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Trading Blog Monday (evening), August 31, 2020

8/31/2020

MARKETS UPDATE (10:00 pm EDST)

The patterns in the current medium-term cycles in the DOW and S&P 500 are becoming a little more clear this week. We were debating whether these two indices were old cycles ready for a steep correction to their final bottoms or younger cycles with a little more bullish energy. (We are fairly confident that the NASDAQ is an older cycle ready to correct.) It looks like both the DOW and S&P 500 are likely "younger" cycles that both started with their lows from June 15. Although those lows were two and a half months ago, that is still younger than our original labeling which had them both starting at their lows from March 23 (which is still a possibility, but less likely now). So what does all of this mean? If the DOW and S&P 500 are "younger" cycles, any correction now may be a short and modest "sub-cycle" corrective dip (i.e. not a final steep correction) and soon followed by new highs. We could theoretically buy this dip, but I would rather wait for the final top in these cycles to sell short.

Because we've been going with the idea that the NASDAQ is an older cycle ready for its final deep correction, our focus has been on selling that index short at its final top. But the final top has been eluding us. The broad stock market in general has been very bullish and seems to be "breaking upside" through several resistance levels. Last week's announcement that the Fed is going to continue its dovish policies of money printing, bond buying, and near-zero interest rates indefinitely certainly adds to any bullish thrust now propelling equity markets up. Today, both the NASDAQ and S&P 500 made new weekly highs, but the DOW did not (and closed over 200 points in the red).
Yes, this is another bearish divergence signal, and yes, it is happening in the middle of our current reversal zone
( Aug. 25 - Sept. 3). Nevertheless, I am reluctant to sell the NASDAQ short here. While this could be the final top, we might also see the NASDAQ take a breather and correct down modestly with the DOW and S&P 500 and then rise with them to its final top a bit later (possibly in the first half of September). I don't want to underestimate the bullishness of this market right now. Let's remain on the sidelines of the broad stock market for now.

I think diminishing panic over the COVID pandemic and positive support for President Trump has been driving this summer's rally in equities. Any bad news on the COVID front and/or a diminishing of Trump's popularity would therefore be factors that could reverse this bullish trend and cause a potential sell-off. The next two months should tell us which way the trend is going to go.

There are currently two ways to interpret the medium-term cycles in gold and silver, but in both cases there is the potential for a substantial downward correction soon. If these cycles are older, that correction could be very soon. If they are younger, they may rally some more before turning down. If gold breaks below its Aug. 12 low of $1869, it is an older cycle headed to its final bottom that we will look to buy (probably below $1900). But if gold rallies to challenge or take out its all-time high from Aug. 7 ($2070), we may have to wait a bit longer for a significant correction down and a good buying spot. An older silver cycle might get down to the $24 area very soon, but a younger cycle could rally to challenge the Aug. 7 high of $29.77 before it takes any significant correction. Because this market could go either way, we will stay on the sidelines of both metals for now.

The U.S. Dollar Index could determine which direction the precious metals take now. The dollar seems to be finding some support around 92, and as we are in the middle of our general reversal zone, we could see a bounce and rally here which could push gold and silver prices lower. But if that support does not hold, a falling dollar could trigger a rally in the precious metals.

It looks like crude oil is nearing the end of its medium-term cycle (i.e. it is old), and a final top is imminent, that is, if it didn't happen already with last week's high of $43.78 (Oct. contract chart). As with all our markets right now, directional trend is uncertain. Crude prices could push to a new high this week (or even into next week) or fall now to a bottom in the same time frame (probably to $40 or below). Let's stay on the sidelines of crude for now.

