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Trading Blog Monday, August 26, 2019

8/26/2019

MARKETS UPDATE (6:30 pm EDST)

The broad stock market continues its roller coaster ride today with a sharp rally (270 points in the DOW) off the deep low from Friday's equity plunge (low of 25,507 in the DOW and 2,834 in the S&P 500). Not surprisingly, today's rally was kicked off by another announcement from President Trump concerning "trade deals" with China. Unlike Mr. Trump's angry rhetoric towards China on Friday, today the President said that China wants to return to the negotiating table. Will a trade deal move forward now? It's very hard to say so we will look to our cycle analysis to help us with our trading decisions.

The DOW made a significant half-cycle corrective low on Aug. 15 at 25,339 and the S&P 500 did the same thing with its low of 2,822 on August 5. These are important lows. If they break it means the broad stock market is turning bearish and will be headed lower for many more weeks. On the other hand, if these lows hold, they could act as support for a strong rally now, possibly to new all-time highs. We are in the dead center of our reversal zone (Aug. 21 - 29) so last Friday's lows could be the turning point for such a rally, but last Thursday's highs were also in this reversal zone so that top could also be a turning point. Let's wait and see how this moves over the next few days. If the DOW can break and close above resistance around 26,430, that would be a bullish sign and we would remain on the sidelines to wait for a new high. A break below that low at 25,339, however, might inspire us to sell short for a ride down to the final cycle bottom. Let's stay on the sidelines for now.

Gold prices made a new high yesterday (Sunday) and silver made new highs today, and both are closing down today. We are still waiting for a sharp correction in both metals. We are in the center of a reversal zone now so this could be the start of it. Gold's correction could find support around $1490, but if that breaks it might go as low as $1400. As I've stated before, silver could go down to the $1600 area. We will look to buy at any of these corrective lows. Still on the sidelines of the precious metals.

Crude oils's cycle is very similar to that of the broad stock market right now. Crude made a half-cycle correction on Aug. 7 at $52.17 (Oct. contract chart) and is now retesting that low. If it breaks, crude prices could be down for many more weeks. Alternatively, a strong rally now that could break the Aug. 13 high of $56.84 would be bullish and could send prices up to challenge the mid-July high of $60.76. Again, it looks like crude is taking its cues from equity markets. Both markets could go either way now, but technical and cycle analysis is leaning a bit more towards a bearish view. We will remain on the sidelines of crude for now.

Trading Blog Friday, August 23, 2019

8/23/2019

BRIEF COMMENT ON THE BROAD STOCK MARKET AND PRECIOUS METALS (2:30 pm EDST)

Yikes! Today President Trump's angry response to China's new tariffs on U.S. products and his demand that American companies are “hereby ordered to immediately start looking for an alternative to China” kicked the broad stock market into a tailspin. At the time of this writing (2:30 pm EDST) the DOW has lost over 500 points. In yesterday's blog I wrote:

"This market still has time, of course, to back down again for a new low in this reversal period (Aug. 21-29), but I suspect it will rally some more."

Well, given today's "China bomb", we may still see that low in the current reversal zone sometime next week. Or the market may snap back up on another comment from Trump (or some other news story). We have a bad combination now of a volatile equity market and a volatile president! We are thankfully on the sidelines for now, but still waiting for a significant top to sell or bottom to buy. We do not yet have any strong signals to encourage either trade.

It looks like today's equity plunge may have triggered a flight to the "safe haven" of precious metals. Both gold and silver prices surged strongly today. Nevertheless, we are still expecting a sharp downturn soon. That downturn may start next week from new tops in this current reversal zone. Still on the sidelines of gold and silver.

Trading Blog Wednesday, August 21, 2019

8/21/2019

MARKETS UPDATE (6:00 pm EDST)

In my last blog (last Thursday, Aug. 15), I suggested the possibility of a bottom forming then in equities that could rally into our next reversal zone (Aug. 21 - 29). It looks like that has happened as the broad stock market has rallied from there into today - the first day of the reversal zone. This market still has time, of course, to back down again for a new low in this reversal period, but I suspect it will rally some more, maybe into early next week, and give us a top to sell short.

