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Trading Blog Thursday, August 31, 2017

8/31/2017

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

The broad stock market is still looking very ambiguous, although we are just now getting some short-term bullish signals in the charts of the DOW, S&P 500, and especially the NASDAQ. I suspect this market is going to rise into the next reversal zone (which we enter in the second half of next week and is centered around Sept. 8-11) even though it is still possible for it to fall into a low in that time frame. There are basically two possible scenarios here:

1) The Aug. 21 lows in the DOW, S&P 500 and NASDAQ could represent a final medium-term cycle bottom, and this market could turn very bullish and now make new highs. The main argument against this is that those lows were not low enough for a "normal" bottom, and there was no bullish divergence signal at those bottoms.

2) The Aug. 21 lows could be just a sub-cycle bottom and we are now seeing a short-term rally that will soon turn down again and complete the final cycle bottom at significantly lower levels. This rally may or may not make new-all-time highs before turning down.

Both of these scenarios allow for a rise into the upcoming reversal zone. We are now back up to our entry point for our short position in the broad stock market. If this market is turning bullish, it could push quite a bit higher before Sept. 8-11. For this reason, I am going to cover my short position today with essentially no loss and stand aside to see how this plays out next week. If we rally into Sept. 8-11 (and especially if one or two- but not all three- market indices make(s) a new all-time high), we will consider selling short again as a significant correction in the market could still be imminent.

Trading Blog Tuesday, August 29, 2017

8/29/2017

BRIEF COMMENT on GOLD, SILVER, and the U.S. DOLLAR (2:30 pm EDT)

Recent frightening events in the news (Hurricane Harvey, a North Korean missile test over Japan) are fueling volatility in many financial markets right now. This can be readily seen in the precious metals as gold and silver prices (which are perceived as safe haven investments in times of disaster) have taken off this week. We had been expecting gold to rally and had been waiting for a lower entry point which, unfortunately, did not come. I don't like chasing rallies, especially volatile ones like this, but we may not have to. Short-term technical signals are suggesting a possible top with today's highs, but even if prices push higher into the end of the week, next week will bring us into another reversal zone for precious metals. There is also a strong resistance area for gold from $1,330 - $1,370 which could keep a lid on this rally. Bottom line: we continue to wait for a corrective dip to buy both gold and silver as the trend in precious metals seems to be turning bullish.

The U.S. Dollar Index shows that the greenback is still in trouble and continues to look vulnerable to a serious plunge. A detailed technical analysis of the Dollar Index chart shows a strong support level at 92 (that is being challenged today). If that breaks, there is a secondary line of support just above 90. Any break below 90 would likely lead to a serious plunge in the dollar. Such a plunge could ignite a fire under the precious metals and send prices much higher. That said, we could still see a short-term bounce in the dollar from the current support, but any rally would probably not get very far before turning back down again to challenge that 90 -92 area. The dollar would have to break above 93, and then 94 to even be considered slightly bullish right now. Can the dollar recover from here?
It doesn't look good, but with today's crazy and volatile markets (and political climate), I don't want to rule anything out. Any short-term bounce in the dollar could push gold and silver prices down a bit and give us an opportunity to go long in both metals.

Trading Blog Monday, August 28, 2017

8/28/2017

CRUDE OIL TRADE ALERT and MARKETS UPDATE (3:00 pm EDT)

Crude oil prices are plunging today. When we bought crude on Aug. 17, I suggested a stop loss based on prices breaking below the low of that week. That low came on Aug. 17 at $46.62 (Oct. contract chart). Prices are breaking that low today so we should sell our long position in crude now. Prices are slightly below our entry point so we can get out now with just a small loss. Crude may be falling to another sub-cycle bottom into the end of this week and all of next week which is the next reversal zone specifically for crude. Directional momentum in crude today changed from mixed bullish and bearish to nearly 100% bearish which means the overall trend may be turning bearish. Let's see how low this correction goes as we enter this new reversal zone before we decide on our next trading strategy for crude.

Gold and silver prices both surged up today and broke above their Aug. 17 highs. This is very bullish behavior and could mean that last Friday's low in gold could have a sub-cycle bottom (though it didn't technically go low enough for that). It's also possible that gold and silver prices are edging up for another top this week to be followed by another correction to new lows. The short-term cycle picture is not clear. We will stay on the sidelines for now, but we're still watching for a good entry point to go long as it appears that the trend in these metals is turning bullish.

