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Trading Blog Monday (late night), August 29, 2016

8/29/2016

UPDATE on the BROAD STOCK MARKET and PRECIOUS METALS (10:30 pm EDT)

Last week Federal Reserve officials made comments in the news suggesting that there still could be two more interest rate hikes this year. This hawkish tone drove equity markets down into the end of the week with the DOW hitting a low of 18,335 and the S&P 500 touching 2,160 on Friday, the dead center of our current reversal zone. Could this be the end of the correction? Possibly, but this reversal zone extends into Thursday and the ideal targets for these two indices should be lower (perhaps closer to 18,100 for the DOW and 2,100 for the S&P 500). Let's wait and see if this correction can go deeper this week before adding any additional long positions. Still holding my long position in the broad stock market.

The Fed's hawkish comments last week may have frightened equity markets, but they gave a strong boost to the U.S. dollar. The U.S. Dollar Index surged up on Friday but is now pushing against resistance in the 95 -96 area so this rally may not go much further. Despite the dollar surge, gold and silver prices have remained stable which supports the idea of the precious metals being bullish and ready to rally now. Both metals are bottoming in the center of this current reversal zone and could (should) easily turn up now. We need to be cautiously bullish, though, as prices could still fall lower before Friday. Silver may have formed its final medium-term cycle bottom yesterday (Sunday) when prices hit $18.40, but it might still go lower. A close above $19 would make me more confident that the cycle bottom is in. I am going to hold off buying silver for now. We are already long in gold from last Thursday. Let's keep our stop loss on gold at $1,300. Holding my long position in gold but still on the sidelines of silver.

Trading Blog Thursday, August 25, 2016

8/25/2016

GOLD TRADE ALERT (2:45 pm EDT)

There are several short-term technical signals appearing now in the precious metal charts that are suggesting an imminent turn up in gold and silver prices. As I've been stating in recent blogs, silver's medium-term cycle bottom is now due (overdue), and this week prices are making new lows into the center of the current reversal zone. Gold prices are also falling into a subcycle correction in this reversal zone. Both metals are now in good target ranges for these corrective bottoms; however, the current reversal zone extends into next Thursday so it is possible they could fall lower. I am going to enter a long position in gold today with a stop loss on a close below $1,300. Let's hold off purchasing silver until tomorrow or early next week as silver is more volatile than gold and could dip significantly lower over the next several days. Going long in gold today.

Trading Blog Wednesday, August 24. 2016

8/23/2016

MARKETS UPDATE (8:30 pm EDT)

We are now entering another reversal zone for several markets (now through Sept. 1) and it is still not clear if equity markets want to make a bottom or top. There has been a lot of speculation recently about the Federal Reserve's plans for raising interest rates. Most analysts agree that a rate hike will come sooner or later, but will it be sooner or later? Recent inside information points to some Fed members being hawkish while others are dovish. This kind of uncertainty makes equity markets nervous and indecisive.

On Monday the DOW made a new weekly low then surged back up on Tuesday but backed down again today. If the DOW and/or the S&P 500 can exceed their highs from last week (the S&P 500 almost did that yesterday) in this new reversal zone, we should expect a top before the end of next week and a reversal down. If that doesn't happen and markets continue down this week, we will look for a bottom and the start of another rally. In the first instance we might consider stepping aside our long position in this market and reentering at the bottom of any correction. In the second case we could add on to any long positions we are holding at the correction's bottom. Our overall strategy is still to stay long into the November U.S. presidential election. Still holding my long position in the broad stock market.

In last Thursday's blog on gold and silver I wrote:

" We could still see prices move lower into next week's reversal zone, especially silver because its medium-term cycle bottom is now due (overdue) and should go at least to the $19 level (or lower)."

This is happening now with both gold and silver making new monthly lows today as we enter this week's reversal zone. Silver is already approaching the $18.50 level and could go lower. Gold prices closed today near $1,324. Good targets now for these metals would be around $1,300 for gold and $18.50 for silver. Silver is already there, but gold has some more room to drop. This reversal zone extends into next Thursday so there is plenty of time for both metals to make a bottom between now and then. We will watch carefully over the next several days for a good buy spot in both silver and gold as long as prices don't go too low. Still on the sidelines of the precious metals.

