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Trading Blog Thursday, August 27, 2015

8/27/2015

BROAD STOCK MARKET TRADE ALERT and MARKETS UPDATE (2:15 pm EDT)

In my last blog on Tuesday I wrote: " Any rally in the DOW should encounter resistance in the 16,500 area, and if that is breached, there is extremely strong resistance at 17,000. A rebound rally should not get beyond these points, and if approached they may be turning points for a reversal and a resumption of the correction. (Similar resistance is at 1980 and 2050 in the S&P 500.)" We are reaching those lower resistance areas today, and it looks like a good time for the market to turn over again and fall some more. The 15,370 DOW bottom on Monday was technically within our current reversal zone (but was a bit early); however, we are now in the dead center of it so another reversal is possible. But wait, doesn't it look like the correction is over and we are now recovering? No, it does not. These markets have already broken below critical support levels, and the cycle structures are pointed down for at least seven more weeks. Volatility increases dramatically when a market is unstable and breaking down, and this is why we are seeing such large price moves right now. The current rally appears to be a "dead cat bounce", also known as a "sucker rally".

If you are a long-term investor who doesn't want to sell short or trade short-term, this is probably a good point to get out of the stock market if you haven't done so already. Other traders may sell short here (or add on to existing short positions). Stop losses can be placed above 17,000 in the DOW and above 2040 in the S&P 500. Holding my short position in the broad stock market and adding new short positions today.

Gold and silver are a little tricky to call at the moment as we are getting mixed technical signals in this market.
Now through next week is a strong reversal zone for gold (and especially today and tomorrow), and prices are falling strongly into it which suggests an imminent turn up. Nevertheless, the gold and silver cycles seem to be pointed down, and a strong bearish signal appeared in silver charts yesterday making its directional momentum now 100% bearish (gold is still mixed bullish and bearish). I'm thinking that we might get one final push up in gold prices that may or may not exceed the recent high ($1170). If this happens, especially into the end of next week, we could have another good opportunity to sell short. On the sidelines of gold and silver for now.

The U.S. Dollar Index is surging up with the broad stock market this week and is now pushing against resistance at 96. If the stock market turns back down, the dollar will likely reverse as well, and this might trigger a surge in gold as suggested above. It should be noted, however, that any rally in gold would probably be short-term, and the precious metals could easily start to fall with the broad stock market (as they did in the 2008-2009 crash).

Crude oil prices are finally starting to rise as a cycle bottom (and the start of a new cycle) is due this week. Monday's low at $37.75 could be that bottom. Normally I would be looking to buy this bottom, but the broad stock market's ongoing correction and volatility is making me reluctant to do so. If this is the start of a new medium-term cycle in crude and prices rally, they may not get that far before turning down again. Directional momentum in this market remains strongly bearish. I am going to stay out of crude oil for now.

Trading Blog Tuesday, August 25, 2015

8/25/2015

MARKETS UPDATE (5:30 pm EDT)

The broad stock market rallied strongly this morning but ended the day with a 200 point loss. After yesterday's dramatic plunge in equities, some sort of relief rally can be expected, but it should not be more than a "dead cat bounce" as cycle structures and technical signals now clearly point to a deeper correction that should continue for at least another eight weeks. Any rally in the DOW should encounter resistance in the 16,500 area, and if that is breached, there is extremely strong resistance at 17,000. A rebound rally should not get beyond these points, and if approached they may be turning points for a reversal and a resumption of the correction. (Similar resistance is at 1980 and 2050 in the S&P 500.) The question now is whether or not we should take profits in our short position and sell short again at the top of a rebound rally or just stay short and ride out any rally. I am holding my short position for now.

Gold prices dropped steeply today from yesterday's new high while silver prices continued a downward slide that started from last Friday's high. It's possible the reversal we've been expecting is happening now, but it is a little early, and there are some unusual technical signals that are still suggesting a strong rally into Friday or next week. In last Sunday's blog I wrote: "Traders fleeing the stock market might view gold and silver as a safe haven for their money, and this could fuel more rallying in the precious metals. Or they may chose the U.S. dollar instead (as they did in the 2008-2009 crash) which would send gold and silver prices down." This week it looks like the dollar crashed with the broad stock market and is now rebounding in sync with it. This suggests that investors are choosing gold (and silver) as their safe haven. If this is true and the dollar continues down with equity markets, we could see a very strong rally in the precious metals. This calls into question our medium-term bearish view of these metals. If the U.S. Dollar Index turns back down and crashes support at 93 it could turn gold and silver very bullish. We will watch this carefully, especially into Friday and all next week which could be a turning point for the precious metals. On the sidelines of gold and silver.

