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Trading Blog Monday, September 30, 2013

9/30/2013

MARKETS UPDATE (5:45 pm EST)

The stalemate continues today in the U.S. congressional fight over the funding of Obamacare and especially the funding of the government before the deadline to pass these bills expires at midnight tonight. The DOW (never comfortable with political uncertainty) showed its nervousness by dropping 128 points by the end of the day, but the precious metals seemed only slightly affected - dropping a bit but still maintaining their positions above support levels around $1300 in gold and $21 in silver. It seems like these metals are also holding off to the "11th hour" to make their decision to either rally or fall and test new lows. It is possible that an emergency government funding plan could emerge at the last minute, but even if it doesn't, legislation could be passed to make a shutdown very short-term. Congress can be very creative when under severe pressure. Should a shutdown occur, however, markets could panic, so we need to be especially alert tomorrow for any breakdown in gold and silver prices that could compel us to abandon our long position in these metals. Still holding long positions in gold and silver.

The broad stock market is also approaching some support just above 15,000, so this would be a good spot to reverse up again if some compromise can be worked out by Congress for government funding. Of course, a full shutdown might cause the market to break support and plunge, so we cannot rule out that possibility. Overall momentum in the DOW, S&P 500 and NASDAQ charts continues to be bullish, but this could change abruptly if the market panics and starts to plunge. Because of these mixed signals and the potential market volatility from congressional politics this week, I am remaining on the sidelines for now.

Technical and cycle factors are showing a very good buying set up in crude oil right now, with prices finding a strong support around $100-101 from which a strong and steep rally could commence. As with the broad stock market, however, the political situation in Washington this week could cause oil prices to break this support and plunge lower.
Momentum in this market is mixed bullish and bearish right now so this bearish scenario is quite possible. I am going to watch crude prices carefully this week, and should Congress find a way to not shut down the government, I may consider going long in crude if support at $100-101 can hold. Although the U.S. conflict with Syria has cooled in recent weeks, any reemergence of military tension there would be a wind in the back of any crude oil rally, so the normally "wildcard" factor of the Middle East on oil prices would be in our favor should we go long. On the sidelines for now but possibly looking to go long soon.

Trading Blog Friday (early AM), September 27, 2013

9/26/2013

BRIEF GOLD AND SILVER UPDATE (2:00 am EST)

The U.S. congressional battle over Obamacare and the raising of the debt ceiling is moving into the 11th hour with both Democrats and Republicans digging in their heels and refusing to compromise their positions. Our main concern here is how the financial markets are going to react to the final outcome. Gold and silver prices seem to be pausing this week and waiting to take their cue from this event. Both precious metals are remaining above support levels at $1300 in gold and $21 in silver with some short-term bullish momentum in the charts this week, but they need to rally now to fit the timing for an upside reversal by Friday (as described in Wednesday's blog). If the U.S. government shuts down, it could cause precious metal prices to break their supports and fall lower. Unfortunately (at least at the moment) it appears that this could happen, so we need to be prepared to bail out of our long positions, possibly as early as today (Friday). The deadline to fund the government is Monday night and Congress is planning to work through the weekend; nevertheless, we may get a feeling for what their decision will be on Friday (and gold and silver may not wait for Monday to make their decision). We are still holding our long positions in gold and silver but are prepared now to bail out if prices start to move lower and break support (especially on news of a government shutdown).

UPDATE (3:30 pm EST): The gridlock in Washington is continuing today with both sides (Republicans and Democrats) apparently showing no signs of compromising their positions. At the moment it appears that the Republican controlled House of Representatives could vote as early as tomorrow (Saturday) on whether or not to pass the Senate's emergency funding bill that does not defund Obamacare. Gold and silver prices were up a bit today and the charts were flashing a few new bullish technical indicators, so I am going to continue to hold my long positions in these metals today and wait to see if the gridlock in Congress can break before next Tuesday.

