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Trading Blog Sunday (night), September 28, 2014

9/27/2014

GOLD TRADE ALERT and MARKETS UPDATE (10:15 pm EST)

Gold and silver prices have been dropping steeply this month, but last week there were strong technical signals indicating that a temporary bottom may be forming in both metals and the potential for at least a short-term rally is strong. Public sentiment towards the precious metals (a contra-indicator for prices) is very negative at the moment while COT charts are showing the "smart money" currently bullish on gold. These are more signs suggestive of a strong rally soon. For these reasons I've decided to cover my short position in gold. This position was opened on Sept. 17 so we should be able to get out with little or no loss and maybe even a small profit. I want to point out here that this rally could be very brief and followed by more downside, but gold prices could get to the $1270 area and silver prices could climb back to $18.5 - $19, so I feel it is prudent to cover any short positions now and try to go short again at the top of any new rally. If prices do rally into the second week of October (close to Oct. 7-8) we may have an ideal spot to sell short as gold and silver could reverse there and fall to new cycle bottoms. The reason I am not looking to buy this rally is because it may be brief in duration (less than two weeks) and directional momentum is still strongly bearish in both gold and silver, so the rally may not get very far. Covering all gold (and silver - if you have them) short positions and stepping to the sidelines of gold and silver for now.

It appears that the long-term cycles in gold and silver are shifting and the final bottoms are not yet in. The current cycle analysis shows that the final bottom in gold could approach the $1000 area or even go lower ($800 - $900 area) by early next year. A key support area to watch now is $1180. If that support area is clearly broken it is likely we will see those lower prices in gold.

The U.S. Dollar index continues to be very bullish, but it is very overbought and is overdue for some sort of correction. Such a correction could coincide with a rally in gold and silver as the dollar's recent vigor has been a major factor contributing to the fall of precious metal prices. We should keep in mind here that investor capital fleeing a crumbling European economy continues to seek refuge in the U.S. Dollar so a dollar correction, if it happens, may be brief and small. If so, a resumption of the dollar's rally could send gold and silver prices back down to new lows. We will watch the dollar carefully over the next few weeks for its effect on the precious metals.

The broad stock market seems unable to decide whether or not it wants to take a serious correction or instead soar to new heights. Last week's ISIL war news made the markets nervous and resulted in some major stock price swings both up and down. The DOW did break below the 17,000 level on Thursday but surged back up and closed above it on Friday, so it is still not clear in what direction this market wants to go. Momentum is still strongly bullish in the DOW but is mixed bullish and bearish in both the S&P 500 and NASDAQ indices. Short-term technical signals are pointing to a rally in these indices from last week's lows which could lead to new highs (or double tops) into the second week of October. If this happens, we may have an ideal setup to sell the broad stock market short that week for an overdue correction of 5-10% (or more) that we have been expecting for some time. This is my ideal (and the most likely) scenario at the moment. If more geopolitical turmoil upsets the markets next week, however, it's possible we could see them continuing down into early October and giving us a corrective bottom to buy instead of a top to sell. We will have to wait and see how the market moves next week, but for now I am going with the idea of a top to sell short around October 7-8. On the sidelines of the broad stock market for now.

Crude oil appears to be starting a new cycle from a bottom made on Sept. 11 at $89.56. If so, prices should be bullish for at least two more weeks. I opened long positions in crude last Thursday. Turmoil in the Middle East could drive a strong rally here, but we need to be careful as increasing market volatility can move prices both up and down quickly. Holding long positions in crude oil.

Trading Blog Thursday, September 25, 2014

9/25/2014

CRUDE OIL TRADE ALERT (2:45 pm EST)

It looks like crude oil prices may have formed a double bottom on Monday to the lows of two weeks ago and crude could be starting a new cycle from this bottom. A short-term bullish signal appeared in crude charts yesterday that pushed prices over a resistance at $92. Today the price seems to be resting above that $92 level so I am going to go long here with a stop loss around $91. The war with ISIL could fuel a rally in crude now as the U.S. military is specifically targeting oil production facilities taken over by ISIL in an attempt to choke off their funding. Because crude prices can be very volatile under the current circumstances I am investing only a moderate amount of money in this trade. Opening a long position in crude oil today.