Trading Blog (Black) Monday, August 24, 2015

8/24/2015

BRIEF STOCK MARKET UPDATE (3:30 pm EDT)

The DOW dropped an astounding 1000 points on the initial opening of the markets today, gained most of it back by mid-day and is now rolling over and falling again. This is the high volatility roller coaster we were expecting and is typical of markets in a state of panic. The S&P 500 plunged close to our target support area (1860) before bouncing, but the DOW broke through support at 16,000 and plummeted to a second support level at 15,400 before its rebound.
The fact that these rebounds rolled back over so quickly is suggesting that a short-term bottom may not be in just yet so I am not taking profits in my short position today. Holding my short position in the broad stock market but still on alert for a short-term bottom this week.

Trading Blog Sunday (night), August 23, 2015

8/22/2015

MARKETS UPDATE and BROAD STOCK MARKET STRATEGY (11:15 pm EDT)

All eyes this week will, of course, be on the broad stock market as the DOW on Friday took a whooping 530 point dive. Yes, it is official, the market is now in panic mode. This means we may see some crazy volatility in equities over the next several weeks with major short-term price movements both up and down. Nevertheless, even wild movements in the stock market indices should stay within the parameters of major market cycle structures, and timing signals for directional reversals can still be used (although they may be less reliable). Fortunately, we foresaw this downturn two weeks ago and entered short positions in the broad stock market.

It is very likely the DOW and S&P 500 (and probably the NASDAQ) started new medium-term cycles in early July and that those cycles will be pointing down for at least two more months. That means we shouldn't see the lowest point of this correction for at least eight more weeks. That correction could easily be 17% or more from these indices' all-time highs. (The DOW has already fallen 10%.) Does this mean the markets are heading straight down for eight more weeks? Not likely. There should be bounces along the way and possibly some strong short-term rallies, but our strategy should remain bearish until it is clear the correction is over. That means we should be looking to add to our short positions at the top of any short-term rally. (We may also look to take profits on our short positions if a significant rally appears imminent). As I stated in last Thursday's blog, any long-term investors who don't want to sell short or trade short-term should simply be out of the stock market for at least the next two months.

Next week we enter another strong reversal zone so we will be on the lookout for a possible short-term bottom and bounce in the broad stock market. Possible target bottoms could be the 16,000 area in the DOW and around 1860 in the S&P 500. Holding my short position in the broad stock market.

We sold our gold and silver long positions last Thursday for good profits, and we should now be looking for a top in both these metals to sell short. That top could come this week as we enter a strong reversal zone. The potential for a reversal is especially strong for gold at the end of the week. In fact, there are some short-term technical signals that suggest the possibility of an accelerated rally into this Friday which would be the ideal lead-in to a top and subsequent reversal. There is resistance for gold in the $1180 - $1190 range, so prices may not get beyond there. However, the current panic in equity markets could spill over into other markets so we could get unusual surges (or dives) that violate normal technical parameters. Traders fleeing the stock market might view gold and silver as a safe haven for their money, and this could fuel more rallying in the precious metals. Or they may chose the U.S. dollar instead (as they did in the 2008-2009 crash) which would send gold and silver prices down. If gold rallies strongly, we could see prices peak in the first week of September instead of this week. Our sideline position now is probably a good one until we see how these prices move over the next several days. Gold and silver's medium-term trend is still bearish, and gold prices would have to exceed $1235 to start looking bullish. I don't think that's going to happen any time soon (although with the markets in panic mode anything is possible). On the sidelines of gold and silver and looking to sell short sometime within the next two weeks.

Speaking of the dollar, the U.S. Dollar Index is now approaching another support level at 94. A bounce from this support could trigger the reversal we're anticipating in the precious metals so we will watch this index carefully next week. As I mentioned above, investors could chose the U.S.dollar as their safe haven instead of gold as they did in 2008-2009. Although the U.S. economy is not in the best of shape at the moment, compared to Europe and Asia it is looking pretty good, and the dollar is perceived by some investors as a good place to park their money when equities are falling.

