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Trading Blog Monday, September 28, 2020

9/28/2020

MARKETS UPDATE (9:00 pm EDST)

Our labeling for the DOW and S&P 500 (older or newer cycles) is still in question, but we prefer the newer cycle labeling for now. In that case, the rally from Friday and today is the start of another sub-cycle that will peak shortly and then fall to the final medium-term cycle bottom. That bottom could be as low as 23,000 in the DOW and 3,100 in the S&P 500. Because of the strength of today's rally, however, we need to consider the possibility that last Thursday's lows were the final cycle bottoms and a new cycle has started in one or both these indices. These markets will have to turn back down soon to negate that possibility. If they do turn down (our preferred scenario), we will watch for a final cycle bottom to buy (ideally in our Oct. 7 - 15 reversal zone).

We are still labeling the NASDAQ as an older cycle ready to bottom at any time. We would like to see it get to 10,500 or even a bit lower in the NASDAQ 100 (E-mini, December contract chart) in our Oct. 7 -15 reversal zone. It got down to 10,656 two weeks ago which is close, but no cigar, and that wasn't in a reversal zone. Nevertheless, if the market keeps rallying now, we may have to accept that low and last week's low of 10,660 as a double-bottom and the start of a new medium-term cycle. As with the DOW and S&P 500, we will wait to see if this new rally has any legs. There was no intermarket bullish divergence between these three indices at last Thursday's lows (which we like to see at cycle bottoms) so that is yet another reason to suspect these indices could still go lower. We will remain on the sidelines of the broad stock market for now.

It looks like gold is nearing the end of its current medium-term cycle and is making its way down to the final cycle bottom. In this scenario, some minor rallying could happen, but the trend is down until that final bottom is hit over the next few weeks, possibly in our Oct. 7 - 19 reversal zone. We are looking for a low around $1800.

Silver has several different possibilities for its current medium-term cycle labeling, but our main concern is whether or not last week's low at $21.75 was a final bottom and start of a new medium-term cycle. If it was, we could see a strong rally from here. Otherwise, prices could still go a bit lower. As with gold, we could see a final low in our
Oct. 7 -19 reversal zone. A good target range now would be $19.50 - $20.00. A good buying set-up would be to see this target (and gold near $1800) with intermarket bearish divergence (i.e. either gold or silver - but not both - making a new weekly low). We will watch for this. On the sidelines of both metals for now.

It's starting to look like crude oil started a new medium-term cycle with its low of $36.58 on Sept. 8 (Nov. contract chart). If so, we will have to wait for a sub-cycle correction if we want to buy into the new cycle. If the current rally can't get above $44, however, it could mean the cycle is turning bearish, and in that case we would probably be looking to sell short at the sub-cycle peak instead of buying at the bottom. For now, we will remain on the sidelines.

Trading Blog Tuesday (night), September 22, 2020

9/22/2020

MARKETS UPDATE (9:30 pm EDST)

In last Wednesday's post on the broad stock market I wrote:

"... if equities start falling from here, we may have to wait for a bottom to buy in our next reversal zone coming up next week (Sept. 23 - Oct. 2)."

It seems that the Fed's dovish near-zero interest rate policy reiterated after last week's FOMC meeting was not enough to keep equities buoyant, and they did indeed start to fall steeply after Wednesday's high. The plunge continued yesterday but may be stabilizing (at least temporarily) today.

This steep correction has broken important support in the DOW and S&P 500 which means that regardless of whether these indices are old or newer medium-term cycles, they are likely now correcting down to their final cycle bottoms. A good time for those bottoms would be anytime in our upcoming reversal zones: Sept. 23 - Oct. 2 and Sept. 28 - Oct. 19 (a VERY wide reversal zone). The most likely and best time for a final bottom would be from Oct. 7 -15 so we will watch that time frame closely. Targets for the bottom could be around 3,150 in the S&P 500 (but possibly lower). The DOW might only fall to around 27,000 (it got there yesterday and today), but it could also go as low as 26,000 (or even 24,000 !). We enter our first reversal zone tomorrow so there is plenty of time for these targets to be reached.

