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Trading Blog Wednesday, August 28, 2024

8/28/2024

UPDATES on GOLD, SILVER, and the BROAD STOCK MARKET (9:00 pm EDT)

It is late in the current medium-term cycle of gold. This means the final top in the cycle is due, and it may have already happened with last week's all-time high at $2530. We also note that the final top in a longer-term 50 week cycle is also due and will be simultaneous with the medium-term cycle top. Once this top is in, we expect a sharp correction down to at least $2400, and possibly as low as $2250. Wherever the low ends up, that will be a good spot to buy as it would be the final bottom to both the medium-term and 50 week cycles and thus the start of new ones.

The question at the moment is whether or not last week's high was the final top. Gold prices have been rallying a bit this week and challenging that high. But we note that we are now inside another strong reversal zone (Aug. 23 - Sept. 6) that affects all markets. Even if gold makes a new all-time high over the next several days, a top could be imminent, and we still have a strong bearish divergence signal with silver, which is well below its recent highs from May and July. Today (Wednesday) could be a significant pivot point as prices took a sharp turn down in both metals.

Today's sharp drop in silver is good news for our short position in this metal (we are still on the sidelines of gold), but we have to see prices move lower and break back below the 15-day and 45-day moving averages to confirm silver's bearish trend. As I mentioned in recent blogs, it's still possible silver could have started a new medium-term cycle with its recent low on Aug. 8 ($26.52). If that's the case, silver could be bullish and prices could rally strongly now to challenge the May highs around $32. It seems more likely, however, that silver's current medium-term cycle began with the low of $28.62 on June 26. Because prices moved well below that into early August, this cycle is technically bearish and prices should continue lower into the final bottom of the cycle that would be due 4 - 12 weeks from now. If this labeling is correct, silver's recent rally should roll over soon. That may be starting today as prices dropped sharply from resistance around $30. I am holding my short position in silver today (which I entered on Aug. 1) as I wait to see if prices will move lower over the next several days.

The broad stock market indices (DOW, S&P 500, NASDAQ) also fell today. All three recently peaked in a reversal zone (the DOW and S&P 500 on Monday, and the NASDAQ last Thursday), and we note that the DOW made a new all-time high on Monday without the other two indices. This gives us a strong bearish divergence signal inside a reversal zone. A sharp correction down could be imminent, and it may have started today. Nevertheless, all three medium-term cycles are young (having all started from their Aug. 5 lows), and young cycles are usually bullish. It all depends on whether we are currently in a long-term cycle of 4 years or 6 years (see my IMPORTANT BROAD STOCK MARKET UPDATE from Aug. 22). If a 4-year cycle is playing out, this market should turn down now and start a 16% - 26% correction down to the final 4-year cycle bottom into the end of the year. But if we are in a 6-year cycle, these indices could be much more bullish with all three potentially rallying well above their all-time highs into next year. This latter bullish scenario is looking more and more probable, so I am going to stick with the same trading strategy I described in the Aug. 22 update:

"...I am going to play it safe here and probably look to cover my short DOW position if this index [moves down and] pauses near any of these support lines (i.e. 40,300, 40,000 and 39,000). If the market continues to rally, I will also unload my short position if ALL THREE indices make new all-time highs."

For now, I am still holding my short position in the DOW.

Trading Blog Monday, August 26, 2024

8/26/2024

A BRIEF UPDATE ON THE MARKETS (4:00 pm EDT)

The DOW rallied higher this morning and made a new all-time high (42,420), but then fell sharply. The S&P 500 did not make a new all-time high and closed the day with a loss, and the NASDAQ (still well below its all-time high) is closing today with an even heavier loss. We are therefore starting the week with a strong bearish divergence signal inside our new reversal zone (Aug. 23 - Sept. 6). I am still holding my short position in the DOW.

Silver made a new weekly high today as it tested resistance near $30, but gold stayed below last week's high, so we also have another bearish divergence signal between these two metals (until gold pushes above $2530). I am staying short in silver for now and staying on the sidelines of gold.

Crude oil prices surged up today (to $77.60 - Oct. contract chart), but we are now in a strong reversal zone where a top could form and turn prices back down. Crude needs to close above its Aug. 12 high ($80.16) before we can consider the current medium-term cycle to be bullish. Until that happens, it is bearish. We are staying out of the crude oil market for now.

