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Trading Blog Monday, September 28, 2015

9/28/2015

BROAD STOCK MARKET and PRECIOUS METALS UPDATE (2:45 pm EDT)

In a speech given late in the day last Thursday U.S. Federal Reserve Chairwoman Janet Yellen stated that, "Most FOMC participants, including myself, currently anticipate…an initial increase in the federal-funds rate later this year, followed by a gradual pace of tightening thereafter." This comment was likely intended to temper any excessively dovish interpretation of the recent FOMC decision to delay an interest rate hike and to curb speculation that a first hike will be pushed into 2016 (even though it may be). Equity markets on Friday seemed buoyed by Ms. Yellen's slightly hawkish speech which may have eased investor anxiety a bit by clarifying the Fed's intentions. Today's market is falling sharply, however, so Wall Street's fear seems to be returning. This may in part be due to news today that the NASDAQ has produced a "death cross" chart pattern and joins the other three major market indices (DOW, S&P 500, Russell 2000 Index) which have also recently manifested death crosses. (A "death cross" is when the 50-day moving average crosses below the 200-day moving average, and this sometimes heralds a longer-term downtrend.) This death cross "grand slam" could be very bearish, and it's certainly in line with our projection of new market lows into late October. We are doing well with our short positions in the broad stock market (which we entered on Aug. 13 and Aug. 27) and will stay with them for now. Holding my short position here.

Gold and silver seem to be at a crossroads right now and have the potential to turn either very bearish (short-term) or very bullish. I am currently favoring the bearish view with the idea of both metals making new lows (gold below $1100 and silver below $14) into October/November. Today's steep drop in precious metal prices seems to be supporting this, but this could be a very volatile week for these metals so we could see prices surging up as well.
As long as gold stays below $1170 and silver stays below $15.90 (spot prices) I will maintain my bearish view. We currently have a short position in gold but are out of silver. Silver prices dropped sharply today so we may have missed a good opportunity to go short last week. If prices pop up again this week we may get another chance. Holding my short position in gold and on the sidelines of silver.

Trading Blog Thursday, September 24, 2015

9/24/2015

MARKETS UPDATE (3:15 pm EDT)

In Tuesday's blog I wrote: "Even though we did not get an intermarket bearish divergence signal
between gold and silver (one making a new weekly high but not the other) as I would have liked, both metals appear to be turning down now, and a short-term sell signal appeared in both of their charts today."
It looks like my call was a little premature and we are now getting that bearish intermarket divergence signal today as gold surges to a new weekly high while silver remains below its high of last Friday. I entered a short position in gold (but not silver) on Tuesday with a stop loss in the $1140 area. I am going to remain short in gold and raise that stop loss to a close above $1160. Any traders who were stopped out at $1140 got out with a 1% loss and may want to consider re-shorting at today's high ($1155) with a stop loss at $1160 and/or silver making a new weekly high (i.e. above $15.43). If silver prices edge a bit higher and remain below $15.43 I will consider a short position in this metal as well (maybe tomorrow or early next week). Holding my short position in gold but out of silver for now.

We are now moving out of an important reversal zone for the broad stock market as stock prices continue to fall.
It looks like the DOW's high at 16,933 and the S&P 500's high at 2020, both on Sept.17, were significant tops, and this market is still on track for new lows into October. The DOW is now approaching fairly strong support around 16,000 so we could see a bounce here, but any rally will likely not get very far before turning down again. I am maintaining my short position in the broad stock market with the expectation of retesting or breaking below the lows of Aug. 24.

The U.S. Dollar Index has been falling with equity markets this week, and this may explain today's sudden surge in precious metal prices. Currency investors may be tired of waiting for the U.S. Federal Reserve to raise interest rates and could be seeing gold and silver as a better "safe haven" investment as equities crumble. Nevertheless, a short-term bounce in the broad stock market right now (as suggested above) could temporarily lift the dollar and send gold and silver prices down. There is currently strong support for the dollar just above 95 so we will now watch for a potential short-term rally in the dollar from there.

