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Trading Blog Tuesday, September 28, 2021

9/28/2021

BROAD STOCK MARKET UPDATE (5:30 pm EDST)

The broad stock market took a severe plunge today right at the opening bell (the S&P 500 and NASDAQ also opened with "gap-downs"). This is not too surprising as all three indices were topping out in the center of our current reversal zone, and the DOW made a new weekly high yesterday without the S&P 500 and NASDAQ (bearish divergence signal). Here's what we need to watch for in each index right now:

If the DOW finds support around 34,000 and starts to rally again, it could be a "double-bottom" to last Monday's low and represent the start of a new medium-term cycle. That would be at least short-term bullish. On the other hand, if this plunge continues and closes below 33,613 (last Monday's low), then this would be an older cycle falling to its final bottom which is due anytime over the next several weeks (possibly mid-October).

The S&P 500's current medium-term cycle is not due to bottom for at least more 5 weeks. That means that if this index breaks below last Monday's low (4,306), it will likely be headed down for at least a month. But if today's plunge doesn't follow through over the next few days and reverses back up, then this index could rally some more into October for another high (possibly a new all-time high) before another severe drop. (Today's "gap-down" makes this bullish scenario seem less likely - but still possible).

The NASDAQ is the youngest of all three cycles. Today it dropped to strong support around 14,500. If that support area can hold, this index, like the DOW, could also be forming a "double-bottom" with last Monday's low for the start of a new medium-term cycle. That would be bullish. It seems more likely, however, that this support could break. If that happens, the NASDAQ could be down for many weeks (even months).

Trading Blog Monday, September 27, 2021

9/27/2021

MARKETS UPDATE (8:00 pm EDST)

We are now entering a time period starting today through the first three weeks of October in which all markets could be very volatile and indecisive. Thus, we need to be especially cautious, nimble, and flexible with any trading during this period as markets may be giving us mixed signals. Even today the broad stock market is a little tricky to call, especially because our major indices (DOW, S&P 500, and NASDAQ) may be taking different cycle paths. It might be best to look at each index separately.

The DOW is probably ending an older medium-term cycle with its final bottom due anytime over the next 3-6 weeks. If this is the correct labeling, the current rally in this index should end soon (without making a new all-time high) and the DOW should fall to its final cycle bottom. But there is a possibility that the older cycle ended with last Monday's plunge and low at 33,613. In that case, this index could be bullish now and could make a new all-time high right away (even this week). We are now in the center of a reversal zone (Sept. 22-30), so some sort of top and reversal could be imminent. If the DOW can't close above its 45-day moving average (currently around 35,034), it's probably an older cycle and will fall quickly. On the other hand, a break above there (and especially to a new all-time high) would support the idea of a new cycle that could possibly rally into mid-October. Even a new cycle, though, might be bearish if it can't make a new all-time high. In that situation, we might get a top (below 35,361) in the first or second week of October followed by a very long and steep multi-month drop to the final cycle bottom. Although these medium-term cycles are not very clear at the moment, it IS clear that we should be keeping an eye out for a good spot to sell the DOW short as a longer-term cycle top is now due (overdue). The only question is whether this longer-term cycle has already topped out with the Aug.16th all-time high of 35,631 or will make a new all-time high.

The S&P 500 is most likely an older medium-term cycle that started on June 21 or July 19. In both cases, we are expecting a corrective drop to the final cycle bottom due sometime in the next 5-12 weeks. As with the DOW, the top may already be in with the S&P's all-time high (4,546 on Sept. 2). If that's the case, we expect this index to roll over soon and continue its drop to the final cycle low. But there's also the possibility of it breaking to a new all-time high before the final descent. That could happen in this week's reversal zone or possibly in the first half of October. We are looking to sell short here as well.

The NASDAQ is most likely a new, young medium-term cycle that started on Aug. 19 or Sept. 20. This makes the NASDAQ potentially the most bullish of the three indices. But to be bullish, this index now has to break its all-time high of 15,403 from Sept. 7 fairly soon, and NOT break below last week's low of 14,530 (and certainly not go below 14,424). As with the other two indices, we are looking for a final medium-term cycle top to sell short, and it might come early in the cycle of this index.

We will remain on the sidelines of all three indices for now.