Trading Blog Wednesday (early AM), September 25, 2013

9/24/2013

MARKETS UPDATE (1:30 am EST)

Due to the many volatile issues arising now in the news (QE, debates on Obamacare funding, the debt ceiling, the possible shutdown of government, and the on hold Syrian crisis) the financial markets are also becoming volatile, and this makes short-term trading difficult. My observation (in last Friday's blog) that the stock market's surge after Bernanke's speech could be a short-term "sugar high" turned out to be correct as the DOW has been falling since then. There were some reports on Friday that Fed president James Bullard was talking about possible QE tapering in October should employment data improve. This may have spooked the market to give back the gains it had made from Wednesday's announcement of leaving QE unchanged for September. Several analysts that I follow seem to feel the Fed is bluffing with its threats of QE tapering (because it knows such action will tank the stock market) and that markets will soon start ignoring these statements. This may be true, but even if the Fed maintains QE, it may not be able to control rising interest rates, which is something the stock market fears even more than QE tapering. This, in addition to the imminent crises looming in the news, could still turn the broad stock market bearish and cause it to take a deeper correction before the year is over. But for now, momentum is still mostly bullish in the DOW, S&P 500 and NASDAQ, and we are approaching support levels in these markets. We could, therefore, get yet another bounce up to new highs before a deeper correction kicks in. At the moment, I think it is too risky to take a long or short position, so I am remaining on the sidelines.

Unfortunately, the price of gold and silver has been falling with the stock market (possibly due to the tempering of inflation fears) but seems to be finding some support just above $21 in silver and $1300 in gold. The timing and cycle scenario I discussed in last week's blogs that prompted me to enter long positions in both metals are still in effect (through the end of this week), and we could still see a rally here based on these factors. The sudden drop in metal prices on Friday was, however, a bearish signal that could cancel out an immediate rally. It is important now for the support level around $1300 in gold to hold or there is a danger of prices going to the $1200 area or lower. We will therefore use $1300 to define our stop loss area while also keeping in mind that prices need to turn up by the end of the week for timing and cycle factors to be valid. Please note that we are trading short-term here and that the longer term scenario for gold and silver that I have been describing for the last four months or so is still valid (see Brief Overview of Financial Markets for the Second Half of 2013). If gold and silver do fall significantly lower now, we will bail out of our long positions but will look to buy back aggressively at what will likely be the long-term cycle low in both metals before the year is over. I had been thinking we were going to get a final (short-term) rally in the precious metals (we still could) before a final plunge to the long-term cycle bottoms by the end of the year, but we now have to consider the possibility of seeing that plunge a little early. I want to emphasize here that the long-term bullish technical and cycle picture for gold and silver is still intact and all of the analysts I follow are in agreement on this. Once we are more confident of the long-term bottoms in these metals (before the year is over) we will be able to make more "buy and hold" trades with less focus on short-term trading. For now, though, we may have to bail out of our long positions this week if prices drop significantly lower. Holding our long positions in gold and silver with a close eye on the $1300 level in gold and $21 level in silver.

We have recently been avoiding the trading of crude oil as the unresolved Syrian crisis makes the price of crude potentially very volatile. A significant development in the chart of crude prices this week has been the appearance of a medium-term bearish momentum signal (long-term momentum is still bullish). This could be foreshadowing bearishness in the broad stock market since these two markets often move in sync with each other.
Standing aside crude oil for now.