We are now moving out of a significant reversal zone for crude oil and crude prices have failed to reach our target of $50 -$55. Crude's high of $49.30 on Aug. 31 was too early to be a top in the current cycle (although a top on that date is not impossible, just unlikely) so we may have to wait until the first two weeks of October (crude's next reversal zone) to see a top within our target area. If equity markets bounce now, they might carry crude prices higher to a new high above $50. We will have to wait and see how this plays out. Directional momentum in crude is currently mixed bullish and bearish so there is at least some potential here for more rallying. Out of crude oil for now.

Trading Blog Tuesday, September 22, 2015

9/22/2015

GOLD TRADE ALERT (2:45 pm EDT)

Even though we did not get an intermarket bearish divergence signal between gold and silver (one making a new weekly high but not the other) as I would have liked, both metals appear to be turning down now, and a short-term sell signal appeared in both of their charts today. Directional momentum continues to be strongly bearish across the entire precious metals market so we may be seeing the resumption of a significant correction that started from the top in gold of $1170 on Aug. 24. If so, we could be headed down towards the $1080 level (and possibly lower) over the next month or two. I am going to enter a short position in gold today with a stop loss for now in the $1140 area. All markets could be unusually volatile from now through the middle of October so I am going to hold off shorting silver (which tends to be more volatile than gold anyway), at least for today. Silver prices dropped significantly today (2.8%), but if they bounce and rally a bit into Thursday or Friday, we might get a better opportunity to go short then. Going short in gold today but still out of silver.

Trading Blog Sunday (night), September 20, 2015

9/19/2015

BROAD STOCK MARKET and PRECIOUS METALS UPDATE (10:30 pm EDT)

Last Thursday's surge and fall in the broad stock market after the Fed announced it would not be raising interest rates in September left behind classic bearish "shooting star" candlestick patterns in the charts of the DOW, S&P 500 and NASDAQ indices. Not surprisingly, Friday was another strong down day in this market with the DOW falling another 290 points (following Thursdays's 65 point loss). As I've been saying in recent blogs, this market could be very bearish into October, and I am still expecting new lows (at or below the lows of Aug.24) over the next three to six weeks. That said, we might see a relief rally next week in response to last week's plunge, but we won't be concerned unless it exceeds 17,000 in the DOW or 2040 in the S&P 500. Holding my short position in the broad stock market.

Gold and silver are still looking quite bearish despite a price surge last week triggered by the Fed's dovish decision to postpone an interest rate hike. Several short-term technical signals are strongly suggesting that gold and silver prices will turn down this week, and we are now in the center of a strong reversal zone for these metals. For this reason we will be looking to sell short both metals possibly as early as tomorrow. A strong sell signal might take the form of intermarket bearish divergence where either gold or silver (but not both) makes a new weekly high and then closes in the lower part of that day's price range. On the sidelines of gold and silver but looking to go short next week.

Trading Blog Thursday (night), September 17, 2015

9/17/2015

MARKETS UPDATE : The Dove Coos and Equity Markets Sell on the News (10:30 pm EDT)

Today the Federal Open Market Committee (FOMC) and Fed Chairwoman Janet Yellen were dovish in their policy rhetoric and their decision to delay yet again the raising of short-term interest rates. Although the FOMC meeting statement released at 2:00 PM in the afternoon acknowledged that there had been some improvement in the economy since July, it also indicated that there was room for more improvement. Concern about recent global economic instability was also stated as a reason for keeping interest rates low. Although most analysts now expect the first rate hike to be announced in October or December, the Fed's statement seems to leave that date open and dependent on "economic conditions":
"The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."

Wall Street investors were happy with the Fed's dovish statement and the DOW surged over 100 points by 3:00, but then markets fell abruptly and the DOW closed with a 65 point loss. This seems to be a classic case of "buying the rumor and selling the news". In other words, the market was expecting the no hike decision and had already factored it in with this week's rally. The actual announcement was then a trigger for some profit taking. The question now is will the profit taking continue and drive the broad stock market to new lows over the next six weeks (or more)? We will find out tomorrow if this market wants to rally some more, but even if it does, it has all of next week's strong reversal zone to find a top and turn back down. Our stop loss points for our short positions remain around 17,000 in the DOW and 2040 in the S&P 500. Holding my short position in the broad stock market.