I have been favoring a bullish view of gold recently because it looks like a longer-term (about 3 year) cycle in gold bottomed in March and August (double-bottom) this year, and early phases of a cycle are usually quite bullish. However, the current medium-term cycle (which began with the low of $1693 on Aug. 9) is showing a reluctance to rally and could be turning bearish. Last week's low at $1739 was in our reversal zone and could be a sub-cycle low and the starting point for a rally. Gold did rally early today, but then prices fell back to close near the bottom of today's range - a bearish sign. We need to see gold closing above $1800, and especially $1834, for the trend to start looking bullish again. A clear break below $1693 (and especially $1677) would be a very bearish signal and could mean gold is headed down to its final 23 year cycle bottom due sometime in 2023 - 2024 (with prices near $1000). We will watch these "lines in the sand" carefully now for any bullish or bearish breaks.

In last Monday's blog on silver I wrote:

"Silver prices are clearly breaking well below the $23 low of Aug. 9, which we had labeled as the start of a new medium-term cycle. If that labeling is correct, silver has turned very bearish and prices are breaking down. There is, however, the possibility that Aug. 9 was not the start of a new cycle and that instead an older cycle is now completing its final corrective drop to its final bottom below $23."

That low last Monday at $22.07 may have been the end of an old medium-term cycle and the start of a new one. That would make silver very bullish now, but prices would have to rally above $24.82 to confirm this labeling. The alternate view is that silver started a new medium-term cycle with the double-bottom of Aug. 9 ($23.02) and Aug. 20 ($22.92). In that case, silver's trend is bearish because prices have already moved below the start of the cycle. It is unclear at the moment which view - bullish or bearish - is correct.

We will remain on the sidelines of both gold and silver until the cycle patterns become more clear.

Tomorrow is the last day of our reversal zone for currencies (Sept. 20 - 28), and the U.S. Dollar Index appears to be making a top. If that's the case, we should see a correction down starting any day now. That would probably be bullish for the precious metals, but if the greenback pushes higher after tomorrow, gold and silver could fall lower.

Crude oil also seems to be topping out in the center of our current reversal zone. We are pretty confident that crude started a new medium-term cycle with its low of $61.11 on Aug. 23 (Dec. contract chart). That low may also be a longer-term cycle bottom (which would make crude potentially very bullish now). A sub-cycle top is now forming. The estimated target for that top is $76 - $78. Crude's price got above $75 today. We will now wait for a top and corrective drop and a good opportunity (price) to buy. There is a potential for this cycle to go as high as $88 - $90. Staying on the sidelines of crude for now.

Trading Blog Saturday, September 25, 2021

9/24/2021

BRIEF COMMENT on the BROAD STOCK MARKET (1:00 pm EDST)

After an opening bell "gap-down" and a dramatic plunge on Monday, our major broad stock market indices (DOW, S&P 500, NASDAQ recovered smartly this week. They rallied and filled in those "gap-downs" by Friday's closing bell. Does this mean the correction is over? Maybe. But at the moment, this rally looks like it could be a "dead cat bounce". Monday's plunge broke several support levels which turned the cycle trends bearish. These indices would have to start making new all-time highs fairly soon to turn the bearish trend around. If this does look like a dead cat bounce, we may consider selling the market short, maybe even this week-end. Staying on the sidelines for now.

Trading Blog Wednesday, September 22, 2021

9/21/2021

UPDATE on the U.S. DOLLAR and CRUDE OIL (6:00 pm EDST)

The U.S. Dollar Index may have started a new medium-term cycle in August, and if so, it could be quite bullish and in a position to rally for many more weeks (even months). But this index could also be right at the end of an older medium-term cycle and ready to move sharply down to its final cycle bottom. Because that bottom is due anytime over the next three weeks, we will soon know which cycle (old or new) is correct. We are now in a reversal zone specifically for currencies (Sept. 20 - 28). A high formed yesterday at 93.45. That could be a top, or we could get a higher one anytime through next Tuesday followed by some sort of correction. Any corrective drop would likely push precious metal prices higher.