Last week's lows in all three market indices (DOW, S&P 500, NASDAQ) were double bottoms to their lows from early August, and this qualifies as a valid sub-cycle bottom. We need to watch the rally from this bottom carefully now. My preference is to see a brief rally where all three of these indices do not exceed their all-time highs from late July. That may give us a good shorting opportunity. That could happen over the next six trading days, or the rally could push higher into another reversal zone coming up in the first two weeks of September. Good targets for a top would be around 26,950 in the DOW and around 3,000 in the S&P 500. We will watch for those, however, if all three indices make new all-time highs (i.e. exceed their late July highs), that would suggest this market is resuming its bullish trend, and we would not sell short..The deep correction of last week is more suggestive of the market turning bearish with deeper lows to come. If one or two, but not all three indices make new all-time highs, that would give us a bearish divergence signal and also support the bearish view. We will remain out of this market for now as we watch how these indices move into our new reversal zone this week and next. Still on the sidelines of the broad stock market.

The precious metals seem reluctant to rally or fall so far this week. We are still expecting a sharp correction, especially in silver. A good target for silver's correction now could be as low as $16. Gold may not drop as dramatically so we will watch for silver to give us a trading signal to buy. The overall trend in both metals is still quite bullish Still on the sidelines of both metals.

Crude oil seems to be taking its cues from the volatile broad stock market. It is still not clear if the Aug. 7 sub-cycle low of $52.17 (Oct. contract chart) is going to be a springboard for a major, longer-term rally or if this current rally will be short-lived with prices reversing back down and making new lows soon. I suspect the latter, but we will stay on the sidelines of this market until we can be more certain of an upward or downward trend.

Trading Blog Thursday, August 15, 2019

8/15/2019

MARKETS UPDATE (5:00 pm EDST)

The broad stock market is taking a roller coaster ride this week as nervous investors continue to worry about the economy. Mixed signals from the Fed (hawkish, dovish, then hawkish again) as well as on again/off again "trade deal" negotiations and tariffs on China are making this market very volatile. Tuesday's announcement of new trade talks with China and a delay of tariffs on some Chinese goods excited Wall Street and the DOW into a 400 point rally. On Wednesday, however, pessimism and fear returned with an 800 point loss. Today the market seems to be taking a break and is relatively stable. The DOW, however, did make a new weekly low as the S&P 500 and NASDAQ remained above (but close to) their lows from last week. Thus we have bullish divergence, and we are only one day out of our reversal zone (Aug. 6 - 14). This may be a bottom forming, but if this market falls further tomorrow, I think it is more likely we will see a sub-cycle bottom (and possible buy spot) form in our next reversal zone which starts next week (Aug. 21-29). Alternatively, a bottom now and a rally into that reversal zone would give us a top to sell short instead (especially if that top is beneath the all-time highs). The market is still ambiguous as we remain on the sidelines for now.

Both gold and silver made new weekly highs on Tuesday (in our reversal zone) and thus negated the bearish divergence signal we saw on Monday. We are now out of that reversal time period so those highs may be significant turning points. A significant short-term correction is due in both metals which we are looking to buy. This market is very bullish now so it's possible prices could still push higher into next week's reversal zone (Aug. 21-29) before reversing (especially if one metal and not the other makes a new high - bearish divergence). But for now, let's watch for a possible correction from this week's highs. On the sidelines of gold and silver.

Even though we were "whipsawed" out of our long position in crude oil last Wednesday, I am getting some satisfaction out of the fact that the subsequent rally following our bail out has quickly encountered resistance and is now falling. The question now is whether or not that low from last week was a double bottom to the start of the current medium-term cycle on June 12 at $51.43 (Sept. contract chart). If it was, this market could still be bullish and ready for a significant rally. But such a large correction could also indicate that this cycle is turning bearish. If that interpretation is correct then any rally now will be short and weak, and prices could soon be headed much lower. A key determinant of crude's direction now may be the broad stock market. If equity markets are turning bearish, crude may follow suit. Let's stay on the sidelines of crude oil for now.

Trading Blog Tuesday, August 13, 2019

8/13/2019

BRIEF UPDATE ON THE BROAD STOCK MARKET and PRECIOUS METALS (3:30 pm EDST)

In yesterday's blog on the broad stock market I wrote:

"A disintegrating U.S. "trade deal" with China seems to be a major factor tanking these markets now. If Trump can turn this around quickly, equities might resume their bullish rally, but that doesn't seem likely at the moment."

I may have underestimated Mr.Trump's ability to "wheel and deal" trade negotiations with China. Today the U.S. announced that it would delay tariffs on some Chinese goods and scheduled further talks in an effort to resolve recent trade disputes between the two countries. Equity markets responded with a big rally of over 400 points in the DOW. But can this rally be sustained? We shall see. If it can, we may see the bullish scenario I mentioned yesterday unfold:

"If we don't get new lows this week, and a rally continues into next week, we might get a good opportunity to sell short a top in our next reversal zone (Aug. 21 - 29), especially if that top stays below the all-time highs of these indices."