It looks like the U.S. Dollar Index responded in traditional fashion to a dovish Fed and dropped significantly today. This, in turn, triggered a surge in gold and silver prices. We were stopped out of our silver short position, but both gold and silver are still looking very bearish. This rally may be short-lived, and another significant top in the precious metals may form between now and the end of next week. If it does, we will look to sell both metals short. On the sidelines of both gold and silver for now.

Trading Blog Thursday, September 17, 2015

9/17/2015

SILVER TRADE ALERT (3:45 pm EDT)

The Fed's decision to delay an interest rate hike triggered a drop in the U.S. dollar and a rise in gold and silver prices which pushed silver above our stop loss at $15. The spot price of silver seems to be closing well above $15. My stop losses were triggered so I am now on the sidelines. More daring traders who set higher stop losses may wish to hold their short positions as we are now on the lookout for a top in this surge to again sell short silver and gold as long as directional momentum remains bearish in these metals. That top could come any time between now and the end of next week. Covered (unloaded) my short position in silver today.

I will comment later this evening on the Fed decision and its effect on the markets.

Trading Blog Wednesday (night), September 16, 2015

9/16/2015

MARKETS UPDATE with Comments on Tomorrow's Fed Meeting (10:00 pm EDT)

Well, tomorrow is the "big day", the day the Federal Reserve and Janet Yellen may announce the first interest rate hike in nine years. Investors and analysts seem to be divided on whether the Fed will hike rates now or wait until October (or even longer), but because of worries over China and some recent lackluster economic data, many are anticipating another delay in the rate hike. The broad stock market is reflecting this view with its strong rally today. This was not unexpected. I wrote in last Sunday's blog: "One possible scenario is for the market to rally into the next strong reversal date (the third week of September) and then turn back down for a new low into late October or November." Because this market is rallying into this reversal period (which starts today and ends next Friday) we should be looking for a top and then a reversal back down soon. If the Fed decides to raise rates tomorrow, that reversal could happen over the next two days. If instead, as many seem to think, the Fed delays a rate hike, then the market could continue its rally into next week and perhaps top out and turn down then. From a technical standpoint, the current rally in equities still looks like a "dead cat bounce", and I am maintaining my bearish view.
We will maintain stop losses on our short positions around 17,000 in the DOW and 2040 in the S&P 500. I am going to allow some "wiggle room" above these numbers because a rate hike delay by the Fed could propel a rally to these levels quickly, and a top and reversal could be delayed into late next week. Holding my short position in the broad stock market.

The "no rate hike" sentiment also permeated the precious metals markets today and caused a spike in gold and silver prices. A rate hike delay is perceived as "dovish", and investors are likely thinking that this could push down the U.S. dollar and lift precious metal prices. They would probably be right under normal market conditions, but remember that recently the dollar seems to be moving in sync with the broad stock market. This means that a delayed rate hike could lift equities and the dollar at the same time, and this would actually be bearish for gold and silver. Before today's spike, it had seemed like the precious metals were going to fall into their strong reversal zone (Sept.16 - 25), but now we have the possibility of a rally instead. As with the broad stock market, we should now be watching for a top and reversal which could happen this week or next. We are still short in silver with a stop loss around $15. I would suggest using an automatic stop loss trigger on this position as things could get wild tomorrow and silver can be very volatile and make big moves in short periods of time. This surge in the precious metals may be very short-lived so even if we're stopped out of silver, we may look to go short in both gold and silver sometime before the end of next week. An alternative bullish scenario could develop if the Fed decides to hike rates tomorrow. In that case, both equities and the dollar could tank, and there is a possibility of gold and silver breaking out of their current bearish pattern. We will have to wait and see how this plays out tomorrow and Friday. Holding my short position in silver (with a tight stop loss) and still out of gold.

Crude oil prices surged up with the broad stock market today. This commodity is also rising into the center of a strong reversal zone which ends next Wednesday (the midpoint is tomorrow). If crude can reach or break above its August 31 high of $49.30, we may have a good opportunity to sell this market short this week or next. A good target for a top would be $50 - $55. Out of this market for now.

