DOW. This divergence lends support to the idea that stock markets are being artificially propped up now (see discussion above). Out of this market for now.

Trading Blog Wednesday, August 20, 2014

8/20/2014

BROAD STOCK MARKET and CRUDE OIL UPDATE (2:45 pm EST)

Last Thursday I stated that if the DOW backed down a bit I would consider going long for a rally into the end of the month. It didn't back down so we did not get an opportunity to buy, but it is now rallying strongly back towards its all-time high of 17,152 so we are on target for a new high (or double top) into the end of August and first week of September. There is a strong possibility that this market will turn down from that high and take a significant correction of 10% or more. My focus now will be to look for a point to sell short at that time. The DOW, S&P 500 and NASDAQ are all rallying strongly; in fact, momentum in the NASDAQ has turned 100% bullish.
Significantly, though, directional momentum in the DOW remains strongly bearish. The persistent bearish momentum in the DOW charts may be telling us that the current rally will not get very far and a significant correction may be imminent. The S&P 500 and NASDAQ are already making new highs for the year. If the DOW does not exceed its 17,133 high by the end of next week, we could have a strong case of intermarket bearish divergence which would support the idea of a major correction. On the sidelines for now.

In last Thursday's blog on crude oil I stated:

" The sharp price drop today confirms my recent observations of the current crude cycle turning down and momentum signals are now 100% bearish in the charts..... Any significant rally now may present an opportunity to sell short, but in terms of timing we are approaching the end of the current cycle. It might be best to wait for the final bottom before trading this market."

So far we haven't seen any rally to sell short and prices have moved significantly lower as we near the end of this cycle. A rally now into the first week of September might still give us a good point to sell short (especially if it is synchronized with a rally in the broad stock market), but prices may just continue falling from here and form a bottom instead. We will wait and see how prices move into the end of next week. Still out of this market.

Trading Blog Tuesday, August 19, 2014

8/19/2014

GOLD SELL ALERT (1:45 pm EST)

The price of gold has clearly broken below $1300 and is now hovering above $1290. Although prices could find support here and start to rally, several short-term technical signals are now looking quite bearish in both gold and silver charts. Even more alarming (for gold and silver, that is) is the chart of the U.S. Dollar Index which shows that the dollar, despite its severely overbought state, is penetrating a strong level of resistance and may be breaking out of the confines of a restrictive channel range it has been moving in since early May. This is being supported by directional momentum in the dollar chart that is now 100% bullish. Because gold and silver prices usually move opposite the dollar, this dollar surge could push the precious metals lower. While it is sometimes possible for gold and the dollar to move up at the same time, this does not appear to be one of those times. I have therefore decided to bail out of my gold long positions today as bearish forces could take gold prices down to $1280 or even lower. We bought last Thursday around $1310 so the loss here is a tolerable 1%. Even if gold starts to rally now, we will probably be looking to short it at the end of the month and into early September anyway as there could be a major reversal in the precious metals market at that time. Selling gold long positions today.

Trading Blog Sunday (late night), August 17, 2014

8/16/2014

GOLD UPDATE (11:45 pm EST)

Last Thursday I posted a gold buy alert based on several factors including the recently strong bullish momentum in the gold and silver mining company stock indices HUI and XAU, an overbought U.S. Dollar Index, and the fact that we are in August - a month that is traditionally bullish for gold. One set of data that was not available to me last week which I have analyzed today is the Commitments of Traders (COT) Report for gold. Briefly, for those not familiar with this report, this weekly chart (put out by the Commodity Futures Trading Commission) shows the short and long positions of "smart money" (Commercial Traders) in gold (and silver). The Commercial Traders are rarely wrong in their assessment of price direction. Earlier this month they seemed to be turning bullish, but last week's data
showed a sudden surge in their short gold positions which, unfortunately, suggests that gold prices could turn down.
The bullish factors mentioned above are still intact, but this new COT data now puts us on the defensive with our long positions, and we want to maintain a tight stop loss in the $1290 - $1300 area. Ideally we want to see gold prices rise to at least the $1340 level before selling, but the COTs are suggesting that we may have to sell sooner. Even though the U.S. Dollar Index is highly oversold and was pulling back a bit on Friday from a strong resistance zone, its momentum remains strongly bullish so there is the possibility of it breaking higher which would not be good for gold prices. We will watch these markets carefully now. Still long in gold but watching carefully for any signs of weakness.