I also wrote in last Thursday's blog:

"The U.S. Dollar Index is now approaching a strong support zone around 93 - 94. If this support holds, we could see a bounce which might help push gold and silver prices down."

This too seems to be happening as the U.S. Dollar Index has been rallying from that 94.21 low on Thursday. There is resistance now in the 95 - 96 area so this rally may not get very far before turning down again, probably at the same time silver makes its final medium-term cycle bottom and turns back up.

Crude oil prices topped out at $49.36 (October contract chart) last Friday and are now falling into the center of a strong reversal zone specifically relevant to crude (Aug. 22 - 30). Crude has support in the $45 - $46 area so if prices get there we may look to buy over the next few days. Crude oil started a new medium-term cycle on Aug. 3 and technically still looks bullish; however, prices need to exceed the previous cycle high of $53 for the trend to remain bullish. On the sidelines of crude oil for now.

Trading Blog Thursday (late night), August 18, 2016

8/18/2016

MARKETS UPDATE (11:30 pm EDT)

The DOW, S&P 500 and NASDAQ all made new highs on Monday (the center of a reversal zone) and have been falling from those highs, but not strongly. We leave this reversal zone tomorrow but enter another one next week (Aug. 23 - 30). If these markets now rally and break above Monday's highs into next week, we could see another top and reversal with a more serious correction in all three indices. An alternative scenario could see equities continuing lower into next week and finding a bottom in the next reversal zone from which a new rally starts. As I've been saying in recent blogs, I don't think any corrections over the next month or two will be serious as it is likely the Federal Reserve and establishment politicians wish to keep markets buoyant into the upcoming U.S. presidential election. Let's hold on to our long position in the broad stock market for now and watch how these indices move into next week's reversal zone.

Monday was also the center of a reversal zone for precious metals (which ends today). Gold made a new weekly high on Tuesday but silver did not which creates a potential case of intermarket bearish divergence in a reversal zone. Nevertheless, these metal prices seem reluctant to fall. I had hoped to see a stronger correction towards our target prices ($1,300 in gold and $19 in silver) in the first half of this week, but that didn't happen. We could still see prices move lower into next week's reversal zone, especially silver because its medium-term cycle bottom is now due (overdue) and should go at least to the $19 level (or lower). We will remain with our trading strategy of looking to buy both metals once silver has made its medium-term cycle bottom, which should be soon. Still on the sidelines of both gold and silver.

It is likely precious metal prices were being buoyed this week by a sharply falling U.S. dollar. The U.S. Dollar Index took a hit this week when the minutes of the recent Federal Reserve meeting were released and showed that the FOMC members were divided over whether to raise interest rates soon. This was in contrast to recent comments from the Fed that had suggested the possibility of a rate hike as soon as September. The U.S. Dollar Index is now approaching a strong support zone around 93 - 94. If this support holds, we could see a bounce which might help push gold and silver prices down.

This week's falling dollar also gave a boost to crude oil prices which soared today to just over $48 (September contract chart). I have been kicking myself all week for not buying crude close to its Aug. 2 low (around $39) which appears to be the start of a new medium-term cycle. Of course, hindsight is always 20/20. My reluctance to buy at that time was due to the fact that directional momentum in crude charts had turned strongly bearish, and a strong reversal zone specifically relevant to crude in the last week of August seemed to be a better time for a cycle bottom. That reversal zone starts next week and might now correspond to a top instead of a bottom. If crude prices push higher into next week, we could see a significant top and an opportunity to sell short. Any corrections, though, could be short-term as it is still early in the new cycle and the overall trend in crude looks bullish. On the sidelines of crude for now.

Trading Blog Sunday (late night), August 14, 2016

8/14/2016

MARKETS UPDATE (11:30 pm EDT)

The broad stock market is rising into the center of our current reversal zone (which ends this Thursday), and this is pointing to the start of some sort of correction within the next several days. As I've been saying in recent blogs, I don't think any correction will be serious. Nevertheless, if we get a strong sell signal this week I may take profits and sell my long position just to be on the safe side. In that situation we would look to buy again at the bottom of the correction (if it doesn't go too deep). On the other hand, if this market remains bullish into Friday it could bypass the current reversal zone and continue to rise directly into the next one in the last week of this month. I don't think this will happen, but we are getting close to the U.S. presidential election. Market manipulators may be buoying equity markets against normal cycle patterns. We need to be aware of that possibility. Reasonable targets for any correction now would be around 18,100 - 18,200 in the DOW and around 2,100 in the S&P 500. Holding my long position in the broad stock market for now.