The U.S. Dollar Index edged a bit lower today as it tested and challenged its Dec. 2023 deep low at 100.62. We are inside our new reversal zone, so a bottom and bounce back up in the greenback could be imminent.

Trading Blog Sunday (late night), August 25, 2024

8/25/2024

MARKETS UPDATE (10:00 pm EDT)

Apparently the DOW was not ready to roll over with Last Thursday's high as it pushed higher on Friday and closed above 41,000. This end of week surge was almost certainly triggered by Federal Reserve Chairman Jerome Powell's speech on Thursday in Wyoming's Jackson Hole in which he expressed strong confidence in imminent financial policy easing. This virtually guarantees there will be a rate cut in September by the Fed. Although he cautioned that the timing and number of rate cuts going forward would depend on incoming data, Powell seemed outright dovish in his statement that "The time has come for policy to adjust." Analysts had already been expecting a rate cut in September, so the effect of Powell's speech on the broad stock market may be short-lived.

Both the DOW and S&P 500 are VERY close to making new all-time highs, and they could do this (especially after Powell's "pep talk") as we enter a new strong general reversal zone next week (Aug. 26 - Sept. 6). The NASDAQ, however, is still a comfortable distance below its all-time high (18,671) and is now encountering resistance at the 18,000 level. If it rallies strongly now, it too might make a new all-time high over the next two weeks, but the other two indices would certainly do so first and create a strong bearish divergence signal inside our reversal zone. Next Wednesday could be an important pivot point for all markets, so I will probably hold my short position in the broad stock market (DOW) until then with the expectation of an imminent top and reversal back down.

Gold and silver prices also rallied on Friday, most likely also due to Powell's speech. The U.S. Dollar Index does not like a dovish Fed, so the greenback's drop on Friday was not unexpected, and a drop in the dollar usually boosts precious metal prices. But as I mentioned above, these price movements may turn out to be a "flash in the pan" as most traders and investors were already expecting a rate cut in September, so that may already be factored into the markets.

Gold made a new all-time high last week at $2530 with silver still well below its high of $32.38 in May (and certainly far below its all-time high near $50 in 2011). This gives us a strong bearish divergence between the two metals as we enter our new reversal zone. Silver's rise on Friday to $29.87 did not exceed its high from earlier in the week and its still below a resistance line at $30, so there's a good chance prices could roll over soon. This is our expectation based on silver's current medium-term cycle beginning on June 26 which would make the cycle's trend very bearish. But as I mentioned in last Monday's blog on silver:

"Alternatively, there is a slight chance that the Aug. 8 low at $26.52 could have been the start of a new medium-term cycle. If that's the case, prices could be very bullish."

If silver closes and stays above $30 past next Wednesday, I may consider covering my short position in this metal. But for now, I am staying with my short position. We are still on the sidelines of gold.

In my recent (Aug. 20) update on the U.S. Dollar Index, I wrote:

"Our preferred view is bullish with a younger 14-year cycle about to rally strongly. But the U.S. Dollar Index is now approaching a support area that if broken could make the bearish view much more likely. There is an upward sloping trend line currently around 101.52 that the dollar is testing today. A weekly close below there would not be good. A close below last year's lows of 100.62 (Dec.) and 99.58 (July) would also be bearish, and a clear break below the Jan. 2021 low of 89.20 would confirm the bearish labeling of an older cycle taking a deep correction into next year."

The greenback closed the week at 100.72 which is a little concerning, but because the effect of Powell's speech may be short-term, we may see the U.S. dollar snapping back up soon, especially as this deep low is happening as we enter a strong reversal zone for all markets. We will keep a close eye on this index next week.

Crude oil's "double-bottom" around $72 (Oct. contract chart) held firm last week, and prices rallied strongly on Friday.
The cycle and trend in this market are still not clear. Last week's low was near the center of a strong reversal zone, which along with Friday's rally is bullish. But we note that our new reversal zone could put a damper on any rally and possibly turn it back down. It is best to stay on the sidelines of this market for now.