Our longer-term view of the U.S. Dollar is still uncertain. As I have discussed before, Democrat presidential administrations are statistically usually correlated with a rising dollar. But there is a strong possibility that a 16.5 year long-term cycle in the dollar started in 2008 and is now coming to an end. The top to this cycle was actually a "double-top" at 103.82 in Jan. 2017 and 102.99 in March of 2020. The U.S. Dollar Index has fallen steeply from there, and the 16.5 year cycle is due to bottom sometime in late 2024 or early 2025. But it is possible that the current Democrat administration could throw this cycle off. The dollar has been rallying since the start of the new year (and new administration). If the greenback can continue to rally and it breaks above that double-top (103.82), then we will have to assume the 16.5 year cycle has been distorted or truncated. But that top is far away from the dollar's current value (93), and there is still plenty of time for the greenback to turn back down and resume its fall to the final 16.5 year cycle bottom in 2024-2025. Three possible downside targets for this bottom would be around 87, 78, or even as low as 54. There are three years left in the strongly Democrat Biden Administration. Will this be enough time to push the U.S. Dollar to new highs (above 104)? In the equity "crash" of 2008-2009, investors fled to the greenback as a safe haven. If the broad stock market experiences another severe correction soon (as we are expecting), will investors do the same thing? It is a possibility. We shall have to wait and see.

Crude oil started a new medium-term cycle on Aug, 23 with its low at $61.11 (Dec. contract chart), and prices have risen sharply from there. We are expecting a sub-cycle top and a modest correction in this market sometime over the next few weeks. We will wait for that correction as a possible opportunity to buy as this market looks quite bullish at the moment. Staying on the sidelines of crude oil for now.

Trading Blog Monday, September 20, 2021

9/20/2021

UPDATES on GOLD, SILVER, and the BROAD STOCK MARKET (4:30 pm EDST)

Fears of a real estate crisis in China as well as the looming likelihood of the Fed raising interest rates before the year is over (possibly in November) spooked the broad stock market today into a serious tumble. All of our major indices (DOW, S&P 500, NASDAQ) are now looking seriously bearish or at least potentially very bearish.

The DOW is the most bearish looking index right now. It is most likely an older medium-term cycle that is now headed down to its final low, which is due in 4-8 weeks. That would put the final bottom sometime in October/November.. How low could it go? Well, 33,271, the start of the cycle back in June is a likely first target to test. Today's plunge is already taking us fairly close to that level. A second target below that would be around 32,780. If a major long-term correction is underway (now possible), the DOW could even get as low as 27,000 pretty quickly. One likely scenario now would be to see the current medium-term cycle bottom in October followed by the start of a new medium-term cycle which could rally into the end of the year. That new cycle may or may not make a new all-time high, but once it tops out, we would expect it to start a long correction to the bottom of a longer-term cycle over the next few years. This could be a potentially VERY serious correction (possibly 50% or more) - the one we have been anticipating for some time now.

The S&P 500 is also an older cycle, and today it has, like the DOW, now taken out its Aug. 19 low. This is a bearish signal and indicates the medium-term cycle has likely peaked and is now headed to its final corrective bottom, which is due in 3-10 weeks, maybe longer. A likely target for this bottom would be in the 4,100 - 4,200 range.

We have been labeling the NASDAQ a younger cycle that started with its 14,424 low on Aug. 19, but today's steep plunge is putting that into question. It could still be a young cycle if this decline holds that 14,424 low and forms a "double-bottom". But if that low breaks, it's possible an older cycle could be bottoming anytime over the next four weeks. The target could be around 14,100.

Based on this analysis, I think the best trading strategy now is to wait for these medium-term cycles to bottom. This may give us a buying opportunity for at least a short-term rally at the start of the new cycles. But our main objective is to identify the final long-term top in this market and position ourselves to sell it short for the "big drop". If these indices can't make new all-time highs by the end of this year, that final top may already be in. Staying on the sidelines of the broad stock market for now.

The trend in the precious metals is not clear at the moment. Silver prices are clearly breaking well below the $23 low of Aug. 9, which we had labeled as the start of a new medium-term cycle. If that labeling is correct, silver has turned very bearish and prices are breaking down. There is, however, the possibility that Aug. 9 was not the start of a new cycle and that instead an older cycle is now completing its final corrective drop to its final bottom below $23. This view is supported by the fact that silver is breaking below its Aug. 9 low while gold is still holding well above its Aug. 9 low. This creates a strong intermarket bullish divergence between the two metals. Nevertheless, we can't rule out the bearish view yet. If silver is breaking down, it could pull gold down with it. If gold breaks below its Aug. 9 low ($1693), then that would confirm the bearish trend, and gold could be starting its long descent to its final 23 year cycle low (due around 2023 - 2024) with a price target back down to the $1000 area.