Trading Blog Tuesday, September 23, 2014

9/23/2014

MARKETS UPDATE (6:30 pm EST)

Several cycle, timing, and technical factors are coming together now in many financial markets that could lead to major turning points and trend reversals soon. All financial markets discussed on this site are now poised to make significant moves over the next several weeks. The two time periods we want to watch carefully are the middle of this week (now) and the middle of the second week of October (Oct 8th). With seeming synchronicity, global geopolitical tensions are also increasing now as the U.S.and its Arab allies launched their first major military assault against ISIL targets in Syria on Monday. A military spokesman for the White House stated today that these airstrikes were just "the beginning of a sustainable and credible" campaign that could last for years. So it looks like this new war is not going away anytime soon and could have a significant impact on financial markets going forward.

The threat of war does make equity markets nervous so it was not surprising to see the DOW drop significantly yesterday and today. Janet Yellens's soothing rhetoric after last week's Federal Reserve meeting calmed investor's fears about rising interest rates and propelled the DOW to new highs which, unfortunately, stopped us out of our short position in the broad stock market on Thursday. Did we get "whipsawed" out prematurely? Possibly, but the DOW's directional momentum is still strongly bullish and the index is now approaching a support area just above 17,000. If the market rebounds from here and makes new highs into next week, we will look for another peak to sell short around Oct. 8. On the other hand, if the DOW breaks and closes below 17,000 this week, we could see a more serious correction now triggered by ISIL war news. My preference is for a new high in October, but we will have to wait and see how seriously the markets react to this new war. On the sidelines for now.

Gold and silver prices are rebounding a bit from last week's lows. Could those lows already be the bottom to the current correction? It's possible as we are in a reversal zone for gold, but from a technical standpoint it would be better for gold prices to get closer to the $1180 area before any significant rallying (last week's low was $1208). Directional momentum is still strongly bearish in all gold and silver market indices so this price rise over the last two days may not get very far before turning down again. I am going to maintain my short position in gold until I see stronger evidence of a bottom and more bullish signals. A good stop loss for our short position in gold right now would be a clear break and close above resistance in the $1240 area. At the moment silver seems to have a little more room to rally than gold and could make it to the $18.50 area before encountering strong resistance and potentially turning back down. Holding my short position in gold and out of silver for now.

Crude oil prices have been falling since last Wednesday and appear to be headed to the final bottom of the current crude cycle which is ideally due this week. We will therefore watch for a double bottom to the Sept.11 low of $90.43 or a new low over the next few days. If this turns out to be the cycle bottom (and the start of a new cycle), that would be bullish and we may get a good opportunity to go long, On the sidelines of this market and possibly looking to go long.

Trading Blog Thursday, September 18, 2014

9/18/2014

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

It seems that Janet Yellen's dovish tone at yesterday's press conference following the Federal Reserve's September policy meeting is overriding some of the Fed's hawkish "dot plot" data (which suggested the possibility of an interest rate hike sooner than what most investors expect) and is buoying equity markets today with a strong rally. The DOW is breaking through my original stop loss point (17,200) for my short position opened on Aug. 28 so I am going to cover that position today with a small loss. The S&P 500 is now making a new high and the NASDAQ also appears close to doing so. This is negating the intermarket bearish divergence we have been seeing in these indices over the last several days and is more evidence of strong bullishness in the markets now. Covering all short positions in the broad stock market today.

Trading Blog Thursday (early AM), September 18, 2014

9/17/2014

BROAD STOCK MARKET UPDATE (1:45 am EST)

The U.S. Federal Reserve and Janet Yellen seemed to take special care yesterday to phrase the language of September's Fed policy statement in terms that would not upset financial markets. Yellen kept her dovish reputation intact stating that the labor market still has room to improve and reiterated earlier Fed statements that interest rates are likely to remain low for a "considerable time" after the bond-buying program ends in October. Although Ms.Yellen gave the impression that there was no rush to hike rates, the Fed presented data projecting the midpoint of the Fed funds rate to be 1.375% by the end of 2015 and 2.875% by the end of 2016. These rates are higher than the Fed's earlier forecast in June ( 1.125% by the end of 2015 and 2.5% by the end of 2016) which suggests that the Fed is getting a bit more hawkish and could start the rate hike earlier than expected. (Many analysts have been expecting the hike to start in the second half of 2015.) What we want to note here is that a hawkish Fed can make stock markets nervous right now, but a dovish Fed usually calms them down.

