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Trading Blog Thursday, September 28, 2017

9/28/2017

GOLD and CRUDE OIL TRADE ALERT and BROAD STOCK MARKET UPDATE (2:30 pm EDT)

In Monday's blog on gold and silver I wrote:

"Could we have seen the bottom of the recent steep correction in these metals with last Thursday's lows of $1,286 in gold and $16.85 in silver (spot prices)? It's possible, but we are now approaching another significant reversal zone for precious metals (Sept. 27 - Oct. 6), and there was no intermarket bullish divergence signal last week (both metals made new lows). Commitment of Traders (COT) charts are still looking somewhat bearish so I think gold and silver prices could move lower into this upcoming reversal zone."

Despite the Monday and Tuesday surge in gold and silver prices, we were wise to be cautious as both metals plunged lower yesterday and today and are indeed making new lows as we enter the Sept. 27 - Oct. 6 reversal zone. Since both gold and silver are making new weekly lows, we have no intermarket bullish divergence signal this week. However, as with the broad stock market, this reversal zone continues through all of next week so we could get that signal then. Today gold bounced strongly off of support in the $1,280 area and is closing near $1,290. That is bullish behavior, the cycle timing for a low is due this week, and we are now inside the reversal zone for gold (and silver). For all of these reasons I am going to enter a long position today in gold. We can set a close stop loss for this trade on a close below $1,270 or if gold and silver both make new lows next week. It's possible we are seeing gold's low now and will see silver's low next week for a strong case of bearish divergence (and a buy signal for silver). Going long in gold today but still out of silver.

Crude oil prices surged today to $52.86 (Nov. contract chart) before falling and closing the day around $51.50. That is bearish behavior. We are just past the center of the current reversal zone for crude oil (it ends next week on Monday) so today's high could easily be a significant top to the current rally. Our target for this rally was $53 - $54. I think $52.86 was close enough so I am going to take a decent profit here (we bought at $48) and sell my long position in crude today. Could it push higher? Yes, but some sort of corrective dip is likely now, and we might be able to buy again near the next reversal zone for crude in the last week of October. Taking profits and selling my long position in crude oil today.

The broad stock market has been unusually difficult to call recently as it seems reluctant to take any significant correction, yet it's rallying also seems to lack enthusiasm. We are now entering a strong reversal zone for this market (Sept. 27 - Oct. 6). On Monday I speculated that equities would fall into this reversal period and that we should be looking for a low to buy, but now it looks like we could instead get a high and top to possibly sell short. Yesterday the S&P 500 made a new all-time high, but the DOW still has not (it is close), and the NASDAQ is also still below last week's (all-time) high. We therefore have an intermarket bearish divergence signal until the DOW and NASDAQ break their highs (22,420 in the DOW and 6,478 in the NASDAQ COMPOSITE INDEX (COMBINED) and 6,026 in the NASDAQ 100 INDEX(E-MINI) Dec. contract). Because directional momentum in all three indices is currently almost 100% bullish and this reversal period extends through all of next week, I think it is too early to consider selling short. If we get more bearish divergence next week, however, we will seriously consider a short position. On the sidelines of the broad stock market.

Trading Blog Monday, September 25, 2017

9/25/2017

MARKETS UPDATE (3:30 pm EDT)

In last Monday's blog I wrote:

"...The nearby (Dec.) contract chart for the NASDAQ 100 INDEX (E-Mini), another popular NASDAQ index, however, did not make a new all-time high last week and also closed down a bit today. This may not be that significant, but I would like to see this index also break and close above its all-time high (6,026) to avert the possibility of all these indices taking a serious turn down now."

That Dec. NASDAQ 100 INDEX still has not exceeded 6,026 and is dropping steeply today along with the DOW, S&P 500 and NASDAQ COMPOSITE INDEX (COMBINED). We could thus be falling now into the upcoming reversal zone that begins near the end of this week and continues through next week (Sept. 27 - Oct.6). The longer-term cycles in the broad stock market are a bit confusing at the moment. They tell us that a long-term cycle high of major importance is due to be followed by a significant correction, but it is still not clear when that top will happen (it may have already happened with the recent all-time highs in the DOW and S&P 500). Several scenarios are possible now, but I am going to go with the idea that this market is still bullish and that it is taking a modest sub-cycle dip here before continuing higher. We will thus watch for a low to buy this week. If the DOW gets below 21,800 and/or the S&P breaks below 2,460, however, we may have to give up our bullish view. Still on the sidelines of the broad stock market.