Trading Blog Friday (morning), September 20, 2013

9/20/2013

MARKETS UPDATE (4:30 am EST)

Although the mainstream media and financial markets on Wednesday were anticipating at least some reduction in the Federal Reserve's bond-buying program (i.e. tapering of QE), Ben Bernanke surprised everyone by serving up none.
He made it clear in his speech that day that the Fed feels the U.S. economy is too fragile and not yet ready for any lightening of current QE policy. This statement shouldn't come as too much of a surprise considering Mr. Bernanke is leaving his position as Federal Reserve chairman at the end of January and would likely not want to see the economy collapse on his watch. The stock market, of course, was elated, and the DOW soared nearly 150 points on the news. (This elation, though, may be akin to a short-term sugar high as the looming debate over the U.S. debt ceiling approaches and threatens the financial world with yet another congressional standoff which could lead to more downgrading of U.S. debt and panic in the financial markets similar to 2011.) We do live in strange economic times when bad news about the state of the economy is greeted with cheers on Wall Street, but this does make sense when you realize that QE is like a drug being given to an addicted financial system. A "shot in the arm" like that delivered by the Fed on Wednesday creates a euphoric feeling that everything is going to be OK, while the economy's ability to stand on its own is further weakened and its general health continues to spiral downwards. All of this should make it clear that the broad stock market is in a precarious state that is not going away soon.

The difficulty here for traders and investors is that even though the stock market is now unstable and susceptible to a severe breakdown, bullish overt manipulation (such as QE) as well as possible covert manipulation (insert conspiracy theories here) could drive a sustained and profitable rally (possibly a "blow off"), so we want to be "cautiously bullish" under such conditions. As it has been for the last two weeks, momentum in the broad stock market is still strongly bullish, and the Fed's announcement on Wednesday pushed the DOW, S&P 500 and NASDAQ indices all to new highs - another bullish sign. This market, however, is still overbought and all three indices are now testing resistance zones. I would like to see some pullback here before considering a long position. Still on the sidelines.

Bernanke's statements on Wednesday also had a strong bullish effect on the price of gold and silver as many investors realized that excessive QE leads to inflation which drives up the price of precious metal. This was a good sign to go long in both gold and silver (which we did) and it reinforced the timing and cycle factors which also pointed to this week as an ideal entry point for buying these metals. Another factor that has recently been pointing to a bullish gold and silver market has been the "crash" of the U.S. Dollar over the last two weeks.
Not surprisingly, the U.S. dollar index plunged severely on Wednesday and momentum in this chart is now 100% bearish. The U.S. Dollar and the price of gold normally move in opposite directions, so this bodes well for our long positions in the precious metals. Holding our long positions in gold and silver.

Trading Blog Wednesday, September 18, 2013

9/18/2013

GOLD AND SILVER TRADE ALERT (2:45 pm EST)

We are getting a short-term bullish trade signal today in both the gold and silver markets and, as I have been stating in recent blogs, we are now at an ideal entry point in timing to buy these these metals. I am therefore going long today in both gold and silver.

I will give a more extensive market update later today or tomorrow, but it looks like the Federal Reserve has decided not to change QE policy (i.e. no tapering) for at least another month so this is good news for the broad stock market (at least short-term).

Trading Blog Tuesday, September 17, 2013

9/17/2013

MARKETS UPDATE (6:45 pm EST)

The U.S. Federal Reserve is scheduled to make an important announcement tomorrow (Wednesday) regarding possible changes to their current Quantitative Easing (QE) policy, which has been in place for some time now. The big concern for Wall Street is whether or not the Fed will start to cut back (taper) QE and, if so, by how much. We know from the recent past that the broad stock market is terrified of even the mention of any QE tapering, so why has the market been rallying so strongly this week? The answer seems to be Sunday's withdrawal of Lawrence Summers as a candidate to replace exiting Ben Bernanke as Federal Reserve chairman and the likely consideration of Janet Yellen for the position. Mr. Summers was thought by many investors to be less committed to The Fed's current open-ended QE policy than Mrs Yellen, and Wall Street seems to be cheering this news. The announcement of Ben Bernanke's successor will not likely be made this week, but the Fed's statement on QE policy will be made tomorrow and it could have a strong impact on all the financial markets.