The DOW was typically jittery when the Fed statement was released at 2:00 pm and it quickly plunged 50 points. Janet Yellen's subsequent press conference likely calmed markets as the DOW rebounded and hit a new all-time high of 17,221 shortly after 3:00. The market's enthusiasm, however, was short-lived as the DOW then dropped 60 points to close the day with only a 25 point gain. Tomorrow and Friday's price movements will likely tell us more about the impact of the Fed's statement (if any) on the broad stock market. Although the DOW made another new high today, the S&P 500 and NASDAQ are still below their early Sept. highs, so we still have potential intermarket bearish divergence in these indices. Today's price action (surging up and then falling) is also bearish so there is still the possibility of these markets turning down.

Trading Blog Wednesday, September 17, 2014

9/17/2014

GOLD TRADE ALERT (2:45 pm EST)

It looks like we are at a good point to short sell gold. The weak rally of gold prices over the last three days seems to be stalling close to a resistance area around $1240 - $1250 and directional momentum is still strongly bearish. A good stop loss for this trade would be around $1250. I am going to avoid trading silver for now as its movements can sometimes be very volatile and not suitable for tight short-term trading, which is what we are doing here. Opening short positions in gold today.

I will comment on today's Federal Reserve statement later this evening. I am maintaining my short positions in the broad stock market today.

Trading Blog Tuesday, September 16, 2014

9/16/2014

MARKETS UPDATE (8:00 pm EST)

The DOW dropped to a new weekly low of 16,937 last Friday (still a good distance away from my target of 16,800) and today is surging up to touch the recent all-time high of 17,161. Does this mean the "correction" is over? Maybe, but there are several bearish factors in this market now that suggests further downside. While the DOW is making a new all-time high today, the S&P 500 and NASDAQ are still below their recent highs so we are seeing intermarket bearish divergence here (until the S&P 500 and NASDAQ clear those highs). This week strong bearish signals appeared in the S&P 500 and NASDAQ charts which makes directional momentum in these indices mixed bullish and bearish (the DOW remains 100% bullish). So the DOW is telling us to be bullish, but the S&P 500 and NASDAQ are suggesting the opposite. The beginning of next week is the center point of another timing window where a reversal in several financial markets is likely. This suggests that any rally now could be short-lived and followed by more downside. My original stop loss point for my short position in the broad stock market was 17,200 in the DOW, and since we have not crossed that yet, I am going to remain short for today. Still holding my short position in the broad stock market.

Gold and silver prices have taken a break from their steep fall over the last two weeks and are rising a bit this week. Directional momentum in both these metals, however, is still very bearish and it doesn't look like any rally will get very far. As with the broad stock market, there is also a timing window early next week for a likely reversal in gold and silver so we may have an opportunity to sell this market short later this week into next week if prices are rising. One support level in gold to keep an eye on right now is the $1,180 area. The current correction may find support there, but If prices break clearly below that level we may have to revise our long-term cycle picture for gold. For now we are trading short-term and will watch for a high to sell short later this week or early next. On the sidelines of gold and silver.

Crude oil appears to be forming a significant cycle bottom now, and the ideal timing for this bottom would be sometime next week. Prices are surging today but could start to fall again for a double bottom in the $91 area or a lower low next week. If prices continue to rise into the end of this week we might see a good opportunity to go short. Out of this market for now.

Trading Blog Thursday, September 11, 2014

9/11/2014

MARKETS UPDATE (4:15 pm EST)

The incredibly buoyant broad stock market is falling this week, but not by very much, at least so far. While there are still technical and cycle factors in place that could produce a serious fall now, it seems more likely that this correction will be minor and followed by a rally to new highs and possibly a more substantial correction later this year. It is important to note here that this market is extremely overbought and is overdue for a correction of 5 -10% (possibly more) which could occur anytime now. Cycle, timing, and technical studies can point us to "time windows" when corrections are most likely to happen. If corrections are delayed (through unusual market circumstances or market manipulation - see my blog on Sept. 2) they are likely to be stronger and more abrupt when the next timing window comes around. We need to keep this "bearish" factor in mind even though stock markets appear very bullish right now. I am still holding on to my short positions in the broad stock market as short-term indicators still point to a correction to at least the 16,800 area in the DOW. If this can be achieved by the end of next week that could be an ideal spot to cover short positions and possibly go long. Holding short positions for now.