Gold and silver prices rose into Wednesday last week and then fell slightly. If they continue down early this week, we should look for a bottom to buy as we are in the center of a reversal zone for precious metals. Good current targets to watch for would be around $1,300 for gold and $19 (maybe lower) for silver. We may buy these metals at those levels next week if the technical situation looks right. Stay tuned. Currently on the sidelines of both gold and silver.

We are still watching for a pullback in crude oil prices to buy as it looks like the Aug. 3 low of $39.19 (Sept. contract chart) was a medium-term cycle bottom. We may get that pullback in this week's reversal zone. Directional momentum in today's crude oil charts changed from 100% bearish to mixed bullish and bearish. This further supports the idea of a new cycle starting now with a characteristic strong rally. On the sidelines of crude but looking to buy soon.

Trading Blog Tuesday, August 9, 2016

8/9/2016

UPDATE and COMMENT on GOLD and SILVER (3:30 pm EDT)

I would like to point out that our trading in the precious metals market at this time is generally short-term. There is a lot of divided opinion right now from gold and silver analysts, investors and traders on where these two metals are headed short-term, medium-term and long-term. As I stated in a recent blog (July 18):

"The long-term direction of these metals will be determined by what happens to global economies over the next several years, and specifically whether economies move towards inflation (possibly hyperinflation) or deflation (possibly a deflationary implosion). The bottom line here is that inflation will likely boost gold and silver prices and deflation could depress them...We need to be prepared and alert to whatever scenario unfolds."

Right now we are looking to buy any corrections in gold and especially in silver because gold is in the early phase of a new medium-term cycle and silver is about to start one (after it makes a correction). Early phases of cycles are generally bullish, but that bullishness can be short-lived if the overall trend turns bearish. In some recent blogs I pointed to the fact that the Commitment of Traders (COT) charts were showing that Commercial (i.e. "smart" money) short positions in these metals were at alarmingly high levels. That is still the case and it strongly suggests that a significant correction in the precious metals is imminent. We could get that now, especially as both gold and silver could be making double top formations in their current charts (at $1,375 in gold and $21 in silver). We can identify a general strong support level for gold around $1,300 and for silver around $19. If those supports hold, we will look to go long for some more rallying, but if they break, we might see a very severe correction kick in. If the metals do rally, those double top areas are important resistance, and we would want to see prices break through them to remain bullish. The end of this week and early next week could be a turning point for gold and silver so we will watch carefully how prices move into that time frame. On the sidelines of gold and silver.

Trading Blog Monday, August 8, 2016

8/8/2016

MARKETS UPDATE (3:30 pm EDT)

Last Tuesday the DOW, which had been falling for eight days, made a final bottom and reversed up in the center of a reversal zone (Aug. 2). Unlike the DOW, the S&P 500 and NASDAQ were making new highs last Monday, but they also dropped steeply on Tuesday before reversing back up. Friday's strong jobs report gave a boost to equity markets and fueled a strong rally into the end of the week. (The U.S. Labor Department reported 255,000 new jobs in July which was far above the 180,000 number predicted by many economists.) Tuesday's bottom may have been a significant correction for the DOW but was probably not one for the S&P 500 or NASDAQ. This suggests that these latter two indices could still correct further. We are now out of last week's reversal zone but are entering a stronger one later this week into next week. If equities move lower into this time frame, the S&P 500 and NASDAQ (and possibly the DOW) could make deeper corrective bottoms before starting a new rally. The alternative scenario could see these markets rally into this next reversal zone. If that happens we will watch for a top and another correction. As I stated in my last blog, I don't think any corrections now will be serious and should be viewed as opportunities to add to long positions or buy if not already long in the broad stock market. Holding my long position here.

We are also exiting last week's reversal zone for gold and silver and are entering another one late this week into next week. Our chart analysis for the precious metals is similar to that for the broad stock market. Gold and silver prices could now fall into this new reversal zone. If this happens, silver could easily make its final medium-term cycle bottom before reversing and starting a new cycle and bullish rally. Gold could make a subcycle bottom and then also turn bullish. These would be buying opportunities. If these metals rally into next week, however, we could instead see this reversal zone correspond to a top followed by a sharp correction. This could set up an opportunity to sell short. Our main strategy, though, will be to watch for silver's final cycle bottom as this will be a strong signal to buy both metals. On the sidelines of gold and silver for now.

