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Trading Blog Tuesday, August 28, 2018

8/28/2018

UPDATE ON THE BROAD STOCK MARKET, GOLD, SILVER and BRIEF COMMENT ON "TRUMPHORIA"
(4:00 pm EDST)

Today is technically the last day in our current reversal zone for equities; however, there is another one coming up soon (Sept. 7 -17). The S&P 500 and NASDAQ are making new all-time highs today while the DOW is still below its all-time high of 26,617 so we are seeing intermarket bearish divergence in our reversal zone. I am tempted to sell short here, but there are several other factors that make me hesitant to do so. First, the DOW did make a new weekly high this week which is bullish, and two of the three indices are making new all-time highs. It would be more bearish if only one index made a new all-time high not supported by the other two. Furthermore, this week-end is a holiday in the U.S. (Labor Day next Monday), and equities tend to rally into holiday week-ends. Because our next reversal zone is so close (it starts next Wednesday), I would not be surprised to see this bullish equity market push higher and make a significant top then instead of now. While we could see a reversal here, I am going to remain on the sidelines and hold off selling short for now.

President Trump's new U.S.- Mexico trade deal announced on Monday seemed to fuel more of the "Trumphoria" effect on the broad stock market as more people in business and financial sectors give the president and his policies a big thumbs up despite much controversy and criticism from other analysts and the mainstream media. As cautious traders and investors, however, we do not want to fall into the trap of thinking "Trumphoria" will last forever. At the risk of sounding like a conspiracy theorist, there may be people in very high places who want to defeat Trump, and manipulating a crash in the stock market near an important mid-term election could help this along. Please note that I am politically neutral here and am only trying to identify potential factors that could influence the financial markets. When it comes to investing my money, I want the truth regardless of whether or not it supports a left wing or right wing view. Our technical and cycle analysis of equity markets is pointing to a significant top and a possible severe correction soon, and it could easily happen near the time of mid-term elections in the U.S. (Nov. 6, 2018). My point here is that this overbought market is now ripe for a significant correction, and it wouldn't take much to trigger one.

Today is also the last day of our reversal zone for precious metals. Both gold and silver have been rising into this reversal, and today both metals made new weekly highs early in the day (with gold touching $1214 and silver nearly touching $15) but are now falling steeply with gold closing back near $1200 and silver near $14.65. This could be the turning point for another correction. Unless these prices recover and rally higher tomorrow, it looks like gold and/or silver could be challenging their Aug. 15 lows. Still out of both gold and silver.

An argument for falling gold and silver prices now could be coming from the U.S. Dollar Index chart. The dollar is falling steeply this week, but today it may have found support at 94.5. We are in a reversal zone for currencies (it ends Wednesday) so if this support holds, the greenback may turn back up now. If that happens, we would have more downward pressure on the precious metals.

Trading Blog Sunday (night), August 26, 2018

8/26/2018

MARKETS UPDATE (10:00 pm EDST)

Last Monday (Aug. 20), I wrote on the broad stock market:

"We are now watching for a top in this new reversal zone (Aug. 20 - 28) and especially for a top where one or two, but not all three indices make a new high....Any significant top now could be followed by a very severe correction as it is late in several longer-term cycles for the broad stock market, and the final top for these cycles is due anytime over the next six or seven weeks (and most likely in one of our reversal zones)."

Last week we did get bearish divergence as the NASDAQ and S&P 500 made new all-time highs while the DOW did not. We could get a reversal down now, but last week's market closed with other technical signals that were at least short-term bullish. If the DOW can stay below its all-time high (26,617) through Tuesday, we will consider a short position early this week. If all three indices make new highs after Tuesday, and especially if the DOW exceeds its all-time high of 26,617, we may have to wait until the broad stock market's next reversal zone coming up Sept. 7 - 17 for a good shorting opportunity. Still on the sidelines of the broad stock market.

Despite last week's update on gold's longer-term cycle which could still be bottoming and thus bearish, we are now watching for a medium-term cycle bottom to buy. (Yes, we can have a significant rally within a longer-term downtrend). Gold and silver's behavior on Friday was bullish so it is possible those Aug. 15 lows in both metals were the cycle bottoms and the start of new medium-term cycles. We're in a reversal zone for the precious metals through Wednesday, however, so prices could still reverse down to new lows (hopefully in one metal and not the other - i.e. bullish divergence) to give us a better signal to buy. If instead we see prices rallying past Wednesday (without falling first) with gold exceeding $1240 and silver above $15, then we may have to assume new medium-term cycles already started on Aug. 15. On the sidelines of gold and silver.