Trading Blog Thursday (night), August 22, 2024

8/22/2024

IMPORTANT UPDATE ON THE BROAD STOCK MARKET (10:00 pm EDT)

The current bullish rally in the broad stock market confirms that the Aug. 5 lows in all three market indices (DOW, S&P 500, NASDAQ) were the start of new medium-term cycles. This rally, however, may be cut short soon as a potential 4-year cycle top is now due from which a severe correction down would likely follow.

As we come to the end of one general reversal zone today, we enter another even stronger one tomorrow (Aug. 23 - Sept. 6). These back to back reversals are giving us a wide window of time that could contain more than one significant top or bottom. The broad stock market may be turning down today as all three market indices (DOW, S&P 500, NASDAQ) are encountering resistance lines in their charts. The DOW and S&P 500 could be forming "double-tops" near (but below) their recent mid-July all-time highs while the NASDAQ may be rolling over a good distance below its July all-time high. "Double-tops" are bearish formations, but we don't really have a bearish divergence signal until one or two (but not all three) index/indices makes a new all-time high or highs without the other/others. That could happen if the DOW and/or S&P 500 push higher into our next reversal zone.

We have been anticipating the top to a long-term 4-year cycle in equities by the end of this month. While that is still possible, the strong rally of these three indices from their recent Aug. 5 lows as well as several other technical signals are forcing us to consider an alternative scenario. If the 4-year cycle is in play, we still expect that top very soon followed by a 16% - 26% fall into the end of this year. But for reasons too complicated for discussion here, we may be dealing with a 6-year cycle instead of a 4-year one. If that is the case, this market would be much more bullish and could rally well above those July all-time highs (41,376 in the DOW, 5,670 in the S&P 500, and 18,671 in the NASDAQ) into the first half of next year.

I entered a short position in the DOW on Aug. 8 (around 39,500) expecting a bearish turning down of this market by the end of the month. That position is now about 2% - 3% in the red. If the market is turning down now, or even if the DOW and/or S&P 500 top out by next week and turn south, we should recover at least some of this loss, and possibly be back on track for significant profit if the 4-year cycle is playing out. For this bearish scenario to be valid, several support areas in the DOW need be broken:

1) The "gap-up" space between 40,000 and 40,300 needs to be closed. In other words, the DOW first needs to move down to 40,000 or below soon.

2) The 15-day and 45-day moving averages are now rising and converging just below 40,000, so this is now a strong line of support. The DOW needs to break below this level to be bearish.

3) There is another strong line of support just above the start of the current medium-term cycle around 39,000. If a 4-year cycle is indeed playing out, the DOW should break well below there soon and be on its way to a 16% - 26% correction.

OK, that's a LOT of support to break through to confirm the end of a 4-year cycle and our bearish strategy. It could happen, but I am going to play it safe here and probably look to cover my short DOW position if this index pauses near any of these support lines (i.e. 40,300, 40,000 and 39,000). If the market continues to rally, I will also unload my short position if ALL THREE indices make new all-time highs. (As I mentioned above, the DOW and S&P 500 are very close to their all-time highs and could edge higher and break those highs tomorrow or next week; but without the NASDAQ, this would give us a strong bearish divergence signal inside a strong reversal zone - increasing the chances of a downturn.)

For today I am still holding my short position in the DOW (broad stock market).

Trading Blog Tuesday, August 20, 2024

8/20/2024

UPDATE ON THE U.S. DOLLAR INDEX (3:30 pm EDT)

It's been a while since I updated the U.S. Dollar Index. The "greenback" may be at a crossroad right now that could determine its longer-term direction. In previous blogs, I described a long-term 14-year cycle in the U.S. Dollar that likely bottomed in Jan. 2021 at 89.20. Using that labeling, we are only 4 years into a new 14-year cycle, which means the cycle is still young and likely bullish over the next several years. If this is the case, the almost two year correction from the 114.78 high in 2022 is nearly over, and the dollar should start rallying again to challenge and probably exceed that high by the end of next year.

But as is often the case, there is an alternative, more bearish view that may be presenting itself right now. It's possible the previous 14 year cycle did not end in Jan. 2021 and expanded to make its final high in 2022 (at 114.78). In this view, the dollar would be very bearish and would be in the process of falling steeply to its final 14-year bottom with a target of 56 - 67 by the end of next year.