Trading Blog Thursday, August 27, 2020

8/27/2020

BROAD STOCK MARKET UPDATE (8:30 pm EDST)

Today the Federal Reserve dished out some more dovish rhetoric to Wall Street and the general public, presumably to keep the country's severely overbought equity markets buoyant in these uncertain times. In a highly anticipated speech, Fed Chairman Jerome Powell announced that the Fed may continue efforts to prop up the economy even if inflation rises above its target level of 2%, In other words, bond buying and near-zero interest rates could continue for some time. Will the Fed's dovish policies be enough to keep the broad stock market from taking a major correction or prevent a "crash"? Probably not, but it might delay one. The massive bubble in equity markets that we are witnessing now has taken some time to grow and is not going to go away with the simple wave of a "magic wand" from the Federal Reserve.

Despite the Fed's announcement, equity markets were still jittery and indecisive in their direction today. All three stock market indices (DOW, S&P 500, NASDAQ) made new weekly highs, but again, only the S&P 500 and NASDAQ made new ALL-TIME highs. The DOW is still below its 29,568 all-time high from February, and thus our intermarket bearish divergence signal is still valid. We are fairly certain that we are nearing the end of a medium-term cycle in the NASDAQ (the other two indices MAY be younger) so we are watching for a top to sell short in that index. We are now in a new reversal zone (Aug. 25 - Sept. 3), but still no strong technical signs of a top. Today's Fed speech could help kick these indices higher into next week, but because the speech's dovish tone was highly expected, we may see a case of "buy the rumor, sell the news" unfold here with a sell-off. We will wait and see. If the market does push higher into next week, we may get a WEEKLY bearish divergence signal if one or two (but not all three) indices make a new high. That could give us a good spot to sell (short) again. Still on the sidelines of the broad stock market.

Trading Blog Monday, August 24, 2020

8/23/2020

MARKETS UPDATE (5:30 pm EDST)

The four major markets we follow (equities, gold, silver, and crude oil) are all very difficult to call at the moment. They are at turning points where they can either reverse down strongly or break out (up) strongly. Much of our recent difficulty in trading is because there is great ambiguity in the cycle patterns of these markets now. That won't last forever, and as the days pass, the cycle and sub-cycle patterns will define themselves more clearly.

In the broad stock market, the DOW's cycle pattern is the most unclear right now so we will focus more on the S&P 500 and especially the NASDAQ. The S&P 500 is probably an old medium-term cycle that is ready to peak (if it hasn't already) and take its final sharp and deep correction down to its final cycle bottom. But it's also possible this index started a new medium-term cycle with its low of 3000 on June 29. In that case, the S&P 500 would be more bullish, and any correction would not be so deep. Because the NASDAQ seems most clearly to be an older cycle ready to take its final correction down, we have been focusing on this index (specifically the NASDAQ 100 - Sept. contract chart) for our trading.

Today all three indices made new weekly highs so we will have no WEEKLY bearish divergence through Friday.
But as the S&P 500 and NASDAQ made new all-time highs, the DOW still traded below its all-time high from February (29,568). Thus we still a very strong bearish divergence signal in this market. In terms of bullishness, the NASDAQ is in a "break out" mode as it has broken above several resistance levels recently. We were, in fact, stopped out of our short position in this index last week as it broke and closed above 11,500. So we have mixed bullish and bearish signals right now, and that makes me reluctant to sell short right now, even though the market is overbought and this index is ripe for a steep correction. We enter a new reversal zone tomorrow (Aug. 25 - Sept. 3). Let's see if the NASDAQ can push higher into this reversal zone for a final top and another opportunity to sell short. We are out of this market for now.

As with the broad stock market, it is not clear if the current cycles in gold and silver are new or old. If gold is completing an older cycle, it will likely move down and take out its Aug. 12th low of $1874 over the next few weeks. Alternatively, a newer cycle could rally now and test or exceed $2089 (the all-time high from Aug. 7). An older cycle in silver could fall as low as $20, but a newer cycle could rally to test the $30 level. It could go either way here so let's stay on the sidelines of both metals for now.

Crude oil is most likely completing an older medium-term cycle that peaked with its high of $43.68 on Aug. 5. If so, prices should fall now and find a final cycle bottom somewhere below $40 over the next several weeks. We might look to buy there. Should prices instead rally and exceed that $43.68 high, we may get another top to sell short this week or next week in our new reversal zone. Staying on the sidelines of crude for now.