The broad stock market continues to be indecisive as we now leave a strong reversal zone behind. We now have to label the low of Aug. 21 as the pivot point for that reversal. This suggests that we will rally into the next one (centered around Sept 9), but we could also fall further into that time period if the market doesn't pick up soon. Directional momentum in all three stock market indices (DOW, S&P 500, NASDAQ) is still mixed bullish and bearish so lower equity prices are a real possibility. I am going to hold my short position here for now.

Trading Blog Friday, Aug. 25, 2017

8/25/2017

BRIEF MARKETS UPDATE (2:00 pm EDT)

BROAD STOCK MARKET: This market still hasn't decided if it wants to rally or plunge. If the DOW and S&P 500 don't move below their Aug. 21 lows by early next week, we will consider covering our short position in this market and watch for another top to sell short around Sept. 10. Holding my short position for now.

GOLD and SILVER: Same lack of decisiveness here as with the broad stock market. Both metals seem reluctant to fall but are still staying below their highs from Aug. 18 (which were made in the center of a reversal zone specifically for precious metals and thus likely represent significant tops). I would still like to see prices go lower before entering a long position. On the sidelines of both metals for now.

CRUDE OIL: The rally off of the Aug. 17 low of $46.62 (October contract chart) has weakened a bit this week, but we are still above our entry point for our long position in crude. Aug. 17 still looks like a significant sub-cycle low so lets hold our long position for now and see if prices can move higher next week.

Trading Blog Tuesday, August 22, 2017

8/22/2017

BRIEF UPDATE on the BROAD STOCK MARKET (3:00 pm EDT)

Yesterday all three broad stock market indices (DOW, S&P 500, NASDAQ) made new weekly lows. This rules out any intermarket bullish signal for this week and lessens the chances that yesterday's lows were significant turning points for a reversal back up (although we can't rule out that possibility). It is late in the medium-term cycle of the broad stock market, and we are expecting a final corrective bottom to the cycle any time now, but yesterday's lows are still above the ideal targets for a normal bottom. Today's strong rally may be a relief rally off of the "fear factor" of yesterday's total solar eclipse in the U.S. (financial astrologers aside, stock market investors can be quite superstitious!). It could be just a short-term bounce, but if it starts to gain legs and looks like it could push higher into next week, we may have to label yesterday's lows as sub-cycle bottoms and cover our short positions in this market (we are still below our entry point from Aug. 1). We will watch this carefully over the next few days. Holding my short position in the broad stock market for now.

Trading Blog Sunday (late night), August 20, 2017

8/20/2017

MARKETS UPDATE (11:30 pm EDT)

Last Thursday's sharp fall in the broad stock market was followed by slightly lower prices into Friday. We are now at the center of a strong reversal zone for all the markets we follow, but technically that reversal period extends into Aug. 28. If the current medium-term cycle in equities is going to make its final bottom this week, then the DOW, S&P 500 and NASDAQ could fall steeply over the next five days. They don't have to, however, as an estimated target for a bottom in the DOW would be in the 18,000 -21,000 range; and for the S&P 500 it would be 2,300 - 2,400. We are already close to the upper part of these ranges. One sign of a final bottom would be intermarket bullish divergence where one or two (but not all three) of the market indices makes a new low next week. We will watch for this as a possible signal to take profits and cover our short position in this market.

On Friday, gold and silver prices surged (gold to $1,300 and silver to $17.30) early in the day before falling and closing well below their opening prices. This is very bearish behavior and suggests an imminent correction. As I wrote in Thursday's blog:

"We are now in the center of a strong reversal zone for the precious metals so we could still see new highs over the next several trading days that could signal a top and a significant (but short) correction back down. As I suggested in my last blog, our main strategy now will be to look to buy the bottom of such a correction..."

The overall trend in the precious metals still looks bullish so we will wait and see if we get a correction now and how far it goes. A good target to buy in gold would be in the $1,260 area. We don't want to see prices below $1,250 as that could mean the trend is turning bearish again. Still on the sidelines of gold and silver.

The U.S. Dollar Index is still testing strong support at 92 - 93. The Aug. 4 low of 92.77 made in a reversal zone specifically for currencies is holding up so we could still see the dollar bounce here and attempt at least a weak rally. Any such rally could send precious metal prices back down.

Our decision to go long in crude oil on Thursday seems to have been a good one. On Thursday I wrote:

"...prices have now moved into our target range for a sub-cycle correction ($45 - $47 -Sept. contract chart). The cycle timing is also right for this type of corrective bottom (it is due this week). We are thus at a good entry point to buy crude."