Crude oil prices continued to creep lower last week, which is not surprising considering what is happening in the broad stock market. There is support for crude around $38.50 this week as we enter a strong reversal zone. It is also very late in crude's current cycle so a bottom is due from which some sort of rally will commence. Normally I would be looking to buy this bottom for at least a short-term relief rally, but considering the serious correction now taking place in the broad stock market as well as the strong bearish momentum in crude charts, I am reluctant to go long right now. It may be better to just wait for the top of the next rally and then sell short. If crude breaks below $39 this week and then closes the week above $39.50, I will consider a long position. Out of this market for now.

Trading Blog Thursday (night), August 20, 2015

8/21/2015

BROAD STOCK MARKET UPDATE and ALERT (10:15 pm EDT)

Today's plunge in the broad stock market is significant, and not just because the DOW dropped 343 points. More importantly, the S&P 500 and NASDAQ both broke and closed below the start of their new cycles. The DOW did this earlier in the month which is why I entered a short position in the broad stock market last week. The other two indices have now confirmed this pattern. July 7th seems to have been the start of new cycles in all three indices: the DOW at 17,465, the S&P 500 at 2044, and the NASDAQ at 4902. If this analysis is correct, all three indices have broken below those starting points and their cycles are now pointed down for at least six more weeks. The correction could be 15% or more from their all-time highs. (The all-time highs are 18,351 for the DOW, 2134 for the S&P 500, and 5231 for the NASDAQ.)

Needless to say, everyone should at least be out of the broad stock market right now if not selling it short for what looks to be a major correction. It is possible we could see a short-term sub-cycle bounce in these markets next week. If we do, traders still in the market should use that as an opportunity to get out at a better price, and all traders can use it as an opportunity to add more short positions.

I will, of course, continue to monitor these markets on a daily basis and post any changes to this analysis if necessary.

Trading Blog Thursday, August 20, 2015

8/20/2015

GOLD and SILVER TRADE ALERT (3:05 pm EDT)

Gold prices are soaring again today and have reached $1153, exceeding our target area of $1140. This seems to be a strong rally that could lift prices as high as $1170; however, markets are very volatile right now, and we are entering a time period (now through next week) where a sharp reversal in this market is likely. For this reason I am going to take profits today and sell my long position in gold.

Silver's rally has been weak compared to gold (this may be telling us something), and although we haven't reached our target area of $16, we have had a decent rise to $15.58. Silver (and gold) could rally some more into next week, but if they do they probably won't get very far as there are now strong technical signals for a reversal in these metals soon. As with gold, I am taking profits today and selling my long position in silver.

Trading Blog Wednesday, August 19, 2015

8/19/2015

MARKETS UPDATE (5:30 pm EDT)

This afternoon investors and analysts anxiously awaited the release of the minutes from the last (July 29) Federal Reserve meeting. Readers may recall that the last Fed meeting was not followed by a press conference and that the rhetoric of the Fed's statement did not give any clues as to the timing of the first interest rate hike. Today investors were hoping that the detailed minutes of that meeting might give a little more information about the dreaded hike and whether or not it will come in September as many analysts think. The minutes were released early in the afternoon. They revealed that the Fed was concerned about inflation remaining stubbornly below target and were also concerned about China's slowing growth having a negative impact on the dollar (which seems to be coming to pass as China announced the devaluing of its currency last week). It's possible that these concerns of the Fed could delay a rate hike, and perhaps this is what investors were thinking when equity markets surged briefly today after the release of the meeting minutes. The rally lasted only 15 minutes, however, before falling back, and the DOW closed the day with a 162 point loss. There is so much fear and uncertainty in the stock market right now that it is questionable whether or not a delayed rate hike will make much difference to investors. I think most people are now more concerned about China's collapsing equity markets than when the first rate hike (which should be very small) will start. Gauging the reactions of a nervous and fearful Wall Street is not easy. Fortunately, we have many tools (cycle studies, technical analysis and timing strategies) to help guide our trading decisions.