Gold and silver prices are rallying today. Could we have seen the bottom of the recent steep correction in these metals with last Thursday's lows of $1,286 in gold and $16.85 in silver (spot prices)? It's possible, but we are now approaching another significant reversal zone for precious metals (Sept. 27 - Oct. 6), and there was no intermarket bullish divergence signal last week (both metals made new lows). Commitment of Traders (COT) charts are still looking somewhat bearish so I think gold and silver prices could move lower into this upcoming reversal zone. If they do, and one metal makes a new weekly low but not the other (bullish divergence), we will look to buy. On the sidelines of gold and silver for now.

The long-term chart of the U.S. Dollar Index is looking very bearish and is suggesting the possibility of a severe breakdown in the dollar soon. Short-term technical signals, however, are pointing to at least a brief rally in the greenback from a support level around 91. This dollar rally could help push gold and silver prices lower as suggested above, but it may not get very far before turning down again. That could happen in this upcoming reversal zone, which may be a good time to go long in the precious metals.

Our crude oil long position is doing well. We entered this trade on Sept. 11 with prices around $48. Today crude shot up to over $52. Our target for this rally was (is) $53 - $54 so we should be thinking about taking profits now. We just entered a reversal zone for crude oil on Friday, and the center point of this reversal is Wednesday. Let's see if we can at least hit $53 over the next few days before selling. (Of course, traders may take profits now if they wish as we are close to our target). Holding my long position in crude.

Trading Blog Wednesday, September 20, 2017

9/20/2017

COMMENT on the FED MEETING and UPDATE on the BROAD STOCK MARKET and PRECIOUS METALS
(5:00 pm EDT)

The U.S. Federal Reserve concluded its two day meeting today, and as most analysts expected, left interest rates unchanged. Many analysts expect one more rate hike this year (in Dec.), and if the economy stays on track, another three hikes next year (we shall see). More significantly, the central bank announced today that the Fed would begin unloading $10 billion of debt from its so-called balance sheet consisting of piled up purchases of Treasury and mortgage-backed securities it acquired after the 2008-2009 stock market crash to boost the economy with its unprecedented program of Quantitative Easing (QE). It would appear that the Fed is trying to give up its addiction to manipulating the economy with bond purchases and low interest rates. We need to take note here, however, that all of this depends on the economy doing well from this point on as well as financial markets remaining stable and relatively bullish. If the economy and/or markets turn sour, I would not be surprised to see the Fed slow or stop interest rate hikes and maybe even oil up the money printing presses and begin another round of QE (or perhaps a program under a different name with the same purpose of propping up a disintegrating economic system).

The DOW shuddered a bit after the Fed's announcement (What, no more support from the Fed!!!???) but then recovered and closed the day with a healthy 41 point gain. The Dec. contract NASDAQ 100 INDEX (E-Mini) chart that I referred to in Monday's blog, however, closed with a 17 point loss and still hasn't exceeded its 6,026 high from Sept. 1. We therefore still have a risk of the broad stock market turning down until that high is broken. Let's stay on the sidelines for now.

This signal of fiscal responsibility from the Fed today boosted the U.S. Dollar Index and pushed gold and silver prices down further. We need to watch carefully now to see if this will be just a temporary reaction to today's Fed announcement or the start of something more serious. Gold closed a bit below our $1,300 target for a bottom, and silver closed a tad below our $17 target. Friday could be a major turning point for gold, but we could also see a major reversal late next week into the first week of October for both metals. I am tempted to buy over the next day or two, but we need to be cautious because both metals are making new weekly lows so there is no intermarket bullish divergence signal. Directional momentum in silver also changed today from nearly 100% bullish to mixed bullish and bearish. (And so did the gold and silver mining company indices HUI and XAU. Mining companies are often bellwethers for the metals themselves so this may be a bearish warning). Next week may be a better time to buy these metals, as long as prices don't drop too far down. We don't want to see gold below $1,270 or silver below $15.70. Still on the sidelines of gold and silver.