Crude prices bottomed on Thursday right in the middle of our target range then surged to $48.64 on Friday. We will hold this long position for now and see if it can clear the previous high of the current cycle which was $50.43 on August 1. If the trend in crude is turning bullish (it looks like it is) then prices will easily break that previous high.

Trading Blog Thursday, August 17, 2017

8/17/2017

MARKETS UPDATE and CRUDE OIL TRADE ALERT (3:15 pm EDT)

It still looks like last Tuesday was the top of the current medium-term cycle in the broad stock market (DOW and S&P 500) and that both these indices are now falling towards the final bottom of this cycle. We are now moving into the center of the current strong reversal zone for this (and other) markets which is next Monday (on the solar eclipse), but this reversal zone could extend into Aug. 28. We could see a bottom form any time now. Prices still have next week to move much lower, but it is possible (though less likely) for this correction to be short and shallow and followed by another strong rally to new highs. If that happens, and we see another top by Aug.28, it will be another opportunity to sell short. For now, however, let's stick with the idea of the market falling further into next week to form a final cycle bottom. Holding my short position in the broad stock market.

Gold and silver prices have been very volatile this week. Both metals took a dive on Tuesday and Wednesday, but prices snapped back up to their Monday high levels today. We are now in the center of a strong reversal zone for the precious metals so we could still see new highs over the next several trading days that could signal a top and a significant (but short) correction back down. As I suggested in my last blog, our main strategy now will be to look to buy the bottom of such a correction as the overall trend in both metals could be turning quite bullish. On the sidelines of gold and silver for now.

Crude oil prices have now moved into our target range for a sub-cycle correction ($45 - $47 -Sept. contract chart). The cycle timing is also right for this type of corrective bottom (it is due this week). We are thus at a good entry point to buy crude. I am going to enter a long position in crude today. We can set an initial stop loss for this trade on a close below $45 tomorrow. If prices stay above $45 tomorrow, we will set our stop loss next week on prices breaking below this week's low.

Trading Blog Monday (very early AM), August 14, 2017

8/13/2017

MARKETS UPDATE (3:00 am EDT)

The next three weeks could see a lot of volatility in all the markets that we follow so we need to be especially careful (nimble, flexible, and perhaps a little more conservative) in our trading during this period.

It looks like the broad stock market may finally be taking the correction that we've been waiting for. On Tuesday last week both the DOW and S&P 500 made new all-time highs while the NASDAQ did not. This continued the intermarket bearish divergence signal from the previous week. Tuesday was technically the last day of our critical reversal zone for equities, and on Wednesday, as if on cue, all three indices began to fall and continued a steep drop into Friday. (Note that our cycle and timing analysis showed that this market was "ripe" for a correction, but the trigger came from a geopolitical event - the U.S. and North Korea threatening each other with nuclear bombs). If the current medium-term cycle in this market is now falling to its final cycle bottom, we could see these three indices move quite a bit lower. We note, however, that we are moving into another potentially very strong reversal zone for all markets that is centered near this month's solar eclipse (Aug. 21). If this cycle is going to bottom in this upcoming reversal zone, equities could fall very steeply this week. The alternative is that we may just see another sub-cycle dip that could reverse quickly back up to form another high in early September before plunging down to the final cycle bottom. We need to be alert to both possibilities. The final cycle bottom could be as much as 8-10 % (or more) from the cycle top so our main focus is still to sell short the final top. That top could have been last Tuesday for the DOW and S&P 500 (and July 27 for the NASDAQ). Our short position (entered Aug. 1) is now making a profit, and we will hold on to it as we wait to see if this correction moves lower next week.

Gold and silver rallied strongly last week and made it fairly clear that both metals started new medium-term cycles on July 10 and are now bullish. Prices could continue to rally this week, but Friday is the center point of another reversal zone specifically for precious metals and so another sub-cycle correction is likely imminent. Instead of chasing this rally, it may be wiser to wait for this correction and buy at a better entry point. Gold could get to $1300 or even higher before topping. Staying on the sidelines of both gold and silver for now.

After bouncing and rallying a bit off of support at 92.8 on Aug. 4, the U.S. Dollar Index fell back again last week and settled just above 93. As I've mentioned in previous blogs, the dollar is dangerously close to breaking down. Directional momentum in the dollar is nearly 100% bearish, and the greenback is testing a "last ditch" support area at 92 - 93. A clear break below there could lead to a severe plunge. Such a scenario could kick start a major rally in the precious metals. One thing the dollar has going for it this week is that it is entering a wide reversal zone specifically for currencies (Aug. 15 - 28). If that support at 92 - 93 can hold, the dollar could stage another rally. Even if it does, however, it may be hard for any rally to get very far as it will encounter a lot of overhead resistance all the way up to 100.