The S&P 500 appears to be backing down from resistance around 2100 (nicely below our stop loss point of 2115) so we could still be on track for a deeper correction. A break below 2044 (the start of the current cycle on July 7) would be a strong signal signal that this is happening. Directional momentum in the DOW and S&P 500 remains nearly 100% bearish while the NASDAQ is still mixed bullish and bearish. This still favors the bearish view. Holding my short position in the broad stock market.

Our gold long position continues to do well as prices surged up to $1130 today. A strong bullish momentum signal appeared in gold charts today so directional momentum has changed from mostly bearish to mixed bullish and bearish (the same as silver). We are getting close to our target area of $1140 and should be looking to take profits on this trade soon (ideally next week). Silver prices dropped abruptly yesterday but recovered that loss today and closed the day at $15.29. We are still on track for our target of $16 in silver. As with gold, we will look to take profits in that area, especially if this happens next week. We will also be looking to sell short (both gold and silver) at that time if this is supported by technical signals. Currently holding my long positions in gold and silver.

Today's release of the Fed meeting minutes and talk of a delayed interest rate hike drove the U.S. Dollar Index down. In last Sunday's blog I wrote: "...we could see a further correction in the dollar, and that could help push the precious metal prices higher, at least short-term. There is support for the dollar in the 95 area so a possible scenario here would be for the dollar to drop towards 95 with gold and silver rising up to the price targets already mentioned. This could be followed by a dollar bounce which would trigger a reversal in the precious metals and gold and silver prices dropping to new lows." This could be playing out now as the dollar dropped to 96.33 today. There is support at 96 and then 95. If this index can get to 95, we should see our target levels achieved in the precious metals.

Crude oil prices made yet another new low at $40.46 today. In my last blog (Sunday) on crude I wrote: "a cycle bottom (and the start of a new cycle) is due (overdue) and could be forming now or it could form in the last week of August. Even within a bearish trend, a new cycle will usually rally for at least a few weeks so we may see a good opportunity for a short-term trade on the long side over the next week or two." This is still valid so we are still on the lookout for a low to buy. Next week would be ideal in terms of timing, but there is a possibility of this cycle being extended into September. If the broad stock market corrects further, crude could move lower with it (or perhaps it is the stock market that is following plunging crude prices). Directional momentum in crude charts is currently 100% bearish. Out of this market for now.

Trading Blog Sunday (night), August 16, 2015

8/19/2015

MARKETS UPDATE (11:15 pm EDT)

The broad stock market rallied a bit on Friday, but a bounce from last Wednesday's dramatic low was to be expected, and this does not really jeopardize the short position we entered in the market on Thursday. My suggested stop loss for this trade was (is) a break above the 2115 level in the S&P 500. If July 6 was the start of a new medium-term cycle, then we could be seeing a brief (3-8 day) sub-cycle bounce now that shouldn't get very far if the trend is pointed down (as I think it is). What we don't want to see is the DOW rise above 17,783 as this would call into question our short-term bearish trading strategy. Holding my short position in the broad stock market.

Our gold and silver long positions did well last week. It looks like we have started new medium-term cycles in both metals and are on track for prices rising into our target areas of $1140 in gold and $16 in silver. If we reach or exceed those targets by the end of this week (or ideally next week) then we will take profits in our long positions and consider selling short if the longer term trend remains bearish. There is a slight chance that gold and silver prices peaked in the middle of last week and could now fall hard so we will maintain tight stop loss points for our long positions at $1080 in gold and $14.50 in silver. Holding long positions in both gold and silver for now.

Crude oil prices fell to a new yearly low of $41.35 intraday on Friday which means that the medium-term trend is now bearish and pointed down. Nevertheless, a cycle bottom (and the start of a new cycle) is due (overdue) and could be forming now or it could form in the last week of August. Even within a bearish trend, a new cycle will usually rally for at least a few weeks so we may see a good opportunity for a short-term trade on the long side over the next week or two. If we miss it we will wait for a top to sell short as the trend seems to be very bearish and prices could continue lower for many more weeks. Still out of this market.