The broad stock market has been very bullish over the last two weeks and upward momentum is very strong at the moment in the DOW, S&P 500 and NASDAQ. Nevertheless, all three indices are now approaching and testing fairly strong resistance zones, the market is overbought, and several analysts that I follow seem to feel a downturn is imminent. If the Fed announces tomorrow any plans to begin QE tapering, this could easily kick the broad stock market into a downtrend. We will continue to stay on the sidelines of this market and see how this plays out.

As I discussed in my last blog, gold and silver appear to making a significant bottom right now that we are looking to buy. In terms of timing, we are now at an ideal entry point (through the end of this week), but tomorrow's Fed announcement is making me cautious about jumping in too soon. While the announcement could have the effect of turning the market up, it could also push prices down strongly to a deeper bottom. Short-term and medium-term momentum is also still bearish in both gold and silver, and I would like to see at least a change in short-term momentum before going long. We may get this before the week is over, so we are still on the alert to buy. Staying on the sidelines today and waiting for the Fed's announcement on Wednesday.

Because the Syrian situation is not yet fully resolved and President Obama and John Kerry continue to make it clear that U.S. military strikes are still possible, the price of crude oil continues to be potentially very volatile. I am therefore going to avoid trading it for the time being. Crude's price has been coming down over the last two weeks and is now approaching a strong support level at $104. The cycle picture for this market is still not clear and technical signals are a bit mixed at the moment, so even without the Syrian crisis we would still be on the sidelines for trading. If the Fed's announcement favors the stock market (i.e. maintains QE) then it is possible oil could find support near $104 and begin to rally strongly again. Current momentum, which is still very bullish, supports this argument. Should this scenario play out and the U.S. war drums begin beating again, I will consider going long in crude; but for now I am remaining on the sidelines.

Trading Blog Thursday, September 12, 2013

9/13/2013

GOLD AND SILVER UPDATE (2:45 pm EST)

The bearish signals in gold and silver that I mentioned in yesterday's blog are turning out to be correct, and precious metal prices are indeed moving further down today. Gold has dropped to the $1330 area and silver is approaching the $22 area. Also important to note is that with today's steep drops medium-term momentum in both metals has shifted to bearish. Obviously, we are not going to buy under these conditions, but I want to emphasize here that we are likely seeing an ideal setup unfolding for a major buy spot in both these metals once the corrective bottoms have stabilized. As I've mentioned before (see Brief Overview of Financial Markets for second Half of 2013), gold and silver are in the process of forming major bottoms in their long-term cycles. These may have formed already with gold's low on June 27 at $1183 and silver's low that same day at $18.25, but it is still possible for them to go lower before the year is over. There are several important timing and cycle factors over the next two weeks that point to a significant bottom and subsequent strong rally in both gold and silver. It is important to realize that momentum in any market can be very bearish as a steep correction occurs (as it is now), but once a corrective bottom is established it will quickly turn bullish when a strong rally follows. So despite the bearish signals at the moment, the bottom line (pun intended) is that we are still looking for a bottom to go long in both gold and silver, and we could see this setting up over the next week or two. I might add here that the broad stock market's current bullish momentum could also change suddenly to bearish, and this could possibly coincide with a turn up in the metals. We also need to keep in mind that the situation in Syria is not fully resolved and, in fact, President Obama and Secretary of State John Kerry continue to remind the media in press conferences that, "... should diplomacy fail, force might be necessary". If the U.S. war drums begin beating again, it could be the trigger that again sends the broad stock market down and precious metal prices up. We will have to wait and see.