Trading Blog Sunday (night), September 13, 2015

9/13/2015

MARKETS UPDATE (10:45 pm EDT)

Most readers of this blog are aware of the fact that there are a lot of geopolitical events around the world right now that are affecting (or have the potential to affect) financial markets (rising terrorism, mass migration of immigrants from the Middle East and Africa into Europe, heated debate over the Iran nuclear deal, increasing tensions between Russia and the West, a weakening European economy, and, most recently, the collapse of the Chinese stock market). While I do pay close attention to all of this, in such an environment of global chaos it is probably best to focus on technical and cycle analysis of the markets and to avoid falling into the trap of trading on the news of the day. Fortunately, that approach seems to be serving us well over the last few weeks as markets seem to be falling into clearly defined technical patterns. (I've noticed that since the lifting of QE- quantitative easing - last October and the promise of a coming end to near-zero interest rates, the broad stock market appears to be "behaving" more normally, that is to say, more in accord with the technical and cycle patterns that manifest naturally in an unmanipulated free market. This is good news for those of us who study these patterns for trading.)

As I stated in my previous blog, the broad stock market appears to be bearish into at least late October, but there could be some strong short-term rallies between now and then. One possible scenario is for the market to rally into the next strong reversal date (the third week of September) and then turn back down for a new low into late October or November. An alternative to this would be the market falling into the end of September, rallying weakly from there, then turning back down to bottom in October/November. Both of these scenarios are bearish. A third (bullish) scenario which is much less likely (but still possible) says that the market's correction is over with the DOW achieving a 16+% correction on August 24 and that equities will now rally to new highs into 2016. For this to be valid, directional momentum in the three major stock indices (DOW, S&P 500, NASDAQ) would have to turn bullish (they are all currently 100% bearish), and the DOW would have to start breaking above 17,400 and the S&P 500 above 2080. None of this seems likely at the moment, so I am sticking with my bearish view until I see stronger bullish signals. In this bearish view, the final low could easily exceed 16% (perhaps 20 -30 % - possibly more if panic sets in) by the end of the year. Holding my short position in the broad stock market.

This week could be important as the Fed meets Wednesday and Thursday and all investors and analysts will be waiting with bated breath to see if short-term interest rates will be raised for the first time in nine years. Of course, even if the Fed decides to start raising rates, it will be done gradually and in very small increments so, technically speaking, the effects of the first hike shouldn't be great. However, the psychological impact of that first hike could be devastating as it represents the end of an unprecedented, almost decade long "near-zero" rate policy. That is what is frightening the markets now as many realize that near-zero interest rates (along with liberal doses of QE) have helped propel equity markets strongly upwards since the crash of 2008 -2009. The Fed's meeting will end on Thursday which is close to the center of the next timing window for a potential reversal in many markets (Sept. 16 - 25). It could be the trigger for another turning point in the broad stock market. If the Fed does decide to raise rates, equity markets will likely turn down strongly. If they delay a rate hike yet again, we could see equities rally, but the rally may not get far before turning down again. As long as the DOW stays under 17,400 we will maintain our bearish view of this market.

Next week could be another tricky week for calling the precious metals. Directional momentum remains very bearish for both gold and silver, and I am still expecting both metals to move lower into October. One thing that concerns me, however, is the way the U.S. Dollar Index has recently been moving in sync with the broad stock market. Normally, a Fed rate hike would be perceived as hawkish and this would be bullish for the dollar. Under present market conditions, however, a rate hike might tank the broad stock market and pull the dollar down with it. If this happens we could see a strong rally in the precious metals. We entered a short position in silver last Wednesday with a tight stop loss at $15. We will keep a close eye on silver prices and market signals as we move into Thursday as we may want to cover our short position before the Fed ends its meeting on Thursday. Holding a short position in silver but out of gold for now.

We should now be on the lookout for a good spot to short sell crude oil. Crude started a new medium-term cycle on Aug. 24 and looks like it is rallying towards an early cycle peak from which it will probably turn down again and remain bearish for the remainder of its cycle term (i.e. at least three months). Barring a new major conflict in the Middle East, crude prices will likely fall if the broad stock market continues to tank as investors anticipate less oil consumption in a failing economy. Next week is a reversal zone for crude so if we see another rally towards $50 or higher, we may look to sell short. On the sidelines of crude.