Our preferred view is bullish with a younger 14-year cycle about to rally strongly. But the U.S. Dollar Index is now approaching a support area that if broken could make the bearish view much more likely. There is an upward sloping trend line currently around 101.52 that the dollar is testing today. A weekly close below there would not be good. A close below last year's lows of 100.62 (Dec.) and 99.58 (July) would also be bearish, and a clear break below the Jan. 2021 low of 89.20 would confirm the bearish labeling of an older cycle taking a deep correction into next year.

On the bullish side, the greenback is now falling steeply into the center of our current reversal zone, so a strong reversal back up could be imminent. We should also note that another strong general reversal zone is following on the tail of our current one (which ends this Thursday). That next reversal window takes us into the first week of September (Aug. 23 - Sept. 6), so there is plenty of time for a significant bottom to form in this market.

Trading Blog Monday, August 19, 2024

8/19/2024

MARKETS UPDATE (10:00 pm EDT)

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

"The chance of one (or more) index (indices) making a new all-time high before the end of next week is small, but we can't completely rule out that possibility. However, even if that happens, we are still expecting a 4-year cycle high by the end of this month (if it did't already happen in July) and a subsequent fall of 16% - 26% to the 4-year cycle bottom by the end of the year."

This still applies, but it looks like the chances of new all-time highs is now not so small, at least for the DOW and S&P 500. Both of these indices rose sharply last week, and both are now testing resistance near their recent all-time highs. However, we are in the center of a strong reversal zone (Aug. 13 - 23). The DOW may also be forming a "triple-top", which is a bearish signal. The NASDAQ is still well below its all-time high from July 11, so if the DOW and/or the S&P 500 do make new all-time highs this week, we would also most likely have a strong bearish divergence signal.

I entered a short position in the DOW on Aug. 8, so this trade is now about 3% in the red. Nevertheless, the above analysis makes a good case for holding this short position a bit longer. (The bullish alternative is the possibility that the recent Aug. 5 deep lows were the start of a new medium-term cycle.) I am also keeping in mind that we are expecting a 4-year cycle top to be completed by the end of August, and it might even be in already with the recent July highs in all three indices. This 4-year cycle top should be followed by a 16% - 26% correction in the broad stock market. While the NASDAQ's recent Aug. 5 low came close to a 16% loss, the DOW and S&P 500 losses on Aug.5 were only 7% and 10%, respectively, so it looks like the 4-year cycle bottom is still ahead. I am holding my short position in the DOW (broad stock market) for now.

My short position in silver (entered on Aug. 1) is also in jeopardy today as prices closed slightly above my entry price and also just above the 45-day moving average. While this is bullish behavior, we note that we are in the center of a strong reversal zone, and we also observe that gold made a new all-time high last Friday while silver remains well below its all-time high. This gives us a strong bearish divergence signal inside this reversal zone. Thus, a significant downturn could be imminent. Alternatively, there is a slight chance that the Aug. 8 low at $26.52 could have been the start of a new medium-term cycle. If that's the case, prices could be very bullish. For now, I am going to hold my short silver position with a stop loss based on a weekly close above $30.

Gold's medium-term cycle started on June 7, and it is late in the cycle when a final top is due before a corrective decline into the final cycle bottom. We are also expecting a longer-term (50 week) cycle to bottom simultaneously with the medium-term cycle which means the correction should be deeper than a normal medium-term correction. Friday's new all-time high in gold with bearish divergence to silver (no new all-time high) inside the current reversal zone suggests an imminent downturn in both metals. We are currently on the sidelines of gold and will remain there for now.

Crude oil is falling again, and prices are now back below both the 15-day and 45-day moving averages. This is bearish behavior, but there is a strong support area from $74 down to $72 (Sept. contract chart), and prices are falling steeply into the center of our current reversal zone. That means a reversal back up could be imminent, i.e. a bottom anytime by the end of this week. I am remaining on the sidelines of crude for now as the short-term trend of this market is still ambiguous.