We will watch this market carefully now. With Mr.Trump calling the shots, anything is possible. On the sidelines of the broad stock market.

After making new highs early in the day, both gold and silver prices dropped significantly. Many analysts are attributing this to investors taking money from their "safety" accounts (i.e. precious metals) and buying equities on today's optimistic news about the U.S./China trade deal. Perhaps this is true, but based on our cycle analysis, we were also expecting a top and significant turn-down. This may be the start of it. On the sidelines of the precious metals for now.

Trading Blog Monday, August 12, 2019

8/12/2019

MARKETS UPDATE (5:00 pm EDST)

In last Monday's blog on the broad stock market I wrote:

"...we are certainly seeing a move towards a bottom, but where will it stop? That is an important question because we are already well below our initial target for a low (26,600), and it is still early in the reversal zone (it ends Wednesday next week). If Wall Street's panic over "trade wars" subsides, we could see a bottom and a bounce back up, but if those fears persist, well, this market could be in trouble. A new target for a sub-cycle bottom could be around 24,900 - 26,200 (a wide range) in the DOW and 2,770 - 2,900 in the S&P 500 (we are in these ranges now). What we don't want to see is the DOW below 24,680 or the S&P 500 below 2,728 (the starting points of their current medium-term cycles) as that would be a sign the market is turning bearish. We will wait to see if markets stabilize or push lower over the next several days."

OK. The DOW did push a bit lower into last Wednesday (it got to 25,440) but the S&P 500's weekly low was on Monday (2,822). The market then rallied sharply into the end of the week to regain a bit of the previous week's large loss. Today, however, equities are falling sharply again. Last week's lows were near the center of the current reversal zone for all markets (Aug. 6 - 14) so that could be a significant sub-cycle bottom. But that reversal zone is in effect until Wednesday, so these indices could still make new lows by then and replace that sub-cycle bottom. If only one or two (not all three) market indices (DOW, S&P 500, NASDAQ) make new lows, we could also get a bullish divergence signal which might be a good place to go long for a short-term rally.

As mentioned above, the target for these lows could be as low as 24,900 in the DOW and 2,770 in the S&P 500. But if they go lower (especially below 24,680 in the DOW and 2,728 in the S&P 500) we will stay on the sidelines as the current medium-term cycle (and maybe even the longer-term equity cycle) could be turning very bearish. The lows of last week were already low enough to suggest that any rally now would probably be short-term and would not exceed the all-time highs of two weeks ago.

If we don't get new lows this week, and a rally continues into next week, we might get a good opportunity to sell short a top in our next reversal zone (Aug. 21 - 29), especially if that top stays below the all-time highs of these indices. The bottom line here is that if we don't make new all-time highs soon, it looks like we may be seeing the start of a very significant correction in the broad stock market, and we may have to give up our previously bulllish outlook into the summer and early fall. A disintegrating U.S. "trade deal" with China seems to be a major factor tanking these markets now. If Trump can turn this around quickly, equities might resume their bullish rally, but that doesn't seem likely at the moment. Still on the sidelines of the broad stock market.

Gold rallied to a new high ($1511) yesterday (Sunday) but silver remains well below its high from last week ($17.24). We are thus starting off the week with a strong intermarket bearish divergence signal, and it is happening within the current reversal zone (Aug. 6 - 14). Both metals have been rising sharply over the last two weeks and are due for a correction. We will watch for this. A good target for a silver correction could be around $16. A target for gold is a little more difficult to call, but it could be as low as $1400. Despite these potential corrections, both metals are still looking quite bullish so we are looking to buy these corrective bottoms. On the sidelines for now.

It looks like we were "whipsawed" out of our long position in crude oil last week when prices plunged and closed well below our stop loss point but then snapped right back up to rally above it. This is always a possibility when stop losses are established in volatile markets, and we can't be faulted for having the self discipline to follow through with our stop sale. After adjusting for intraday fluctuation, it looks like last Wednesday's bottom in crude at $52.25 (Sept. contract chart) was not lower (as I originally thought) than the start of the current medium-term cycle on June 12 ($51.43), but was very close. If this is a double bottom to the June 12 low, that could be very bullish, but this very low correction could also mean that the cycle is turning bearish. If that is the case then the current rally will be short-lived, and we will soon see new lows. As with the broad stock market, our previously bullish view of this market may be changing. This would not be surprising as crude often takes its cues from the broad stock market. We will stay on the sidelines of crude until a bullish or bearish pattern establishes itself.