We may have missed crude oil's medium-term cycle bottom which could have been last Tuesday's low of $39.26 (Sept. contract chart). That cycle bottom was (is) now overdue, and last week's low was only a little below our price target range of $40 - $45. Oil prices are now rallying strongly off that point. That could have been the bottom; however, there is a strong reversal zone specifically related to crude oil coming up in the fourth week of this month. It is therefore possible to see prices move back down to form either a double bottom to the cycle or even a new low in that time frame. My reluctance to go long last week was due to the directional momentum in crude charts turning 100% bearish. This is still the case (but could change as markets are quite volatile). If we are starting a new medium-term cycle, crude prices could turn very bullish, and we could eventually see prices back above $50. We will watch carefully over the next several weeks for buying opportunities on any corrections back towards last week's low (or lower), especially if that happens in the fourth week of this month. Still on the sidelines of crude oil.

Trading Blog Monday (late night), August 1, 2016

8/1/2016

MARKETS UPDATE (11:30 pm EDT)

We are now at the center of another reversal zone for the broad stock market (which ends on Friday) and we are seeing contradictory signals coming from the three major market indices. The S&P 500 and NASDAQ are both rising and making new yearly highs while the DOW has been falling and today made a new weekly low. This is a case of intermarket bearish divergence and suggests that all three indices are headed lower, at least in the short-term. The S&P 500 and NASDAQ could reverse sometime this week or they might push higher into another stronger reversal zone coming up at the end of next week and then turn down. Either way, I don't think any correction will be serious and may even be seen as an opportunity to add to long positions for a rally that should continue higher for at least several more weeks (and possibly months). As I've stated in recent blogs, the broad stock market's current cycle structure supports this bullish view, and so does the idea of the U.S. political establishment manipulating markets now to avoid a serious downturn before the November presidential election. I've suggested a stop loss for our long position in this market to be around 17,400 in the DOW and 2,040 in the S&P 500. It would take a move below those levels to make me question my bullish view. There are also support lines around 18,000 in the DOW and 2,100 in the S&P 500 so these may be good target areas for any correction. Still holding my long position in the broad stock market.

In my blog last Monday on gold and silver I wrote:

"Besides the first week of August, there is also another reversal zone for the precious metals in the third week of August. We could see a correction move prices down into either one of those time windows or we may get a brief rise into the first one and then a downward correction into the second one. Our main strategy here should be to wait and buy the corrective bottom which could be around $18 in silver and anywhere from $1,230 to $1,300 in gold."

We are now in the first reversal zone and gold and silver prices are rising into it. Silver has still not made its final medium-term cycle correction, and that bottom is due within the next three weeks. We could see a reversal start now or we could see prices push higher this week before falling. An ideal signal to sell short would be to have one of these metals make a new yearly high while the other does not (intermarket bearish divergence). Both are close to new highs (gold needs to exceed $1,376 and silver needs to exceed $21.08) so we should watch for this divergence this week. If we miss our chance to sell short we will just wait and buy the final bottom of silver's cycle, probably in the $18 area. Gold started a new medium-term cycle on May 31st so its final cycle bottom is not due for at least a month; however, its cycle structure now indicates that it could take a steep subcycle correction any time over the next two weeks. If it does, it will most likely coincide with silver's final correction. Gold's correction could end up anywhere between $1,250 and $1,300. We will look to buy gold in that range if it gets there over the next week or two. On the sidelines of gold and silver for now.

Crude oil prices dropped sharply today and closed just slightly above $40 (September contract chart). We are now at the lowest part of our target range for crude's final medium-term cycle bottom ($40 -$45) and that cycle is now due (or even overdue) so we should be looking to buy. I am going to be cautious here, however, because today's price drop triggered a strong bearish momentum signal making directional momentum in crude now 100% bearish. The second half of August is a strong reversal zone specifically related to crude, and it is possible to see crude's final cycle bottom extend into that time frame, especially considering today's momentum change. Let's stay on the sidelines of crude for now. If prices break below $38 we will probably hold off buying at least until the third week of August.

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