The big news in financial markets this week is the dramatic breakdown of gold and silver prices. In my blog last Sunday I wrote:

"...There are technical signals that point to a strong move in gold and silver this coming week that would normally be bullish, but last week's price movements were bearish which is suggesting the move could be down instead of up."

The big move has indeed been down as gold has dropped nearly 2.5% this week and silver a little over 3%. Directional momentum in both metals is now 100% bearish (the gold and silver mining company stock indices HUI and XAU are currently mixed bullish and bearish). This downturn means that we are likely approaching new long-term cycle bottoms in both metals (or double bottoms to the June 2013 lows of $1,183 in gold and $18.25 in silver).
As I've discussed in past blogs, these long-term cycle bottoms will most likely be ideal buying points for gold and
silver, especially for long-term investors. As long as gold prices remain above $1000, the new long-term cycles should carry gold (and silver) to new all-time highs over the next several years. But until those bottoms are established, we are still in short-term trading mode. Any significant short-term rally, especially into late next week, may present an opportunity to sell short as these metals move towards their long-term cycle bottoms. Still on the sidelines of this market.

As I stated in my last blog, crude oil seems to be at the end of its current medium-term cycle and is in the process of forming the bottom to that cycle. The fourth week of September may be a significant turning point for crude prices so we will wait until then to see how low it can go. There is currently support at $91 - $92, but there is also a possibility of prices breaking down towards $88. We will have to wait and see. A cycle bottom at the end of September may turn out to be a good buy spot. Out of this market for now.

Trading Blog Sunday (night), September 7, 2014

9/6/2014

MARKETS UPDATE (10:30 pm EST)

After some decent rallying in August, the DOW, S&P 500, and NASDAQ indices are all leveling off now and appear ready to take a correction, but so far there is no sign of a reversal in the broad stock market. This market is very overbought and a significant correction is very much overdue. Short-term cycle analysis of the DOW now points to at least a correction into the 16,800 area. There are still technical and cycle factors suggesting the possibility of a much stronger fall but, as I've discussed in recent blogs, current capital flow into equities from a collapsing European economy as well as direct market manipulation could be negating natural corrective cycles. There is resistance around 17,200 in the DOW and that is close to where I sold this market short on August 28, so I will use that as a general stop-loss point for the trade. This market must turn down early this week or we will have to cover our short position.  Holding my short position for now.

There are technical signals that point to a strong move in gold and silver this coming week that would normally be bullish, but last week's price movements were bearish which is suggesting the move could be down instead of up. If prices do rally they may not get far before tuning down again. Mixed signals in this market are keeping me on the sidelines for now.

The U.S. Dollar Index also seems to be benefiting from European investor capital as evidenced by its steep rally since mid-July. Directional momentum in the dollar remains 100% bullish, but this market is severely overbought and some sort of pause or correction could come any day now. This could coincide with a rise in precious metal prices, but the dollar's strong bullish momentum may take the wind out of any gold and silver rally.

Crude oil prices may be forming a significant bottom now in the $92 - $93 area, but in terms of timing the next significant turning point in crude prices will likely be in the third week of September. This means the current cycle bottom could go lower over the next 2-3 weeks. It may be best to wait for that week before trading this market. Crude's directional momentum is still 100% bearish. Remaining out of this market for now.

Trading Blog Friday, September 5, 2014

9/5/2014

BRIEF MARKETS UPDATE (1:30 pm EST)

The DOW made a new all-time high (17,161) yesterday and seems to be finding support just above 17,000. Several technical indicators are still suggesting a correction here so it could still happen from this new top. I am holding on to my short positions in the broad stock market for today as some sort of correction still seems possible. Next week's price movement will tell us if this is valid.

Gold and silver are making new bottoms this week and there are several technical and timing factors that could lead to a rally in these metals next week. I will analyze this situation in more detail this weekend and may post a buy alert on Sunday. On the sidelines for today.

I will post a longer blog this weekend analyzing all the markets.

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