Trading Blog Thursday, August 14, 2014

8/14/2014

GOLD BUY ALERT (2:55 pm EST)

There have been some new bullish developments in the precious metals market over the last few days suggestive of an imminent rally in gold. Directional momentum in the charts of the two major gold and silver mining company indices HUI and XAU have turned 100% bullish as have several gold ETFs (exchange traded funds). As I've mentioned before on the website, gold and silver mining company stocks often lead the price of the metals themselves. Several other technical factors are pointing to a rally as well including the very overbought U.S. Dollar Index which is now at a zone of strong resistance and looks ready to take an overdue correction and the fact that August is a month that is frequently very bullish for gold. For these reasons I am going to go long in gold today. Silver is looking less bullish than gold at the moment so I am going to hold off buying it for now. (It is not unusual for silver to lag a bit behind gold when a rally in precious metals begins). I want to point out that this may be just a short-term rally and trade. I would love this to be the major breakout in precious metals that we've been waiting for but, as I recently stated in a gold update, the long-term cycles of gold and silver seem to be shifting, and we may not see the final cycle bottoms until next year. That said, it looks like a tradable rally here and it will be made with a tight stop loss in the $1300 area. Going long in gold today.

I will update other markets later this evening (see below).

Trading Blog Thursday (late night), August 14, 2014

8/13/2014

BROAD STOCK MARKET and CRUDE OIL UPDATE (11:45 pm EST)

The broad stock market has been rising this week and we are now exiting the timing window for a likely reversal, so it looks like the August 7 low in the DOW at 16,334 was the reversal point. That was also probably the start of a new cycle in the DOW. We normally want to go long at the start of new cycles because they are initially bullish as they rise to their peak (and then fall again). The problem here is that momentum in the DOW is still nearly 100% bearish and momentum in the S&P 500 and NASDAQ are mixed bearish and bullish. This could be pointing to a weak rally for the start of this new cycle and an early peak and fall. Supporting this idea is another reversal zone coming up at the end of this month when there is a good chance this market will take an overdue deep correction of 10% or more.
So even if this is the start of a new cycle in the DOW I don't expect any rally to last longer than two weeks. In two weeks we will likely be looking to sell the market short. There are some short term technical signals at the moment suggesting the DOW could back down a bit. If it does, I will consider going long for a short-term rally into the end of the month. Otherwise, my main focus will be to sell short any new market high in late August/early September. Still on the sidelines of this market.

Despite ongoing tensions between Russia and Ukraine and all the fighting going on in the Middle East crude oil prices plummeted today nearly $2.00. The reason crude prices seem to be shrugging off major geopolitical conflicts recently seems to be a glut in U.S. oil supplies caused by the shale fracking boom. There is simply an overabundance of crude right now with more supply than demand. The market is therefore more resilient to global supply disruptions caused by military conflicts in major oil producing countries. If this situation persists it may help buffer what could otherwise be a very volatile market, and this should make trading easier (or at least less nerve-wracking). The sharp price drop today confirms my recent observations of the current crude cycle turning down and momentum signals are now 100% bearish in the charts. Prices are now lower than the start of the current cycle on
May 1. Any significant rally now may present an opportunity to sell short, but in terms of timing we are approaching the end of the current cycle. It might be best to wait for the final bottom before trading this market. Still out of this market.