Trading Blog Wednesday, September 9, 2015

9/9/2015

SILVER TRADE ALERT and BROAD STOCK MARKET UPDATE (3:05 pm EDT)

The precious metals markets have been very tricky to play recently as gold and silver charts have been giving mixed signals while prices have traded in a narrow range over the last week or two. Today gold prices broke significantly lower, and a strong bearish momentum signal appeared in gold charts which makes directional momentum in gold now 100% bearish. (Silver has been mostly bearish for the last two weeks). This supports the short-term bearish outlook on these metals that I have had for some time (which I was questioning in last Friday's blog). The recent high in gold on Sept.1 ($1147) and in silver on Sept. 3 ($14.96) were within a strong reversal zone suggesting that these metals are now headed significantly lower. Gold is falling strongly today, but silver is still trading fairly close to its Sept. 3 high. For this reason I am going to enter a short position in silver today and hold off on shorting gold for now. We can place a stop loss on the silver trade just above $15.

The broad stock market continues to seesaw up and down but still seems reluctant to close above a strong resistance area around 16,500 - 16,600 in the DOW and 1980 - 2000 in the S&P 500. The current rally continues to look like a "dead cat bounce", but since one should never underestimate the potential bullishness of the broad stock market (particularly when one knows it can -and has- been manipulated), I have studied the charts for any bullish possibilities in the current cycle pattern. First let me say that the overall picture for equities continues to be extremely bearish until at least the end of October so, barring a dramatic reversal in directional momentum, we should not expect the current correction to bottom until then. That said, these markets could see some short-term rallies before that bottom is in. If the DOW moves higher into the end of this week, we might see a rally continue into the third week of this month (the next strong reversal period). If that happens, we will use our original stop loss points of 17,000 in the DOW and 2040 in the S&P 500 to preserve some profit and minimize any losses in our short positions. Continuing to hold my short position in the broad stock market.

Trading Blog Friday, September 4, 2015

9/3/2015

MARKETS UPDATE (4:00 pm EDT)

Not unexpectedly, the broad stock market bounced up and down this week in a wide (about 4%) trading range, roughly between 16,000 and 16,600 in the DOW and 1900 and 1980 in the S&P 500. Significantly, these markets seem reluctant to break through the resistance levels that I identified last week (16,500 in the DOW and 1980 in the S&P 500). If these resistance areas hold, we could see both indices break below their Aug. 24 lows soon. We are now in the center of another reversal zone (it ends next Wednesday), but this week the DOW and S&P 500 did not make new weekly highs or lows. This makes me think that we might get a surge to a new weekly high in either index (or both) by next Wednesday and then a reversal to new lows. Whether we get this short-term surge or not, the broad stock market looks like it is pointed down for at least seven more weeks so we should not expect a bottom to this current correction until late October. It would take a clear break above 17,400 in the DOW (and/or 2050 in the S&P 500) to alter this bearish view. Holding my short position in the broad stock market.

Gold and silver charts are again starting to give mixed technical signals that is calling into question my recent bearish view of this market. I was getting ready to sell short the top of a rally at the end of this week, but gold prices have been falling steeply and seem to be finding support at $1120 so it is possible gold could see a reversal up from here. Silver, however, did make a new high yesterday and could be turning down now. There is still time for gold to make a new weekly high next week and then turn down. However, if any rally exceeds the Aug. 24 high of $1170, it could mean this market is turning bullish. The precious metals picture is unclear at the moment so we will remain on the sidelines.

The U.S. Dollar Index could be the key to how the precious metal prices will move. The dollar recently seems to be taking its cues from the broad stock market, so if equities continue to tank, the dollar could fall too, and this could trigger a strong rally in gold and silver. So how does the dollar chart look? Well, like the gold and silver charts, it is ambiguous. Directional momentum is mixed bullish and bearish. Today the U.S. Dollar Index is down a bit (in sync with falling equities), but it seems to be finding support just above 96, a resistance level it cleared yesterday. To be bullish, the dollar needs to break clearly above 98. A break below 93 would turn the dollar bearish. We will watch this index carefully now to help us gauge the price movements of gold and silver.

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