Crude oil has been falling, but it has yet to reach our target area of $45 - $47 for a sub-cycle correction. On Friday prices got down to $47.98. Let's see if they can go lower as we move into the next reversal zone in the second half of this week. Still on the sidelines of crude oil but looking to buy soon.

Trading Blog Wednesday, August 9, 2017

8/9/2017

PRECIOUS METALS UPDATE (3:15 pm EDT)

Gold and silver prices have taken off strongly this week. Readers may recall my blog from last Wednesday when we sold our long position in gold:

"...we are in a general reversal zone for all markets and there is a good chance of a sharp correction here. If we do get a correction to $1240 - $1250, we will look to buy again as the overall trend of this market is still potentially very bullish (assuming a new cycle started on July 10 at $1205). Some traders may wonder why I don't just hold my long position here and "ride out" the correction to that $1240 - $1250 area. The reason is that there is still a small chance we are in an older cycle that could form a bottom below that $1205 low over the next few weeks. Any move below $1240 would support that idea."

Well, we did get a significant correction, but today's price surge is making an argument against an older cycle. Unfortunately, prices did not move into our target area before rallying so we did not get an opportunity to buy back our long positions. Could today's surge be a "flash in the pan" in this highly volatile market? Maybe. Today gold made a new weekly high but silver did not for a possible case of intermarket bearish divergence. So prices could turn back down. If gold moves and closes above $1285, however, things could turn very bullish.

The U.S. Dollar Index is at a critical juncture right now, and the dollar's fate could influence the direction of the precious metals. On Aug. 3, the dollar made a low at 92.70 which was in a critical support area. This was also within a strong reversal zone for currencies so that could be a significant bottom. The dollar has been rallying strongly from there, but there is a very strong resistance line around 94 in the U.S. Dollar Index chart. If the greenback cannot start closing above 94 soon, it could easily fall back to test the critical support area between 92 - 93 again. (If that breaks, the dollar is in danger of "free fall"). A sudden "breakout" of the dollar (above 94) would likely push the precious metals back down, but if that resistance at 94 turns the dollar back down, we could see gold and silver prices take off.

We are currently on the sidelines of both metals.

Trading Blog Monday (late night), August 8, 2017

8/7/2017

MARKETS UPDATE (11:30 pm EDT)

The DOW continues to edge up to new all-time highs as we near the end of the current reversal zone centered around Aug. 3, but the S&P 500 and NASDAQ are still below their all-time highs so we carry last week's intermarket bearish divergence signal into this week. We are very late in the medium-term cycles of these indices and the broad stock market is ripe for a top and correction now. Directional momentum in all three indices remains nearly 100% bullish, however, so they could still push higher. If that's going to happen, the S&P 500 and NASDAQ could soon break their all-time highs (that would be 2,484 in the S&P 500 and 6,461 in the NASDAQ). I am going to hold my short position here until we see those highs breached (that is still our stop loss condition for this trade). If our stop condition is triggered, we will look to the next reversal date (around Aug. 21) for a top and another opportunity to sell short. But let's not give up hope for a reversal this week. We still have intermarket bearish divergence, and the current rally appears to be slowing down. It could be ready to turn over.

Last Wednesday I wrote in my blog on gold:

"...short-term technical signals are suggesting that it (gold) is topping out. We could now see a sharp short-term correction that could take prices down to the $1240 - $1250 area (or possibly lower)......If we do get a correction to $1240 - $1250, we will look to buy again as the overall trend of this market is still potentially very bullish (assuming a new cycle started on July 10 at $1205)."

Gold (and silver) did correct sharply into Friday, but gold not yet to that $1240 - $1250 area. The next major reversal zone for gold and silver is Aug. 15 -23 which would be a good time for the bottom to this sub-cycle correction. In that scenario prices still have time to go lower before reversing back up. The precious metals still look potentially very bullish, but if gold prices break below $1240, we may have to change that view (and especially if prices break below $1205). Silver could drop to the $15.90 area or even lower as we approach the next reversal zone. Let's anticipate a bottom to buy sometime next week or early the following week in both metals. We are currently on the sidelines of both gold and silver.

In Wednesday's blog on crude oil I wrote:

"...a good target for a sub-cycle correction now would be in the $45 -$47 range."

So far the low in crude has been $48.37 from last Tuesday (Sept. contract chart). Let's see if prices can go lower into next week's reversal zone.

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