The NASDAQ's medium-term cycle is also likely to bottom in these new reversal zones. Our first target for a bottom in this index was somewhere below 10,500. We almost got there yesterday, but this index found some support just above 10,500 and now seems to be rallying. Was that the bottom? Maybe, but it was not in a reversal zone, and there is still plenty of time for it to go lower and closer to our target price and ideal target time zone (Oct. 7-15).
We will remain on the sidelines of all three indices for now.

Gold and especially silver prices are dropping significantly this week, and that is suggesting that the precious metals are also moving down towards their final medium-term cycle lows. Those lows could be well below $1900 in gold and close to or below $23 in silver (we are nearly there already). As with the broad stock market, we will watch for bottoms in our upcoming reversal zones as we remain on the sidelines for now.

Not surprisingly, this week's drop in precious metal prices was accompanied by a surge in the U.S. Dollar Index. The greenback broke and closed above its 45-day moving average yesterday and today. This is bullish, but the medium-term cycle for this index is getting old so the dollar could peak and turn back down over the next several weeks. That top may correlate with a final bottom in the precious metals so we will keep an eye out for it.

Crude oil may have started a new medium-term cycle with its low of $36.13 (October contract chart) on Sept. 8. But there is still a chance prices could make a lower low (or double bottom) in our upcoming reversal zones, especially if the broad stock market pushes lower and takes some commodities (like gold, silver and crude) along with it. If we did miss a buy spot at the start of a new cycle on Sept. 8, we may have to wait for the first significant sub-cycle correction for another opportunity to buy. We are still on the sidelines of crude oil.

Trading Blog Wednesday, September 16, 2020

9/16/2020

MARKETS UPDATE (7:30 pm EDST)

The broad stock market has been rallying this week, but not very strongly. None of our three market indices (DOW, S&P 500, and NASDAQ) have reached a good target for a short sell, and tomorrow is the last day of our current reversal zone. If this market pushes significantly higher tomorrow, we still might still do that (sell short - we are looking for the NASDAQ to get to 11,500 or above), but if equities start falling from here, we may have to wait for a bottom to buy in our next reversal zone coming up next week (Sept. 23 - Oct. 2).

The Federal Reserve concluded its monthly meeting at 2:00 pm today and, as expected, left interest rates unchanged (i.e. near zero). Fed Chairman Jerome Powell also stated that rates would likely remain near zero through at least 2023. Normally such dovish rhetoric from the Fed would be cheered by Wall Street, but after the Fed's statement was released, equities fell sharply. Powell also stated that the pandemic-induced economic downturn continues to be a major problem and that a healthy economy won't be possible until business is relatively free of any pandemic restrictions. Perhaps investors realize that, despite herculean efforts from the Fed, the economy is still in a serious slump. Current delays in the second fiscal spending package from Congress to offset COVID losses is also more than likely contributing to pessimism on Wall Street. We will have to wait a few more days as investors digest the Fed's statements to see if these markets want to rally or take a correction. In the meantime, we will remain on the sidelines.

Crude oil seemed unperturbed by the broad stock market's dip, as prices rallied strongly today and closed just above $40 (Oct. contract chart). We may have missed a good buy spot near $36 (especially if the market closes the week above $40), but if the broad stock market starts to fall now, it could pull crude prices back down for another low. We will remain on the sidelines of crude for now.

The precious metals continue to be neutral in their directional trend as prices remain relatively flat (so far) this week. There are still technical indicators suggesting that a strong move either up or down is imminent. Because our current reversal zone ends tomorrow, we may have to wait for the next one (Sept. 23 - Oct. 2) to see a significant top or bottom. Still on the sidelines of gold and silver.