But there is still hope that gold can rally now and re-test and even exceed the recent $1915 high (from June 1), as long as prices stay above $1693. A bullish sign would be gold breaking and closing clearly above $1800 and silver above $23.50. Until that happens, we will remain on the sidelines of both metals.

Trading Blog Thursday, September 16, 2021

9/16/2021

GOLD AND SILVER TRADE ALERT (2:00 pm EDST)

Gold making a new weekly low Tuesday and negating its bullish divergence to silver was a warning that lower prices could follow, and indeed, that is happening today. Both gold and silver most likely started new medium-term cycles on Aug, 9 with gold's low at $1693 and silver's low at $23. We are now seeing the first sub-cycle correction in these new (young) cycles. Even with today's big price drop, gold's correction is still above the start of its cycle ($1693) and is still within the range of a normal correction. In other words, gold could still be bullish here, as long as it doesn't close below $1740. A close above $1767 tomorrow would also help the bullish case.

Silver's situation is more bearish right now. Silver prices today are testing the $23 level, which was the start of silver's medium-term cycle. If this turns out to be a double-bottom, then silver could still be bullish. If silver is still completing an older cycle (i.e. if Aug. 9 was NOT the start of a new cycle) and it bottoms here, then that also could be bullish. But if Aug. 9 WAS the start of the cycle and prices continue to fall, that would mean the new cycle is turning bearish and would be headed lower for at least two more months.

I suggested a stop loss parameter for our silver trade based on a break below $23. That is happening today, so we should sell our silver position now. While gold is still above $1740, silver's potential bearishness could bring down both metals, so I am going to sell my gold position here as well. We are taking a loss on both of these, but we may go back in and buy if gold stabilizes above $1740 and silver forms a double-bottom. For now I am selling my long positions in both gold and silver.

Trading Blog Wednesday, September 15, 2021

9/15/2021

MARKETS UPDATE (5:30 pm EDST)

We have two fairly strong general reversal zones in the second half of this month - Sept. 13-21, and Sept. 22-30. These are back to back, so the rest of this month is essentially one big reversal zone, and this could affect all the markets we trade. (There is, however, a reversal zone specifically for currencies Sept. 20 - 28). This means that any market could make a significant high or low and a significant reversal at any time. Nevertheless, the center of these reversal zones are considered the most likely pivot points, and that would be around Sept. 15-16 and Sept. 27.

In the broad stock market, the DOW and S&P 500 are most likely older medium-term cycles that are nearing completion; however, the NASDAQ is almost certainly a young (new) cycle that began with its low of 14,424 on Aug. 19. This creates a little dilemma in determining whether the broad stock market is still bullish or is turning bearish. The older DOW and S&P 500 cycles may have already peaked and could be ready to turn down, but the NASDAQ's cycle just started, and new cycles are usually quite bullish. So will the NASDAQ take the lead and keep the other two indices bullish, or will the DOW and S&P 500 turn down and pull the NASDAQ down with them? We will have to wait and see. The DOW is currently the most bearish because it broke below its Aug. 19 low. The S&P 500 is still above its Aug. 19 low (4,368), but if it breaks below, it too will be supporting the bearish view. The NASDAQ breaking below its Aug. 19 low (14,424) would be VERY bearish and would be a strong signal that the broad stock market is starting a MAJOR longer-term correction.

Today, the market was bullish. The DOW seems to be finding support at 34,500. If that support holds, it may be the start of a new medium-term cycle, and this index could still be bullish (at least short-term) and possibly headed for a new all-time high. The S&P 500 is bouncing off its 45-day moving average yesterday and today, so that might be a significant sub-cycle low and reversal up supporting the bullish view. The NASDAQ may also be finding some support at the round number line of 15,000.

We will remain on the sidelines of all three indices for now until the trend - bullish or bearish - is more clearly established. Our main focus now in equities is to determine when a final LONG-TERM cycle top is in so that we can sell short a major correction in this market. That top may already be in for the DOW (the high of 35,631 on Aug. 16), but it is still a little to early to confirm that with certainty.