Trading Blog Wednesday, August 7, 2019

8/7/2019

CRUDE OIL TRADE ALERT (3:00 pm EDST)

Crude oil prices are clearly and dramatically breaking below our new stop loss level of $53 so it is time to bail out of any remaining long positions not sold from yesterday. Today prices got as low as $50.52. That is below the June 12 low of $51.43 which was the start of the current medium-term cycle. This means this market is likely turning bearish, and we will have to change our trading strategy for crude moving forward. I will analyze this longer-term view soon in another blog. Selling (unloading) all long positions in crude now.

Trading Blog Tuesday, August 6, 2019

8/6/2019

CRUDE OIL UPDATE (6:00 pm EDST)

Today crude oil closed below our stop loss level of $54 (Sept. contract chart) so many traders may have bailed out of their long positions. That is fine, and they should stand aside now. I am going to hold my long position a bit longer, however, and lower the stop loss to $53. The reason for this is that we are in a reversal zone all week and early next week so there is a strong likelihood of a low forming. This market could still close above $54 (or $53) for the week and I don't want to get "whipsawed" out this trade prematurely. I am taking more risk here so those who are very risk adverse may still bail out (or partially bail out) now. Holding my long position for now.

Trading Blog Monday (late night), August 5, 2019

8/5/2019

MARKETS UPDATE (11:30 pm EDST)

A disintegrating "trade deal" with China seems to be responsible for pushing the broad stock market off a cliff today with the DOW losing 767 points at the close of the day. We have been anticipating a possible sub-cycle bottom in this market. In last Thursday's blog I wrote:

"We will be in a reversal zone for all markets through Aug. 14 so there is plenty of time for a bottom to form."

Well, we are certainly seeing a move towards a bottom, but where will it stop? That is an important question because we are already well below our initial target for a low (26,600), and it is still early in the reversal zone (it ends Wednesday next week). If Wall Street's panic over "trade wars" subsides, we could see a bottom and a bounce back up, but if those fears persist, well, this market could be in trouble. A new target for a sub-cycle bottom could be around 24,900 - 26,200 (a wide range) in the DOW and 2,770 - 2,900 in the S&P 500 (we are in these ranges now). What we don't want to see is the DOW below 24,680 or the S&P 500 below 2,728 (the starting points of their current medium-term cycles) as that would be a sign the market is turning bearish. We will wait to see if markets stabilize or push lower over the next several days. Still on the sidelines.

Despite today's equity plunge, crude oil prices were remarkably stable. Again, crude dipped below our stop loss at $54 but then closed above it. This may be boding well for the broad stock market, but if equities continue to fall tomorrow, we could see crude follow suit. We are still long in crude but carefully watching for a breach (close) below that $54 level.

Gold and silver are still looking ambiguous, meaning they could make either new highs in this week's reversal zone or new lows. Right now it looks a bit more like new lows so we will watch for that. Gold is still making new highs while silver is not so our intermarket bearish divergence signal from last week is carrying over into this week (so far).
Still on the sidelines of gold and silver.

Trading Blog Thursday, August 1, 2019

8/1/2019

UPDATE on the BROAD STOCK MARKET and CRUDE OIL (4:30 pm EDST)

It looks like yesterday's Fed rate cut combined with Powell's hawkish press conference along with today's news of more tariffs on China from President Trump has created enormous volatility in all financial markets. Fortunately, we are on the sidelines (except for crude - see below) and can objectively analyze any wild market gyrations as we abstain from trading before they settle down.

The broad stock market started off the day with a strong rally until the news of Trump's tariffs in the afternoon stopped the rally in its tracks and sent it straight down to close with a 280 point loss in the DOW. The DOW is now at our target area for a sub-cycle correction (26,600), but it is closing with a bearish signal. I am not comfortable going long in this volatile environment. We will be in a reversal zone for all markets through Aug. 14 so there is plenty of time for a bottom to form. Let's wait and see how the market closes this week. Still on the sidelines of the broad stock market.

Crude oil seemed to ignore the broad stock market's plunge yesterday, but today it decided to take its cue from the equity plunge as prices dropped dramatically down to $53.59 intraday (Sept, contract chart) before snapping back a bit and closing at $54.50. Our original stop loss for our long position was (is) a close below $54 so we are still long. We went long on July 22 with the idea that the low of $55.2 on July 19 was a sub-cycle low, but it's possible it wasn't and that today's low is the sub-cycle bottom. If so, prices should rally from here. Let's stay long unless prices break and close below $54.

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