Trading Blog Monday, September 14, 2020

9/14/2020

UPDATE ON THE BROAD STOCK MARKET and CRUDE OIL (4:00 pm EDST)

The cycle labeling for the DOW and S&P 500 is still ambiguous (old or new medium-term cycles), but it looks like we are coming to the end of an older medium-term cycle in the NASDAQ. There is a strong chance we could see the final bottom to this cycle by Thursday (the end of the current reversal zone) somewhere below 10,500. That could be a good spot to buy. If instead the broad stock market rallies into Thursday, we could get that second chance to sell the NASDAQ short that I discussed in last Thursday's blog:

"We missed the peak (12,074 on Sept. 2) to sell short, but ... any rebound in our current reversal zone could give us a second chance to go short, especially if that bounce brings us back up to 11,500 or above."

So we will wait to see how this moves into Thursday. A rally above that 11,500 level may be a a good point to sell short, as long as it doesn't exceed the all-time high of 12,074. Otherwise, we will anticipate buying a drop below 10,500. We are on the sidelines of this market for now.

Crude oil is likely making its final medium-term cycle bottom now (if it didn't make it on last Tuesday's low at $36.13 (Oct. contract chart). Our current reversal zone ends Thursday so we will fish for a good buy spot near $36 this week. On the sidelines of crude oil for now.

Trading Blog Thursday, September 10, 2020

9/10/2020

MARKETS UPDATE (6:00 pm EDST)

The month of September is presenting us with a lot of reversal zones. We are nearing the end of the first one
(Sept. 2 - 11) and entering an overlapping second one (Sept. 8 - 17 ; this one is especially relevant to crude oil), and there is a third one coming up Sept. 23 - Oct. 2. What this means is that we could see all our markets making sharp reversals (up or down) in these time zones. Less common, but also possible, are breakouts or breakdowns in these same time periods.

Yesterday it looked like we were getting our anticipated bounce in the broad stock market from support at the 45-day moving averages in our broad stock market indices (DOW, S&P 500, NASDAQ), but today the market is back down and testing that support again. We will be in a reversal zone through next Thursday so this market could still find a bottom over the next five trading days. If the 45-day m.a. is broken, the DOW and S&P 500 could find support at the target levels mentioned in Tuesday's blog:

"If the DOW and S&P 500 are newer cycles (as we suspect), then we should get a sub-cycle bottom this week or next. That might be near the 45-day m.a. (now 27,300 in the DOW and 3,326 in the S&P 500, with both rising) or it could be in a wider target range between 26,500 - 27,500 in the DOW and 3,000 -3,300 in the S&P 500."

As I mentioned on Tuesday, the NASDAQ's medium-term cycle has most likely peaked and is now in the process of correcting down to its final cycle bottom. We missed the peak (12,074 on Sept. 2) to sell short, but as I stated on Tuesday, any rebound in our current reversal zone could give us a second chance to go short, especially if that bounce brings us back up to 11,500 or above. Still on the sidelines of the broad stock market.

Gold and silver prices rallied a bit yesterday and early this morning, but the rally has been weak, and both metals are closing down today. This market seems indecisive at the moment and has the potential for a strong move in either direction. We will stay on the sidelines of both gold and silver for now.

The U.S. Dollar Index has been rising this week, and that has most likely been keeping the precious metal prices from rallying strongly. The dollar is now encountering some resistance at its 45-day moving average, but it closed with bullish signals today. If the greenback can break through that moving average, the precious metals could take a hit and move lower.

The current medium-term cycle in crude oil is coming to an end as prices approach a final cycle bottom that is due this week or next. Prices seem to be finding support just above $36 (Oct. contract chart), but there's still time for them to go lower, especially if the broad stock market continues down. We are still interested in buying at the bottom of this cycle (and the start of a new one). A break above $40 now would suggest the bottom is in and may be a good signal to buy. For now, we are staying on the sidelines of crude.

Trading Blog Tuesday, September 8, 2020

9/8/2020

UPDATE ON THE BROAD STOCK MARKET (4:30 pm EDST)

Today equity markets took another big dive. All three broad stock market indices are approaching and testing support near their 45-day moving averages, and this is happening at the center of a very strong reversal zone
(Sept. 2 - 11). The big question now is whether this steep plunge will continue or will these indices find support near their 45-day moving averages (or even a bit lower) over the next several days.