Trading Blog Friday, August 21, 2020

8/21/2020

BROAD STOCK MARKET TRADE ALERT (2;30 pm EDS)

It looks like the NASDAQ 100 is breaking above 11,500 today and seems caught between that level and 11,550. Because we are now out of our reversal zone and above our stop loss (at the time of this writing) I am going to cover my short position in this market. It looks like there is a good chance the broad stock market could push higher into next week's reversal zone (Aug. 25 - Sept. 3). Covering (unloading) my short position in the NASDAQ now. I will comment more this week-end.

Trading Blog Wednesday (late night), August 19, 2020

8/19/2020

UPDATE on the BROAD STOCK MARKET and PRECIOUS METALS (11:30 pm EDST)

I have to apologize for Tuesday's late posting of a short selling trade alert for the broad stock market without any analysis or explanation. My website application sometimes reboots unexpectedly and causes the loss of active text. Unfortunately, this happened on Tuesday just before posting an update on the broad stock market and precious metals, and the update was lost in cyberspace. I scrambled to post a simple trade alert for the broad stock market which did get posted before the close of the trading day.

We entered a short position in the broad stock market (NASDAQ) for several good reasons. First, even though it's still not clear if the DOW and/or S&P 500 are old or new cycles, it's very likely that the NASDAQ is completing an older cycle and is therefore ready to take a sharp correction down to its final medium-term cycle bottom. When that happens, the DOW and S&P 500 will also fall (to a moderate sub-cycle correction if they are new cycles or a sharp and deeper final correction - like the NASDAQ - if they are older cycles). We decided to buy an inverse NASDAQ 100 - based fund or ETF because the NASDAQ is most likely ready to take its final sharp correction.

The second reason for our trade on Tuesday was timing. It is very late in the NASDAQ's cycle, and a final top is due (even overdue). Furthermore, Tuesday was near the end of a reversal zone (Aug. 12-19) so it was ripe for that top and reversal down. Finally, both the S&P 500 and NASDAQ were making new all-time highs while the DOW remained stubbornly below its all-time high (from February). This was (is) a strong intermarket bearish divergence signal.

It appears our timing was good (so far) as today the broad stock market took a nose dive after rallying briefly in the first hour of trading (very bearish behavior). This could be the start of a significant correction. If not, and these indices push higher Thursday and Friday, we could see another high in yet another reversal zone coming up next week (Aug. 25 - Sept. 3). We have a very tight stop loss for our trade based on a close above 11.500 in the NASDAQ 100 (Sept. contract chart - not the regular NASDAQ composite index we usually follow) which should give us a very minimal loss should the markets rally and "whipsaw" us out of our trade again. Holding my short position in the NASDAQ.

Last week gold and silver finally took the sharp correction we had been anticipating for some time. Both metals dropped into our target zones on Wednesday and then snapped back up. I thought that maybe we had missed a good buy spot, but today gold and silver prices are down sharply again so maybe the bottom isn't in yet. this market is very volatile right now so we need to be careful in our trading - especially with silver. If prices are going lower, we could see a bottom in our next reversal zone next week (Aug. 12-19). Let's stay on the sidelines for now.

Trading Blog Tuesday, August 18, 2020

8/18/2020

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

I just posted an update on the precious metals and broad stock markets that somehow got deleted and lost in cyberspace!

I will try and give more info later, but for now I am going to enter a short position in the NASDAQ. This can be done through an inverse NASDAQ based index fund or ETF (such as QID). I am going to place a very tight stop loss on this trade based on the NASDAQ 100 closing above 11,500.

Trading Blog Monday (late night), August 10, 2020

8/10/2020

MARKETS UPDATE (11:00 pm EDST)

For now, it looks like it was a good idea to cover our short position in the broad stock market last week (at least in the DOW and S&P 500), but there is still time for this market to turn down sharply and make us the victims of a "whipsaw" (unless, of course, we can sell short again before the fall - a possibility).