Trading Blog Wednesday (late night), August 14, 2024

8/14/2024

CRUDE OIL UPDATE (11:00 pm EDT)

It has been a little over a year since crude oil prices made a dramatic bottom at $63.57 (Sept. contract chart) in early May 2023. Prices have stayed above that low, so we can be fairly certain that was the bottom of a longer-term 4-year cycle in crude. Because it is still early in the new 4-year cycle, we would expect prices to be bullish, but recent developments are putting a damper on this bullish view.

Our current medium-term cycle in crude started with the low of $72.23 on June 4. From there prices rose sharply to $83.58 on July 5. That high came close to but did not exceed the previous medium-term cycle high ($84.36). Crude then fell sharply to form another low on Aug. 5 slightly below the $72.23 start of the cycle. This means the current medium-term cycle could be turning bearish. If that's the case, the current rally will not exceed the July 5 high ($83.58) and prices will continue lower (below $72) until the end of the cycle.

There is, however, an alternative view that is more bullish. The two lows of $72.23 and $71.67 on June 4 and Aug.5, respectively, could be considered a "double-bottom" to a longer-term cycle. Double-bottoms are bullish, and if this interpretation is correct then prices could be headed higher, not lower, as the current medium-term cycle unfolds.

It's not clear at the moment which direction this market will take. Prices closed bullishly above the 15-day and 45-day moving averages on Monday, but now they are back down between these averages. There is resistance around $80, and after that at $82 and $84. Prices will have to clear those levels to turn the trend of this market bullish. We also note that we are now in a strong general reversal zone through next Thursday, so any new high between now and Thursday could be a potential top from which a strong downturn would follow. On the other hand, if prices continue to fall and make an isolated low inside our reversal window, that could be the springboard for a strong rally.

It is best to remain on the sidelines of crude oil for now as we wait for a more definitive trend to establish itself. I should note here that our bullish enthusiasm for crude earlier this year was based on the fact that it is still very early in several longer-term cycles in crude, and cycles are usually bullish in their early stages. This argument is still valid. We note, however, that crude oil prices are at times strongly affected by a "wild card" factor unique to this market - political tensions, war, and instability in the Middle East. Right now, this factor is affecting oil production and causing interruptions in the transportation of oil supplies, all of which make price movements more volatile. Despite this instability, I have observed over the years that all financial markets reliably conform to broad cycle parameters - even if they are slightly distorted by temporary geopolitical tensions. In other words, even in crazy markets, cycle analysis can still be a useful tool to help guide us with investment and trading strategies.

Trading Blog Tuesday (late night), August 13, 2024

8/13/2024

IMPORTANT UPDATES ON GOLD, SILVER, AND THE BROAD STOCK MARKET (11:30 pm EDT)

The lows in the broad stock market indices on Aug. 5 (38,499 in the DOW, 5,119 in the S&P 500, and 15,713 in the NASDAQ) may have been the final bottoms to their medium-term cycles. From its all-time high on July 18, the DOW fell for 2 weeks and lost 7%. The S&P 500 fell from its all-time high on July 16 for 3 weeks and lost about 10%. The NASDAQ fell from its all-time high on July 11 almost 4 weeks before hitting its Aug. 5 bottom with a 15.8% loss.

Usually the move from the final top to the final bottom in a medium-term cycle lasts 2 - 5 weeks, so all three indices fit this requirement with their Aug. 5 lows. We note that we are also expecting a longer-term 4-year cycle bottom with a 16% - 26% drop. While the NASDAQ came close with a 15.8% drop, the other two indices fell short, so the 4-year bottom is still ahead, and most likely due by the end of the year.

If we assume Aug. 5 to be a medium-term cycle bottom, all three indices are now rallying to the next top of a new medium-term cycle. If this next cycle is going to be bullish, we can expect to see new all-time highs soon. But we note that this rally is now rising into a new strong general reversal zone (Aug. 13 - 22), and all three indices are still well below their mid-July all-time highs. This means there's a good chance this rally will turn back down this week or next before making new highs, and the new cycle will turn bearish.

The chance of one (or more) index (indices) making a new all-time high before the end of next week is small, but we can't completely rule out that possibility. However, even if that happens, we are still expecting a 4-year cycle high by the end of this month (if it did't already happen in July) and a subsequent fall of 16% - 26% to the 4-year cycle bottom by the end of the year.