Trading Blog Monday, August 11, 2014

8/11/2014

MARKETS UPDATE (2:45 pm EST)

We are now at the center of a time period (the first two weeks of August) for a significant directional reversal in the broad stock market and the DOW, S&P 500 and NASDAQ are all falling into it. This means the reversal should be up. Cycle studies also indicate that a new cycle is about to begin in the DOW and that is also bullish (at least short-term). The DOW made a low last Thursday at 16,334 and then rallied 185 points on Friday so the new cycle may already be starting. The only problem is that directional momentum in the DOW is presently 100% bearish (momentum in the S&P 500 and NASDAQ is still mixed bullish and bearish) so these markets could go lower this week. There is support for the DOW in the 16,400 area, but there is another support level around 16,200. Timing and cycles are suggesting we buy now (or within the next several days), but I want to see at least a short-term bullish momentum signal in the DOW before doing so. It looks like we could get a strong rally into the end of this month, but then another correction is likely that could be severe (10% or more). Still out of this market but looking for a spot to buy this week.

The precious metals market is giving us a lot of mixed signals right now as gold and silver prices can't seem to decide if they want to break out or correct down some more. One could make a case for either scenario. The short-term technical picture was leaning more towards bearish, but there are now several bullish signals appearing in the charts suggestive of a strong rally soon. As I suggested in my gold market update last Wednesday, if gold's current rally cannot break through the $1330 - $1340 area, prices will probably turn down again. Directional momentum remains mixed bullish and bearish in both precious metals and in gold and silver mining company stocks. I will consider shorting this market if gold prices rise into that $1330 - $1340 area and stall. A clear break above $1340, however, would be a strong bullish signal and would increase the likelihood of gold breaking out now. One current factor pointing to an imminent rally in gold is the overbought U.S. Dollar Index which is overdue for a correction after its steep rise over the last five weeks. A sharp dollar drop could kick-start a breakout in gold and silver. There is currently strong support for gold around $1280. Until prices break below that level or break above the $1340 resistance, the direction of gold and silver remains unclear. We may have some short-term trading opportunities if prices approach the upper or lower limits of this range, but for now I am remaining on the sidelines.

Crude oil prices made a bottom last Thursday at $96.55 and they seem to be reversing up now. The cycle picture for this market, however, appears to be turning bearish. This means that any rally now may not be significant, and there is a good chance prices will turn down again to make new lows. If crude prices stay below $100, we may have a good shorting opportunity in this market soon. Out of this market for now.

Trading Blog Wednesday, August 6, 2014

8/6/2014

GOLD MARKET UPDATE (4:45 pm EST)

In my blog on Monday I stated that, "...the dollar is now quite overbought...and may take a corrective breather. This could encourage a short-term rally in the precious metals, but...that rally may not be substantial."

It looks like this is happening now. The U.S. Dollar Index surged yesterday and early this morning to an overbought peak at 81.70 but is now falling sharply. Gold prices have reacted (so far) with a $17 surge and silver is breaking above $20 again. Are these metals breaking out now and starting their new long-term cycle? It is possible, but right now that does not seem likely. The current short-term cycle structure of both gold and silver does indicate the timing is right for a sharp rally, but other technical indicators are strongly suggesting it might not get very far. The fact that strong bear signals have appeared this week in many gold and silver mining company stock charts does not bode well for the metal prices, at least short-term. Another bearish factor now are readings in the well-known (at least by seasoned gold traders) COT Index. This index reliably shows the positions of "smart money" in precious metals, and right now those positions are bearish. There is resistance for gold at the $1330 - $1340 level so if the rally gets that high and stalls, that may be a good point to sell short. The long-term cycle structure for gold and silver may be changing right now, and this could push the deadline for the long-term cycle bottoms in both metals into next year. This means we may have to wait a bit longer to see those final bottoms. I had been expecting the long-term bottoms by the end of this month, but when technical patterns shift one has to follow the new data. This is a relatively recent development and I will have more to say about this possible change in the long-term cycle pattern in future blogs as I analyze it further. If this change is occurring, it will likely give us some opportunities to sell this market short before those final bottoms are in. If gold prices do break through resistance at $1330 - $1340 then this bearish picture could be negated. A clear break above $1370 -$1380 would likely indicate that gold's long-term cycle bottom is in, and the precious metals would likely be breaking out. If today's gold rally starts to gain some legs this week or next we will watch to see if those resistance areas can hold. Still on the sidelines.

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