Trading Blog Monday, September 18, 2017

9/18/2017

MARKETS UPDATE (7:00 pm EDT)

We are living in strange economic times. Equity markets are extremely overbought, and there are many reasons for them to turn down now (e.g. widespread geopolitical instability, threats of nuclear war, natural disasters, a controversial U.S. president, and a U.S. financial debt of over 13 trillion), and yet Wall Street continues to chug along, seemingly oblivious to all of these things that years ago could have easily caused a market selloff. My attitude here is to be cautiously optimistic. We will rely on cycle analysis and technical signals to tell us when the market trend seems bullish (as it does now), but we must keep a cautious eye on any downward corrections (especially from tops in reversal zones) as in this current volatile environment (geopolitical and financial) any dip could easily start to snowball into a major equity selloff.

On Friday the NASDAQ finally made a new all-time high (the DOW and S&P 500 made new all-time highs earlier in the week), and today all three indices are pushing higher. This is a bullish sign (i.e. no bearish divergence) that the broad stock market will continue higher. The NASDAQ index that I normally follow (and report on here) is the NASDAQ COMPOSITE INDEX (COMBINED). The nearby (Dec.) contract chart for the NASDAQ 100 INDEX (E-Mini), another popular NASDAQ index, however, did not make a new all-time high last week and also closed down a bit today. This may not be that significant, but I would like to see this index also break and close above its all-time high (6,026) to avert the possibility of all these indices taking a serious turn down now. Any minor dip in the DOW and S&P 500 would probably give us a good opportunity to go long for a likely rally into the next strong reversal zone coming up at the end of next week and into the first week of October. Longer-term, we are still watching for a peak in the current medium-term cycle (or possibly the next one) from which a significant correction could follow. That top could be in this next reversal zone. The game plan here is to look to buy and ride a rally into early October at which time we will step aside again and maybe even sell short. On the sidelines of the broad stock market for now.

Gold and silver prices fell steeply today. Gold is now getting close to our target price around $1,300 so we should be looking to buy soon. In terms of timing, it would be best to buy closer to the end of this week or even next week. Because both metals made new weekly lows today, we are not going to see any intermarket bullish divergence this week. That could happen next week, though, and if it does it would be a good buy signal. Let's see if these precious metals can get a bit lower before we consider a long position. Gold might go lower than $1,300, but we don't want to see it below $1,280. Silver could get down as low as $16, but we will consider buying close to $17. On the sidelines of both gold and silver but looking to buy this week or next.

Crude oil prices seem to be testing the $50 mark (Oct. contract chart) but have yet to close above it. As I mentioned in my last blog, we need to see prices get above the $50.51 high from Aug. 1 for crude's trend to stay bullish. A good target for the current rally would be $53 - $54. All of next week is a reversal zone specifically for crude oil. Let's see if crude prices can rally closer to our target into that time frame. Holding my long position in crude oil.

Trading Blog Thursday, September 14, 2017

9/14/2017

MARKETS UPDATE (4:30 pm EDT)

The current reversal zone for the broad stock market ends tomorrow. This week both the DOW and S&P 500 have made new all-time highs, but the NASDAQ has not (yet). We thus have bearish intermarket divergence, and we are still in the reversal zone so the market can turn down here. If the NASDAQ can break its all-time high (6,461) tomorrow or next week and all three indices continue to rise, we could see this rally persist into the end of the month. Let's stay on the sidelines until we see if the NASDAQ will turn down or "break out".

Gold and silver prices have been falling this week, but gold is still a good distance away from our target price of $1,300, and the cycle structure in the charts of both gold and silver is suggesting that both metals could fall further. There is a line of support for gold around $1,320 so we could see a small bounce here before gold moves lower, probably down into the next reversal zone for the precious metals at the end of the month and the first week of October. On the sidelines of gold and silver for now.