I entered a short position in the DOW last Thursday. Based on the above analysis, I am holding this position. Today's rally pushes us a bit into the red, but there is some resistance at 40,000 as we move into the center of this new reversal zone. A weekly close above 40,000 may coax me out of my short trade, but unless the current rally starts to look like a "break-out" type that can overcome a strong reversal zone, I am more inclined to stay short. Holding my short position in the broad stock market for now.

Both gold and silver are also ready to take deep corrections into longer-term cycle bottoms. In the case of gold, we expect the end of the current medium-term cycle to also correspond to the end of a longer-term (50 week) cycle. This means the drop from the current medium-term cycle's top to its final bottom will be deeper than normal. We are now a little past the center of the current medium-term cycle in gold. The final top of this cycle could have been the July 17 high at $2481. Prices are challenging that top today, but as with the broad stock market, this rally is pushing into a new strong reversal zone for the metals (Aug. 13 - 22). A new top (or double-top) and a strong reversal back down could be imminent. Once the correction starts, we would expect prices to fall close to $2300 and maybe even $2250 for the final bottom sometime between September and October. That final bottom will most likely be a good spot to buy. For now, we remain on the sidelines of gold.

Silver's current cycle situation is a bit more dramatic than gold's because silver is nearing the end of a very long-term 4-year cycle. The end of that cycle could correspond to the end of the current medium-term cycle or possibly the next one. A general price target for the bottom of the 4-year cycle would be $20 - $24, and it would ideally be due by the end of this year. It is still fairly early in the current medium-term cycle in silver, which started with the June 26 low of $28.62, but the cycle has already turned bearish because prices have moved well below that low. This means prices should be moving lower until the final bottom is reached. I entered a short position in silver on Aug. 1 at $28.50. Prices fell sharply from there to a low last Thursday at $26.52. From that low, prices have bounced slightly, but they are encountering resistance around the 15-day moving average. We have just entered another strong reversal zone which should put a damper on any more rallying and turn prices back down. I am going to hold my short position in silver as we expect lower prices ahead based on the cycle analysis just discussed.

Trading Blog Thursday, August 8, 2024

8/8/2024

BROAD STOCK MARKET TRADE ALERT (3:30 pm EDT)

I am going to sell short the broad stock market today. After a severe downturn last week and Monday (which we had anticipated), this market has found some stability over the last 3 days and has been rallying a bit. I think this rally will be short-lived, however, and another turn down could be imminent. All three indices (DOW, S&P 500, NASDAQ) could plunge further down, but I am going to enter a short position in the DOW as it has fallen the least from its recent high on July 18. Any trader not selling short today could do so early tomorrow, assuming the market doesn't drop severely (i.e. way below 38,499 - Monday's low).

I will give more analysis on the current situation in the broad stock market this week-end.

Trading Blog Thursday, August 1, 2024

8/1/2024

SILVER TRADE ALERT (3:00 pm EDT)

In Tuesday's update on precious metals I wrote:

"Gold and silver most likely started new medium-term cycles on June 7 (gold's low at $2287) and June 26 (silver's low at $28.62). These cycles are relatively young (especially silver), but they may be peaking early and starting a steep corrective fall to the bottom of a longer-term cycle (similar to what is happening in the broad stock market).... Silver is looking more bearish than gold as its price has already broken below the start of its new medium-term cycle. That turns the trend of this cycle bearish (and suggests that gold may be bearish as well). We are anticipating the end of a longer-term (4.33 year) cycle in silver by the end of this year or possibly in early 2025. That longer-term bottom will overlap with either the current medium-term cycle or possibly the next one. Either way, we should probably be looking to sell this market short soon as the current medium-term cycle has already turned bearish."

This week silver prices have been rising from a sub-cycle bottom on Monday at $27.43, and today they are encountering resistance at the 15-day moving average (now at $29.24 and falling). This looks like a good time to sell silver short. Gold may be ready to turn down as well, but it looks a bit more bullish than silver right now (it has broken above both its 15-day and 45-day moving averages). It's possible gold could push up to another all-time high before falling, so we will stay on the sidelines of gold for now. I am entering a short position in silver today.

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