Crude oil most likely made a significant sub-cycle bottom on Aug. 16 at $63.89 (October contract chart). Unless prices turn down sharply this week, we should see a rally to the next cycle high which will challenge and maybe exceed the $71.29 high of June 29. There is considerable resistance in the $70 - 72 area. If crude stalls in this range, it may be a good opportunity to sell short, especially early this week. If prices stay flat or edge lower this week, we will wait for a top to sell short in the next reversal zone for crude coming up Sept. 5 - 13. On the sidelines of crude oil.

Trading Blog Wednesday, August 22, 2018

8/22/2018

UPDATE ON GOLD'S LONG-TERM CYCLE (3:00 pm EDST)

There is a high probability that gold's long-term cycle bottom is still forming. This cycle has a length of approximately 20 years. While it is still possible the bottom happened in late 2015 with gold's low of $1050, this year's downtrend in precious metal prices is suggesting that prices could go significantly lower with a final bottom expected around 2023 - 2024 well below $1050.

Two price levels to watch are $1125 and $1050. A close below $1125 would be very bearish, and a close below $1050 would confirm the idea of a cycle bottom most likely below $1000 in 2023 - 2024. If gold can stay above $1125 and start a strong rally soon, however, we may go back to the bullish labeling of a new long-term cycle starting in 2015.

Please note that should gold prices bottom in 2023 -2024, that will be an excellent buy spot for long-term investors so "gold bugs" have something to look forward to sooner or later (but right now it looks like it could be "later").

Also note that we will continue to trade short-term cycles in both gold and silver even if the long-term cycle ends up bottoming in 2023 - 2024, and that will include going long for rallies and selling short corrections.

I have posted this update on the Home Page (in green) for future reference.

Trading Blog Tuesday, August 21, 2018

8/21/2018

UPDATE ON THE PRECIOUS METALS MARKET (4:30 pm EDST)

The precious metals market continues to be very difficult to call due to currently ambiguous cycle patterns in the charts of both silver and gold as well as mixed bullish and bearish technical signals also manifesting in these charts. Not surprisingly, several of the analysts I follow closely and respect are also stating different opinions about where these metals are heading short-term and medium-term (although their longer-term views are mostly bullish).

As I stated in yesterday's blog, last week's lows in both gold and silver ($1162 and $14.65, respectively) could have been a significant medium-term cycle bottom (and possibly a longer-term bottom as well), and both metals could be starting a significant rally now. But these metals are also pushing higher into the center of this week's reversal zone which means they could suddenly reverse back down and take several more weeks (or more) to find their final cycle bottoms. COT (Commitment of Traders) charts are quite bullish right now for both gold and silver, and this supports a rally; however, other technical signals look quite bearish for gold and especially silver. One way to interpret these contradictory signals would be a short-term rally that would exhaust itself early and then turn south. The question then becomes whether or not it is worth going long for this rally. If one metal can make a new low without the other (bullish divergence) by next Wednesday (the end of the reversal zone), it may be worth going long. Otherwise, I think I'll remain on the sidelines and wait for lower lows and a possible cycle bottom in late September.

The U.S. Dollar Index may help us gauge the movements of gold and silver this week. The dollar recently "broke out" and through a strong resistance line at 95 and touched 96.78 last Tuesday. Over the last several days it has fallen back to that 95 area. There is support there as well as at 94.5 and then 94. If the dollar pushes a bit lower to one of these supports, gold and silver could rally a bit more. But we need to note that we are now in a reversal zone for currencies (Aug. 21 - 29) so the greenback could find support over the next several days and then reverse back up, sending gold and silver prices back down. Another possible (but unlikely) scenario that would be bullish for precious metals would be to see the dollar break and close below 94. That could signal the start of a breakdown in the U.S. dollar. This is unlikely to happen, though, as the new Federal Reserve Chairman Jerome Powell appears hawkish and intent on raising interest rates.

The purpose of this update is not to confuse or frustrate traders but to hopefully give more insight into this market and help readers understand why I am remaining on the sidelines.

Trading Blog Monday, August 20, 2018

8/20/2018

MARKETS UPDATE (5:30 pm EDST)

It appears that the DOW and S&P 500 made significant sub-cycle bottoms on Aug. 2 and the NASDAQ made its sub-cycle bottom on July 30, all three in our last reversal zone. All three indices are now rallying into our current reversal zone (Aug. 20 - 28). In addition, the DOW made a secondary bottom last week (Aug. 15) which went lower than its Aug. 2 low and is now rallying strongly from it. This is very bullish. We are now watching for a top in this new reversal zone and especially for a top where one or two, but not all three indices make a new high. Such bearish divergence between these indices would be a strong signal to sell this market short. Right now the DOW is is a bit down from its all-time high of 26,617 made on Jan. 26 this year. The S&P and NASDAQ are a bit closer to their all time highs of 2,873 (S&P 500 on Jan. 26) and 7,933 (NASDAQ on July 25) so we could easily see one or two, but not all three indices make new highs this week or early next week in this reversal zone. Any significant top now could be followed by a very severe correction as it is late in several longer-term cycles for the broad stock market, and the final top for these cycles is due anytime over the next six or seven weeks (and most likely in one of our reversal zones). We are thus strongly motivated to sell short any significant top this week or early next week. On the sidelines of the broad stock market and watching for a top