Today the DOW broke above its June 8th high of 27,580 (but it is still well below its all-time high of 29,568 from February), and the S&P 500 is getting VERY close to testing its February all-time high of 3,393. This market clearly has a lot of bullish energy. However, even if the S&P 500 succeeds in making a new all-time high, there will still be a strong intermarket BEARISH divergence signal as long as the DOW remains below its all-time high.

Our current cycle analysis is showing that the DOW and S&P 500 could be near the end of "old" medium-term cycles and ready to correct down sharply to the final bottoms in those cycles. But it is also possible that both these indices started new medium-term cycles from their mid-June lows and are therefore young and bullish. In that case, a correction is also due soon, but it would be a smaller sub-cycle correction. The NASDAQ is not showing this kind of ambiguity and is most likely an older medium-term cycle that is peaking and ready to take its final sharp correction down to its final bottom.

OK, so what does this all mean for our trading? Well, for now it means we remain on the sidelines.
We are currently in neutral territory BETWEEN two close reversal zones (July 28 - Aug. 4 and Aug. 12 - 19). Sometimes a reversal will happen in the center of this "neutral zone" (i.e. now). But this market seems very bullish and could easily rally to a peak in the second reversal period (which ends next week on Thursday).
If the DOW and/or S&P 500 are older cycles, they should peak this week or early next and then turn down for a sharp correction along with the NASDAQ (which may have peaked on Friday). If the DOW and S&P 500 are instead NEW cycles, they may take a small dip now but then push higher into September and also pull the NASDAQ up to new highs (and a very late final peak).

Bottom line: We are still aiming to sell short a final medium-tern cycle high in this market. Because the NASDAQ is most likely near its final peak, we will look to short sell an index fund or ETF tied to the NASDAQ if and when technical signals are appropriate (if the high didn't already happen last week on Friday).

The cycle patterns in gold and silver are also ambiguous at the moment, but regardless of cycle structure, some sort of correction is likely imminent in both metals. That could be starting now from Friday's highs, or if prices push higher this week it will start from a higher peak (especially if one metal makes a new high without the other - i.e. intermarket bearish divergence). It may be difficult to call the bottom of any correction, but for gold a range between $1850 - $1950 would be good. For silver, we would like to see a target between $20 - $25. If prices correct down to these areas, we may look to buy. Currently on the sidelines of gold and silver.

Crude oil's medium-term cycle is also in its late stage so we are now watching for its final peak before a sharp correction down to the final bottom. That peak could have been last week's high at $43.52 (Sept. contract chart), but it could also push higher into this week's reversal zone. If it does that, we may consider selling short. Otherwise, we will wait for the final correction down and perhaps buy the low. A good target for that low now would be around $33, but it could go lower. On the sidelines of crude oil for now.

Trading Blog Thursday, August 6, 2020

8/6/2020

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

After a shaky start, the broad stock market is taking off this afternoon so it is now time to cover our short positions in this market if you have not done so already. As I mentioned in yesterday's post, this market could easily make another top in our next reversal zone Aug. 12 -19 so we will watch for that.
Covering (unloading) my short position in the broad stock market today.

Trading Blog Wednesday, August 5, 2020

8/5/2020

BROAD STOCK MARKET UPDATE (6:30 pm EDST)

Even though our technical and cycle studies of the broad stock market are pointing to a top now, there is a bullish energy ("irrational exuberance") that continues to push equities higher. We have now breached our stop loss points in both the S&P 500 and the DOW today so some traders may have already covered their short positions with a small loss. Those traders should remain on the sidelines and wait for a possible top to sell short in our next reversal zone coming up Aug. 12 - 19 (assuming the market doesn't turn down from here).