A strong bearish momentum signal appeared last week in the chart for the U.S.Dollar Index, and the dollar's directional momentum is now mixed bearish and bullish (it had been 100% bullish). This suggests that we could see a further correction in the dollar, and that could help push the precious metal prices higher, at least short-term. There is support for the dollar in the 95 area so a possible scenario here would be for the dollar to drop towards 95 with gold and silver rising up to the price targets already mentioned. This could be followed by a dollar bounce which would trigger a reversal in the precious metals and gold and silver prices dropping to new lows. Many financial analysts are now speculating that China's devaluation of the Yuan last week increases the likelihood of the Federal Reserve delaying an interest rate hike. This kind of media "chatter" could at least temporarily weaken the dollar and strengthen the metals. We will see how this plays out over the next week or two.

Trading Blog Thursday, August 13, 2015

8/13/2015

BROAD STOCK MARKET TRADE ALERT (3:00 pm EDT)

In Tuesday's blog I wrote : "...if the DOW breaks below last Friday's low of 17,279, we will have to abandon the idea of that being the start of a new cycle, and equity markets could be bearish for the next two months." It looks like this scenario is playing out. The DOW's plunge to 17,125 yesterday means that the current medium-term cycle probably started on July 7 at 17,465 and could now be pointing down for at least two more months. Directional momentum signals are also supporting this idea. The S&P 500 has changed from mixed bullish and bearish to mostly bearish and the NASDAQ has changed from 100% bullish to mixed bullish and bearish. The DOW remains 100% bearish. We should now be looking to sell short the broad stock market for a deeper correction. We are getting a relief rally in the markets today so I am going to take this opportunity to enter a short position. For those trading index funds, I would suggest an S&P 500 fund rather than a DOW fund as the DOW has already corrected nearly 5% from its all-time high. The S&P 500 is only down 2% from its all-time high and thus has more "fall" potential should the markets take a deeper correction. We can set a stop loss for this trade on a break over the 2115 level in the S&P 500 which would give us a tolerable 1% loss if breached.

Entering a short position in the broad stock market (S&P 500) today.

Trading Blog Tuesday, August 11, 2015

8/11/2015

MARKETS UPDATE (3:30 pm EDT)

Wow! That was good timing for unloading our broad stock market positions yesterday! The DOW surged 240 points yesterday and gave all of it back on a plunge when the markets opened this morning. Yesterday's rally was apparently triggered by a brief surge in China's stock market and also by comments from one Federal Reserve official suggesting that a September rate hike may not be a done deal. Today's market plunge is being driven by China's overnight decision to devalue its currency. This is unsettling to global equity markets as it suggests that the Chinese government is desperately attempting to help its exporters in an economy that is failing. It should be noted here that any "recovery" rally in the Chinese stock market should not be taken that seriously as trading in China is now being tightly regulated by the government, and this can no longer be considered a "free" market. (Conspiracy buffs may be interested in knowing that financial giant Goldman Sachs recently praised the Chinese government's takeover of its country's stock market. Could we soon be seeing such overt regulatory control in U.S. markets?).

Conspiracy theories aside, there is no doubt that equity markets are extremely volatile right now, and we need to be cautious in all of our trading. The strategy I outlined in yesterday's blog for trading the broad stock market will help us navigate this dangerous trading environment. Note that if the DOW breaks below last Friday's low of 17,279, we will have to abandon the idea of that being the start of a new cycle, and equity markets could be bearish for the next two months. On the sidelines of the broad stock market for now.

Our timing for reentering our gold and silver long positions also seems to be good as gold prices have now broken above the upper line of a "bearish wedge" pattern, and both gold and silver seem to be starting rallies from new medium-term cycle bottoms. If this analysis is correct, we could see gold rise to at least $1140 and silver to $16. If we see those prices towards the end of this month, we will likely take profits in our long positions and consider shorting both metals if the longer term trend still looks bearish. Maintaining my long positions in gold and silver for now.

Crude oil prices continue to search for a bottom as crude made yet another new low today at $42.69. A medium-term cycle bottom for crude is due by the end of the month and could happen any time now. Timing factors suggest a possible reversal at the end of this week or early next week. I would normally be looking to buy this cycle bottom as the first few weeks of a new cycle are almost always bullish. The trend signals in this market, however, are remaining stubbornly bearish, and the threat of a broad stock market plunge now is also making me reluctant to buy oil. We will watch this market carefully over the next seven days for signs of a bottom. Out of this market for now.

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