This week and early next week is also a reversal zone for gold and silver. A medium-term as well as a longer-term cycle bottom is due in both metals any time now so we are on the lookout for a significant bottom to buy in this market. Last week's lows in both metals ($1162 in gold and $14.35 in silver) could have been it, but it would be better to see it in this week's reversal zone and especially with a bullish divergence signal (one but not both metals making a new weekly low). Let's wait and see if we can get that this week or early next. I may be tempted to buy even without bullish divergence on any dips in gold close to $1180 and dips in silver close to $14.50. Still on the sidelines of gold and silver.

Last Thursday's low in crude oil at $64.43 (Sept. contract chart) was in the current reversal zone for crude (Aug.16 - 28), and it is rallying sharply from there. That could have been a significant sub-cycle bottom although it could still drop lower for a bottom this week or early next week. The problem here is that even last week's low is very close to the start of the current medium-term cycle (which was on June 17 at $63). This suggests the possibility that the cycle is turning bearish. If that is the case then any rally now will not likely exceed $73 (and maybe not even $70) before turning down for a steep correction possibly down to the $50 area. If crude makes a new low this week, I will consider going long for a short-term rally; otherwise, I think I will wait to possibly sell short the top of any rally that stalls in the $70 - $73 area (or lower). On the sidelines of crude oil for now.

Trading Blog Friday, August 17, 2018

8/17/2018

MARKETS UPDATE (4:30 pm EDST)

Next week is the center of a significant reversal zone for equities, precious metals, and currencies.

The broad stock market looks like it wants to rally into this reversal. Today the DOW is making a new high for August while the S&P 500 and NASDAQ are not so we already are getting an intermarket bearish divergence signal. If we get more bearish divergence next week, we will likely see a good opportunity to sell short. Still on the sidelines here.

Gold and silver fell dramatically this week with both metals making new lows for the year (gold at $1162 and silver at $14.35). Last week was not a reversal zone so it is likely gold and/or silver will make new lows next week. If one metal does this without the other then we will have a bullish divergence signal and most likely a good opportunity to go long in both gold and silver. We will watch for this. On the sidelines of gold and silver.

The U.S. Dollar Index rallied strongly this week to make a new high for the year on Tuesday at 96.79. If it can push a little higher into next week's reversal zone, it could be a set up for a top and correction down. Such a pivot point might synchronize with a bottom and reversal up in the precious metals. We will watch for this, but we will also keep in mind that gold, silver, and the U.S. dollar could also rise together (especially if equities start to fall).

Crude oil made a low at $64.51 (Sept.contract chart) on Wednesday, the first day of our reversal zone for crude
(Aug. 15 - 28), but I think it could go lower early next week (especially as that will overlap with all the other reversal zones). If prices stay above $63, we may see a good spot to go long. Still on the sidelines of crude oil.

Trading Blog Tuesday, August 14, 2018

8/14/2018

UPDATE ON THE BROAD STOCK MARKET and CRUDE OIL (2:30 pm EDST)

The NASDAQ never did make a new monthly high last week as did the DOW and S&P 500 so our bearish divergence signal remained intact as all three indices fell on Friday. The broad stock market could continue to fall into next week's reversal zone (Aug. 20 - 28). A good price target for a significant low then would be at least to 25,000 in the DOW and even as low as 24,250. For the S&P 500 a good target would be around 2,750. But so far this week the market doesn't seem keen on falling. There is still time for all three indices to rally into next week's reversal zone and make new highs. If they do that (and especially if one or two make new highs, but not all three) then we may get a good opportunity to sell this market short. The chances for a high or low next week seem equally balanced at the moment so we will just have to wait and see how these indices move into the end of this week. Still on the sidelines.

We enter another reversal zone for crude oil tomorrow (Aug. 15 - 28). Crude prices have been fairly flat over the last several trading days so its hard to tell if we will get a high or a low for this reversal. As with the broad stock market, we will have to wait and see how prices move this week and next. A rally to the $72 - $74 area (Sept. contract chart) would likely set up a good shorting opportunity, but if prices fall, we may be looking at a low to buy (as long as that low stays above $63). On the sidelines of crude oil for now.