Trading Blog Wednesday, September 11, 2013

9/11/2013

MARKETS UPDATE (6:45 pm EST)

What a difference a few days can make! Secretary of State John Kerry's offhanded, rhetorical comment on Monday suggesting that President Assad could avoid a U.S. military strike by handing over all of his chemical weapons was, to everyone's surprise, taken seriously by Assad's ally Russia and Assad himself.
This has led to President Obama putting aside (at least for now) his plans for an imminent strike on Syria in order to pursue a more diplomatic resolution of the crisis. It appears that the U.S. Congress will also delay their vote on the use of force in Syria, hoping that diplomatic negotiations will resolve the crisis peacefully. From the point of view of financial markets (at least in the short-term), an intense and imminent crisis has now cooled off, and the ever buoyant broad stock market has responded positively to the news. Since Monday the DOW has risen over 300 points, and my decision to cover short positions in this market that day seems to have been a good one. In Sunday night's blog I also suggested waiting for the DOW to exceed 15,300 to sell it short again with the caveat that technical signals don't turn bullish. Important indicators in the DOW, S&P 500 and NASDAQ have been turning bullish this week (most likely due to the easing of the U.S. war threat) and directional momentum in all three of these indices is at the moment 100% bullish. This factor is making me very apprehensive about selling short now. The DOW is approaching that 15,300 level today, so we will watch and see if this rally starts to stall before considering any shorting strategy. I still feel that a more serious correction in this market will happen before the year is over, but the current bullish momentum may indicate it is being delayed some more. Another factor that may be giving the DOW a lift this week is the U.S. Labor Department unemployment report which came out last Friday (and was overshadowed in the news by the Syrian crisis) and was quite negative. Negative news about the economy decreases the likelihood of the Fed starting its policy of QE tapering (which the market greatly fears), and so, while it may seem contradictory, depressive economic statistics tend to push the DOW up these days. Note, however, that September and October are often bearish months for the stock market, and that while the Syrian crisis has cooled for the moment, it is not over, and markets may be quite volatile over the next month or two. Standing on the sidelines of this market for now.

This week's reevaluation of a U.S. Syrian strike seems to have had a slightly bearish effect on the price of the precious metals which had seemed ready to rally strongly on the beat of the war drums. Timewise and pricewise we are falling into an ideal buy spot for gold and silver right now, but many gold and silver stock indices are suddenly flashing strong bearish signals this week. As I've mentioned before on the site, precious metal mining company stocks often lead the price of the metals themselves, so this may be pointing to some more downside in gold and silver prices. There are a few short-term technical signals that also look a little bearish at the moment, so I am holding off buying today. Momentum in silver and gold metal is still bullish (especially silver) so there is the potential for a strong rally here. I am watching now for a short-term buy signal and am anticipating going long either tomorrow or on Friday. On the sidelines here and waiting to buy.

Not surprisingly, the price of crude oil plunged yesterday with the sudden news of a potentially peaceful resolution to the Syrian crisis. This kind of volatility associated with a conflict in the Middle East is exactly why we are on the sidelines of this market right now. In terms of technical signals and cycles, this market is ambiguous in its direction short-term. It could either continue down into a serious correction (especially if it breaks below $102) or rally back up and break though the recent high at $112. Momentum is still strongly bullish so this latter scenario is quite possible (especially if U.S. war drums start beating again). On the sidelines of this market.

Trading Blog Sunday (night), September 8, 2013

9/8/2013

MARKETS UPDATE and BROAD STOCK MARKET TRADE ALERT (11:30 pm EST)

The broad stock market rallied a bit last week perhaps due to further delays in President Obama's decision to strike Syria and a growing opposition to doing so from many members of Congress as well as the American public. The UN's investigation into the use of chemical weapons in Syria may take at least another week, but Congress could vote as early as next week on whether or not it will back the president and his plans for a "limited" attack on the Assad regime. It seems unlikely that President Obama will act without the approval of Congress, and apparently he will also seek the approval of the American people through television interviews on Monday and a nationally televised address on Tuesday. If Congress does decide to support the president, it is not certain that Mr. Obama will wait for the completion of the UN investigation, but many are urging he do so. With this potential for further delay in military action, stock prices could rally some more next week. Technical and cycle analysis of the broad stock market is still presenting a mixed picture of bullish and bearish factors, but there are some short-term bullish signals supporting more rallying into next week. Some of the NASDAQ contract charts also flashed strong bullish momentum signals last Friday. Due to these factors and because the DOW and S&P 500 are now rising back to the point where we established our short positions a few weeks ago, I am going to unload them here with the idea of selling short again in a week or two should the DOW rally back towards 15,300 or higher and stall. I am still favoring a further correction in the broad stock market, but I feel it is best to step aside our short positions right now should any minor rally turn into something stronger. I am going to cover my short position in the broad stock market on Monday with the idea of selling short again in a week or two (assuming the market doesn't turn bullish).