If the DOW and S&P 500 are newer cycles (as we suspect), then we should get a sub-cycle bottom this week or next. That might be near the 45-day m.a. (now 27,300 in the DOW and 3,326 in the S&P 500, with both rising) or it could be in a wider target range between 26,500 - 27,500 in the DOW and 3,000 -3,300 in the S&P 500. Another rally would follow from such a bottom and likely take these indices to the highs mentioned in yesterday's blog (around 28,500 and 3,500 in the S&P 500, respectively) which could possibly give us a good opportunity to sell short. If the DOW and S&P 500 are NOT newer cycles but instead older cycles completing their final corrective plunges, then we probable won't see any bounce this week, and these indices will fall much lower than the targets mentioned above.

We are more certain that the NASDAQ is an older cycle and is in the process of falling to its final medium-term cycle bottom from last week's top at 12,074. Does that mean we missed the chance to short sell? Maybe, but this index is testing its 45-day m.a. today. If the DOW and S&P 500 rebound as I described above, the NASDAQ may bounce too and possibly give us another entry point for a short sell.

We are still on the sidelines of the broad stock market.

Trading Blog Monday, September 7, 2020

9/7/2020

MARKETS UPDATE (6:30 pm EDST)

Financial markets were closed in the U.S. today because of the Labor Day holiday and will reopen tomorrow.

As I mentioned on Friday, SOME sort of correction in the broad stock market started in the second half of last week, but uncertainty in the medium-term cycle patterns of our three major market indices (DOW, S&P 500, NASDAQ) is keeping us from knowing if it is going to be a deep fall or just a corrective dip.

The DOW and S&P 500 are probably young cycles taking a modest sub-cycle dip. If so, they should find support early this week (or even with Friday's low) and rally again. The NASDAQ, in contrast, is most likely an older cycle that topped out last week (Wednesday), and a steep correction to its final cycle bottom could already be in progress. Even in that index, however, we may see a short bounce this week back towards last week's high (but not exceeding it) before resuming its fall to a cycle bottom. Our trading strategy here will be to watch for another rally this week and try to sell short at the top as long as ALL THREE indices do not make new all-time highs. A good top for the rally might be around 28,500 in the DOW and 3,500 in the S&P 500. The NASDAQ rally may be modest, and it shouldn't exceed last week's high of 12,074. If we don't see any rallying this week, we will have to abandon this strategy and reanalyze the cycle patterns. Staying on the sidelines of this market for now.

The medium-term cycles in gold and silver are still not clear. There is still a good chance for both these metals to fall lower in price before any substantial rally so we will remain on the sidelines for now. We are still looking to buy as the general trend n the precious metals is still quite bullish.

It appears that crude oil's high of $43.78 on Aug. 26 was the top of the current medium-term cycle, and crude is now falling to its final cycle bottom which may happen this week or next. Because this market dropped so dramatically and abruptly in April (distorting a normal cycle), it is hard to pick a good target for this bottom; however, prices should at least fall below $38. We will watch for signs of a bottom and a possible buying opportunity. There is a reversal zone specifically for crude oil Sept. 8 - 17 so that would be a good time for the final cycle bottom. Still on the sidelines of crude oil.

Trading Blog Friday, September 4, 2020

9/4/2020

BRIEF COMMENT OF THE BROAD STOCK MARKET (2:30 pm EDST)

The huge fall in equities yesterday may be the start of the final medium-term cycle correction (s) in one or more of the major stock indices (DOW, S&P 500, and NASDAQ), but we may also be seeing just a sub-cycle correction here - it's too early to tell. In Monday's blog I wrote:

"While this could be the final top, we might also see the NASDAQ take a breather and correct down modestly with the DOW and S&P 500 and then rise with them to its final top a bit later (possibly in the first half of September). I don't want to underestimate the bullishness of this market right now."

This is still a possibility. I will comment more later this week-end.
We are still on the sidelines of the broad stock market.

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