Trading Blog Monday, August 13, 2018

8/13/2018

GOLD TRADE ALERT (9:00 pm EDST)

Today gold and silver both made new lows for the year and our stop loss parameters for our gold long position were triggered (silver breaking below $15.18 and gold making a new low after Aug. 7). While there is a chance these metals could bounce from these lows and start a significant rally, it is more likely they will fall lower into our next reversal zone for precious metals Aug. 20 - 28. I am therefore going to sell my long position in gold at tomorrow's market open. We are fairly close to our buy price around $1220 so our loss should be minimal, especially if the market opens higher than today's close. We were prepared for the possibility of this price breakdown in the metals which is why we had avoided buying silver. We will still be looking for a significant cycle bottom and potential buy spot for both metals in that next reversal zone. Out of both gold and silver for now.

Apparently last Friday's breakout by the U.S. Dollar Index above a strong resistance line around 95.5 spooked the precious metals market. A reversal zone for currencies ended last Thursday without the greenback rolling over so this dollar surge could be significant. Even if the dollar is about to embark on a significant rally, however, that doesn't necessarily spell gloom and doom for gold and silver. As I have mentioned on the site before, there are times when both the dollar and precious metals can rise together. A major turn down in equities, for example, could trigger a hand in hand rally in precious metals and the U.S. dollar.

Trading Blog Tuesday, August 7, 2018

8/7/2018

MARKETS UPDATE (1:30 pm EDST)

We are leaving last week's reversal zone for the broad stock market today as both the DOW and S&P 500 make new weekly highs. At the time of this writing the NASDAQ is also close to breaking its high from last week so I don't think we will see a bearish divergence signal here. Unless these indices turn down sharply from today's highs, it looks like the lows of Aug. 2 were the turning points for the DOW and S&P 500 in last week's reversal zone (and probably July 30 for the NASDAQ), and we will now see more rallying into our next reversal zone coming up Aug. 20 - 28. We are still watching carefully for a major cycle top and a significant correction to follow. We may see that top and an opportunity to sell short in the next reversal zone. On the sidelines of this market for now.

Today is the last day of our reversal zone for precious metals. Yesterday gold made a new weekly low at $1203.90 while silver stayed above its low from last week (and also above its July 19 low of $15.18) so we still have a bullish divergence signal for this market. The U.S. Dollar Index is also in a reversal zone (it ends Thursday) and the dollar may be rolling over from yesterday's high of 95.36 (there is strong resistance at 95 - 95.5). If the dollar falls it will boost gold and silver prices. There is a good chance precious metals will rally now, but if gold makes new lows after today (and especially if accompanied by new lows in silver), then prices could fall into the next reversal zone for precious metals coming up Aug. 20 - 28 (same as for equities). Holding my long position in gold but ready to bail out if prices turn south. Still on the sidelines of silver.

We are also leaving our reversal zone for crude oil today, but another one is coming up fast (Aug. 15 - 23). Crude's sub-cycle patterns are a little confusing right now so I am just going to focus on this next reversal zone. If prices rally into it and challenge the recent July 10 high of $72.98 (Sept. contract chart), it will be an opportunity to sell short. If instead crude falls to a new low (and stays above $63), we may consider buying. The top of a longer-term three year cycle in crude is due (and may have even happened with the high of July 10) so we are more interested in selling short this market than going long (any buying would be for a short-term rally). On the sidelines of crude oil for now.

Trading Blog Sunday (late night), August 5, 2018

8/5/2018

GOLD TRADE ALERT (11:30 pm EDST)

Gold and silver both made new weekly lows on Friday last week and then closed the day in the upper half of their ranges. This is a bullish sign and it occurred near the end of the current reversal zone for precious metals (that ends on Tuesday). We didn't see either metal break below its low from July 19 ($1212 in gold and $15.18 in silver) in the spot price charts for these metals; however, in the nearby contract charts, gold did break its July 19 low while silver did not so we could have a case of bullish divergence now. There are a few other short-term signals suggesting a rally is imminent, but we need to be careful here as volatility is high and instead of a reversal we could see prices break down further and fall into the next reversal zone for gold and silver coming up August 20 - 28. What we can do here is go long in gold (and hold off buying silver for now) with a stop loss (for gold) based on silver breaking its July 19 low ($15.18).

The U.S. Dollar Index may also be supporting the idea of a precious metal rally now. The dollar is currently up against a resistance line in the 95 - 95.5 area, and we are in the center of a reversal zone for currencies. If the dollar turns down now, it could kick-start a rally in gold and silver.

I am entering a long position in gold for tomorrow's market open (Monday).

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