Gold and silver both corrected down some more last week (which is what I wanted to see), and it is posssible they have already bottomed, so we will be looking to buy next week. It would be best if prices move a little lower into the middle or end of the week, but we may not get that setup and will possibly buy earlier. Stay tuned as we are approaching a very good buy spot in these metals. On the sidelines here and waiting to buy.

Because the price of crude oil can be strongly affected by the Syrian crisis, I am going to stay on the sidelines of this market for now as prices could be very volatile over the next few weeks. Short-term technical and cycle analyses are showing mixed bullish and bearish signals, so this market could either resume its correction down or break through the upper resistance at $112 and continue its bullish rally.

Trading Blog Tuesday, September 3, 2013

9/3/2013

MARKETS UPDATE (6:45 pm EST)

Due to the crisis over Syria, the threat of war in the news is becoming a "wild card" factor affecting most major financial markets right now. This creates instability and potential volatility in the markets and makes it more difficult for traders to correctly time buying and selling points. Technical and cycle analysis still works under these circumstances, but cycles and technical signals can become distorted and more difficult to see. Another news event that could have an affect on financial markets this week will be the U.S. Labor Department unemployment report. This comes out on Friday which is close to the time the U.S. Congress will be making decisions on Syria. We will therefore be cautious in our trading in coming weeks with a sharp eye on the unfolding political and economic events in the news.

It appears that President Obama will seek the approval of Congress before taking military action against Syria so there is likely to be some delay (perhaps a week or more) before Congress votes and a possible strike occurs. Because the broad stock market dislikes uncertainty, it may continue downward this week before the war decision is made. It is difficult to predict how the market will react if an actual strike occurs as war is sometimes seen as profitable in the eyes of the DOW. We will have to wait and see how these events unfold. Short-term and medium-term technical and cycle factors are still mixed between bullish and bearish, but are slightly more bearish. I still feel this correction in the broad stock market will go deeper before the year is over. Any rally now would have to break clearly through the 15,200-15,300 area in the DOW for me to change my view and go bullish. I am still holding my short positions in the broad stock market for now.

The precious metals appear to be bouncing up from lows achieved in Sunday's markets around $1380 in gold and $23.25 in silver. This market is difficult to call at the moment. There are several strongly bullish signals in the price charts right now (especially for silver), but there are still some short-term technical and cycle factors that point to a correction deeper than the one we got on Sunday. Prices are currently approaching resistance areas around
$1420 - $1425 in gold and $24.50 in silver, so they may turn down again here. Ideally, I would like to see a deeper correction into the middle or end of next week to buy, but we may not get that. I am going to stay on the sidelines for now and wait to see if these resistance zones hold. As with the broad stock market, there is a possibility of one final deep correction in the precious metals before the year is over, and we need to be on guard for that. Still on the sidelines here and waiting to buy.

Crude oil prices also made a bottom on Sunday (around $104) and are now rallying strongly but also approaching a wide band of resistance at $108 - $112. If this resistance holds the rally, oil could correct back down steeply to a final cycle bottom, but it is also possible that a new cycle has already started and this market is bullish. Momentum signals support this bullish view, and, of course, the possibility of military strikes on Syria can be bullish for oil prices (at least initially). Nevertheless, technical and cycle factors are mixed right now and we can't rule out a deeper correction.
I am going to stay on the sidelines of this market for now.

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