The U.S. Dollar Index is rallying strongly this week, and that is putting downward pressure on the precious metals. The next resistance line for the dollar is 93. We could see the dollar get there or higher by the end of the month (which is the start of another reversal zone for currencies). If it does, it could top out and turn back down, and this could kick start a major rally in gold and silver (especially if the dollar breaks below 90 and starts to "free fall").

Our decision to go long in crude oil on Monday was a good one. Crude prices have risen sharply and touched $50.50 today (Oct. contract chart). The current rally we are seeing was off a sub-cycle bottom on Aug. 31 at $45.58. It is still early in this sub-cycle. The next major reversal zone for crude oil is Sept. 22 - Oct. 2 (centered on Sept. 27). It would not be unreasonable to expect a significant top in crude in this upcoming reversal zone. Let's see if crude can continue to push higher for at least another week before we consider taking profits on this trade. We are being cautiously optimistic here, and I should note that prices need to start closing above $50.51 (the high from Aug. 1) for crude to stay bullish. Holding my long position in crude oil for now.

Trading Blog Monday, September 11, 2017

9/11/2017

MARKETS UPDATE and CRUDE OIL TRADE ALERT (3:30 pm EDT)

The broad stock market's dramatic upward surge today makes it most likely that Aug. 21 was the start of new medium-term cycles in both the DOW and S&P 500 (and maybe the NASDAQ as well). This clarifies our cycle labeling and gives us two possible scenarios going forward:

1) If the new cycle is going to be bullish, these indices could rally for at least eight more weeks before topping out.

2) On the other hand, we are now in the center of a significant reversal zone for equities, and there is another stronger one coming up at the end of this month into the first week of October (Sept. 27 - Oct. 6). This new cycle could top out early in either one of these time periods and start a major correction down that could be as much as 8 -10% (possibly more).

If this market is going to be very bullish (scenario 1), the DOW and S&P 500 both need to exceed their highs from Aug. 8 (22,179 in the DOW and 2,491 in the S&P 500) and the NASDAQ needs to exceed 6,461. All three indices are already close to breaking those levels. We will watch for this to happen before considering any long position. We need to remember that occasionally a "breakout" rally will occur in a reversal zone (instead of a reversal down). This might happen in the current reversal zone and could propel the market to a top in the next stronger reversal near the end of the month. On the sidelines of the broad stock market for now.

As we had hoped, gold and silver prices are falling from their highs on Friday (which was the center of a strong reversal zone for precious metals). Since the overall picture for both metals is still strongly bullish, we will now look for a spot to buy. A good target for gold would be near $1,300. Silver has the potential to drop severely (to $16.50 or even lower) but it may not do that (directional momentum is mostly bullish in both metals now). The reversal zone for precious metals ends on Thursday. On the sidelines of both metals but looking to buy soon.

The U.S. Dollar Index is bouncing from support at 91, and this is putting downward pressure on gold and silver prices. I don't expect the dollar rally to get very far, however, and we will look for a top in this rally to coincide with a bottom to buy in the precious metals.

After peaking last Wednesday at $49.42 (Oct. contract chart) in the dead center of a reversal zone specifically for crude oil, crude prices fell today to $47 into the center of our general reversal zone for all markets before closing around $48. With a support line at $47, this looks like a good spot to go long in crude. Let's do that today with a stop loss on a close below $47. We especially do not want to see prices drop below $45.58 as that would signal this market is turning bearish again.

Trading Blog Thursday, September 7, 2017

9/7/2017

MARKETS UPDATE (4:00 pm EDT)

The broad stock market continues to jitter up and down with no definitive direction as we now enter the center of the current reversal zone (Sept. 5 - 14). We are still on the watch for either a significant high or low that could be a turning point for a significant rally or another correction. The lows this week on Tuesday (Sept. 5) in the DOW, S&P 500 and NASDAQ could be just that, but so far these indices seem reluctant to rally. If we don't see a significant high or low by late next week, we may have to wait for the next stronger reversal zone in the first week of October. Still on the sidelines of the broad stock market.