Gold prices made a new weekly low yesterday, and this negates our bullish divergence signal to silver from earlier in the week. Gold and silver both started new medium-term cycles in August and are therefore potentially very bullish now. Gold may have even started a new longer-term cycle, which would make it even more bullish. This is why we are holding long positions in both metals. A sub-cycle low is due in both cycles (it may have happened already with silver's low on Monday and yesterday's low in gold), and as long as prices don't go too low, we can expect a bullish rally soon. We are holding our long positions in gold and silver for now.

In my last blog on crude oil (Sept. 7) I wrote:

"...prices seem to be falling, so we may look to buy a low by the end of this week - UNLESS prices jump to a new high in the same time frame. In that case, we may wait for a second dip from that high. A clear break and close above $70 would be a bullish sign indicating higher prices ahead."

Well, this week prices did jump dramatically and have been closing well above $70. It's a bit too late to chase this rally now. Crude started a new medium-term cycle on Aug. 23, so it's first sub-cycle correction should be due soon. We will watch for that as a possible spot to buy as this market looks bullish and prices could get as high as $90 in this new cycle. Staying on the sidelines for now.

Trading Blog Monday, September 13, 2021

9/13/2021

SILVER TRADE ALERT (3:00 pm EDST)

Silver has now hit our price target for a bottom ($23.75), and prices made a new weekly low today without gold which gives us an intermarket bullish divergence signal. Prices are also closing near the top of today's range (another bullish signal). This looks like a good spot to buy. We will keep a tight stop loss on this trade as silver can be quite volatile. We don't want to see prices closing below $23. Entering a long position in silver today. (Still holding our long position in gold).

Trading Blog Sunday (late night), September 12, 2021

9/12/2021

BROAD STOCK MARKET UPDATE (11:30 pm EDST)

Last week the broad stock market closed with a strong dive in all three major indices (DOW, S&P 500, NASDAQ), but especially significant was the drop in the DOW. This index broke and closed below our "line in the sand" (the Aug. 19 low of 34,691). That means the current medium-term cycle in this index has turned bearish and will be headed lower until its final bottom is reached. That final low could happen anytime now over the next five to eight weeks. If a low happens quickly and stays above the start of the cycle (the June low of 33,217), then the DOW may still be bullish and attempt to make another new all-time high before the year is over. But if this index plunges below 33,217, a bearish trend will be in place, and the DOW could fall considerably lower.

The S&P 500 and especially the NASDAQ do not look quite so bearish. The S&P 500 is still well above its Aug. 19 low of 4,368. As long as it doesn't break below there, its trend is still bullish. The NASDAQ is also well above its Aug. 19 low - 14,424 (which was probably the start of a new medium-term cycle) - so it is also bullish.

There is the possibility of a "Black Monday" type sell-off tomorrow. This sometimes happens when the markets fall all week with their biggest dive on the last day of the week. This is what happened on Friday. If this happens, the DOW could lead the other two indices into a bearish trend. The strongest signal for an overall bearish trend would be the NASDAQ moving well below 14,424. A big gap down after a bad week of trading doesn't always happen, but it is a possibility. If we get through Monday without a serious plunge, we'll watch for a bottom in the DOW over the next several weeks with the idea that the S&P 500 and NASDAQ will stay above those Aug. 19 lows. If they don't, a serious correction in the broad stock market could be underway. Staying on the sidelines for now.

Trading Blog Thursday, September 9, 2021

9/9/2021

BRIEF COMMENT ON THE BROAD STOCK MARKET (4:00 pm EDST)

This week several Fed officials have been have been discussing the possibility of tapering bond purchasing or QE (oops...can I say that?) by the end of this year. This has been putting downward pressure on the broad stock market - especially the DOW. If the Fed is not careful, it's rhetoric could trigger a serious selloff. After all, this nervous and overbought market is ripe for one. I've been leaning towards the idea of equity markets pushing a bit higher into September or perhaps even later into the year for a final top (perhaps even a "blow-off" top) before a very serious correction. This is still possible, unless hawkish rhetoric from the Fed kick-starts a serious correction sooner than later. We will have to wait and see. The DOW is getting pretty close to our "line in the sand" at 34,691. As I stated earlier this week, a break and close below there could signal a major downturn in the DOW, and if that happens, the S&P 500 and NASDAQ could follow.

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