I did not post a trade alert today because this market is VERY ripe for a correction now. I guess my fear of being "whipsawed" out of my short trade overrode my stop loss caution. In favor of this decision is the fact that despite breaking above their recent highs, the DOW and S&P 500 are still below their February all-time highs as the NASDAQ continues to make new record highs. Thus we still have a very strong intermarket bearish divergence signal in place, and a sharp turn down is possible at any time. Honestly, the decision to stay short or cover short positions today was a coin toss - both positions are acceptable. If equities are strongly bullish tomorrow, I may bail out of my short position, but even if that happens, I will still be looking for another top in mid-August to sell short again (assuming the DOW and S&P 500 have not made new all-time highs). Holding my short position in the broad stock market for now.

Trading Blog Tuesday Night, August 4, 2020

8/4/2020

MARKETS UPDATE (2:30 pm EDST)

The DOW, S&P 500, and NASDAQ were fluctuating indecisively this morning near yesterday's closing levels, but all three ended up with slight gains at today's closing bell. The broad stock market appears to be topping out here, but it has to start falling now to avert the possibility of further rallying into our next reversal zone (Aug. 12 - 19). I mistakenly made the statement in yesterday's blog that the S&P 500 was still below our stop loss point of 3,280. In fact, it broke above there yesterday and is up a bit more today. The DOW, however, is still below 27,071, and both indices are still below their February all-time highs (29,568 in the DOW and 3,393 in the S&P 500) so there is still strong intermarket bearish divergence in this market. Let's hold our short position in the broad stock market for now and see if equities start turning down tomorrow. If not, we may have to cover our positions.

As I discussed in my July 27th blog last week, gold and silver are in a "breakout" mode and have been rallying strongly. The cycle labeling for both metals is a little ambiguous at the moment, but they are both rallying strongly into our current reversal zone specifically for gold and silver (July 28 - Aug. 4, same as for the broad stock market) which ends tomorrow. Gold is making a new weekly high today (just above 2,000) while silver is not getting above last Tuesday's high of $26.08 which gives us a bearish divergence signal. We could therefore be seeing a peak here to be followed by a sharp turn down. But because of the bullish energy of this current 'breakout", we could also see the rally continue. As I mentioned in the July 27th blog:

"So that $1920 high has now been broken, and we could indeed see a "blow-off" in gold prices to $2300 or even higher. Needless to say, we want to get long soon in this market. This precious metals market "breakout" may be altering our previous labeling of gold and silver's medium-term cycles. But regardless of the cycle labeling, there is still a good possibility of a corrective dip soon. We enter a new general reversal zone AND a reversal zone specifically for the precious metals this week (BOTH from July 28 to August 4). That would be a good time for prices to top out and start a corrective move down. Let's watch for that and a buying opportunity."

So we're still waiting for that buying opportunity. Despite the potential "blow-off", its' a bit late to be chasing this rally so we will remain on the sidelines of the precious metals for now.

The U.S. Dollar Index may be finding support around 93 and last week's low of 92.54 in the middle of our reversal zone. That low also looks like it could have been a significant medium-term sub-cycle in the dollar which means the dollar could rally now. Any rally, of course, would help push precious metal prices back down so we will watch for it. Note that any rally in the greenback would probably be short-term as it appears that the longer-term trend for the U.S. Dollar is now down.

Crude oil's medium-term cycle structure is a little ambiguous at the moment. In last Thursday's blog on crude I wrote:

" Crude seems to be taking a corrective sub-cycle dip from its high of $42.51 (Sept. contract chart) on July 21. If that's true, prices could get down to the $33 area, but if crude is bullish, the correction may just test the 45-day moving average (now around $39.50). In fact, it did test that moving average today and closed back above it. Before getting too bullish on crude, however, we have to keep in mind the huge plunge crude prices took back in April which could be indicative of a bearish longer-term trend. There are several other bearish patterns appearing in crude's longer-term charts that should make us cautious with this commodity. Needless to say, if the COVID-19 pandemic continues to weaken the global economy, and the broad stock market takes a severe correction then demand for oil will decrease and crude prices will suffer."

All of this still applies. It does look like a significant low was made last week near the 45-day moving average, but prices have to break above that $42.51 high to confirm this; otherwise crude could reverse back down to a deeper low. Let's stay out of crude oil for now.

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