Gold and silver are both making new highs today and testing their resistance lines ($1,340 - $1,350 in gold and $18 - $18.20 in silver) as we approach the center of our reversal zone (specifically relevant to the precious metals). We would like to see a correction now that would give us a good spot to go long in both metals. The U.S. Dollar Index is currently testing strong support at 92. Hopefully it will bounce here (short-term) in this reversal zone and help push the metal prices down a bit. As I've mentioned in previous blogs, the U.S. dollar is dangerously close to breaking down and taking a severe plunge. If that happens, gold and silver prices could take off strongly. On the sidelines of gold and silver for now.

Directional momentum in crude oil charts had been 100% bearish over the last two weeks, but yesterday they switched to mixed bullish and bearish. This gives us more confidence to go long on any corrective dips. Because crude prices are rising sharply into the current general reversal zone (which overlaps with a specific crude oil reversal zone through Friday), we could see that correction start any day now. The cycle structure in crude oil is a little unclear at the moment so we will wait to see if we get a correction and how far down it goes. On the sidelines of crude oil.

Trading Blog Tuesday, September 5, 2017

9/5/2017

MARKETS UPDATE (4:00 pm EDT)

We are getting close to the end of a highly volatile time period for most markets (it should end late next week), but today's sudden drop in the broad stock market tells us that it is not over yet. Is this market finally taking the big correction we've been waiting for? It's possible, but last Friday's high was not in a reversal zone (that window starts today and runs through late next week with the center at Sept. 9-10), and the present volatile climate can send markets back up as fast as it sends them down. If this market falls into the center of this reversal zone near the end of this week/early next week, we should be looking for a bottom to buy. That would be especially true if only one or two (not all three) of the major broad market indices (DOW, S&P 500, NASDAQ) make(s) a new low (intermarket bullish divergence). If all three indices make new lows, and especially if they start breaking their lows from Aug. 21, we might have a more serious correction on our hands. We will remain on the sidelines and watch how this market moves into the center of this reversal (Friday-Monday).

Gold and silver charts are looking increasingly bullish, and there are many technical configurations and patterns right now that suggest the longer-term trend in these precious metals is turning up. Both metals have been rising sharply, but they are now approaching resistance areas in their charts as we move into the center of a reversal zone late this week/early next week so a correction down could be imminent. We should consider any significant correction now as an opportunity to go long in both gold and silver. Ideally, we would like to see gold prices drop back to $1,300 or lower. Silver's drop (if it happens) could be more severe and might plunge into the $16.20 - $16.85 range. On the sidelines of gold and silver and waiting to go long.

As I've been saying in recent blogs, the U.S. Dollar Index could be in trouble. Last Tuesday I wrote:

"...the greenback is still in trouble and continues to look vulnerable to a serious plunge. A detailed technical analysis of the Dollar Index chart shows a strong support level at 92... If that breaks, there is a secondary line of support just above 90. Any break below 90 would likely lead to a serious plunge in the dollar. Such a plunge could ignite a fire under the precious metals and send prices much higher. That said, we could still see a short-term bounce in the dollar from the current support, but any rally would probably not get very far before turning back down again to challenge that 90 -92 area."

All of this still applies as the dollar continues to hover above that 92 support. This week's reversal zone also applies to currencies so we could see a temporary bounce in the greenback that could drive precious metal prices down towards those target areas mentioned above.

We sold our long position in crude oil last week as directional momentum in crude turned very bearish and opened up the possibility of a serious correction. Prices did correct down but only got as far as $45.58 (Oct. contract chart) before rising again. That low happened last Thursday and was very early in a reversal zone specifically for crude oil so that could have been a significant bottom. Prices have since risen sharply, and today they nearly touched $49. Crude's reversal zone continues into this Friday and maybe longer into early next week as it overlaps with our other reversal zone mentioned earlier (Sept. 5-14, centered on Sept. 9-10). This means we could see a top in crude this week or next and another correction down. Crude prices are now approaching a resistance line around $49 - $50 which could be a cap for this rally. We may have sold our long positions too early last week, but let's see if we get another correction down and how far it goes before we make another trade. Directional momentum in crude is still nearly 100% bearish so this recent rally may not get very far. On the sidelines of crude oil.

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