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Trading Blog Sunday (late night), October 30, 2016

10/30/2016

BROAD STOCK MARKET TRADE ALERT and MARKETS UPDATE (11:15 pm EDT)

The broad stock market made new weekly highs last Monday (which was at the center of a reversal zone) and then fell for the rest of the week. That looks like a significant turning point. A medium-term cycle bottom is due within the next four weeks. That could happen this week, but more likely that bottom would coincide with the next strong reversal zone at the end of November. The surprising news at the end of last week of the FBI's re-investigation of Hillary Clinton's emails will likely boost support for her rival Donald Trump (at least for a few days), and because the specter of a Trump victory seems to make equity markets nervous (at least in the short-term because he is a political newcomer and markets don't like unknown variables), this could support our idea of the markets falling now.
I am going to sell the broad market short now with a stop loss at last Monday's highs should the market turn up and close back above those highs (that would be 18,275 in the DOW and 2,155 in the S&P 500). I am placing this trade for tomorrow's open (Monday), but traders who read this late could enter a short position anytime tomorrow as long as those highs are not exceeded or the market doesn't drop dramatically (say, below 17,959 in the DOW and 2,100 in the S&P 500 - i.e. these points could become support for another reversal up and would be poor spots to sell short).

The medium-term cycles of both gold and silver are also due to bottom soon. They are actually overdue and could even bottom this week; however, there is a possibility that both metals already bottomed and began new cycles in early October and are still in their early stage. If that is the case then this market could turn bullish. We want to buy the start of any new cycle, but current technical signals are suggesting that the bottoms are not in yet and prices could go back down to the $1,200 area in gold and the $16 area in silver. Gold and silver both made new weekly highs last week, and we are now moving into the center of a strong reversal zone specifically related to precious metals which supports the idea of an imminent turn down. This market is tricky to call right now. I am going to wait and see if prices edge higher into early next week. If they do, we will consider selling short for a final move down to the cycle bottoms. On the sidelines for now.

Crude oil prices now appear to be making a subcycle bottom in a strong reversal zone and are close to our target range of $47 - $48. A bearish signal just appeared in crude's Sunday night chart so I am going to wait and see if prices can move lower and more directly into our target zone early next week. If they do, it could give us a good buy spot. Still on the sidelines of crude oil.

Trading Blog Friday, October 28, 2016

10/28/2016

BRIEF MARKETS UPDATE (3:15 pm EDT)

I am traveling today and will make just a brief post here as several markets are moving into critical positions based on our cycle and timing analysis. I am not recommending any trades today, but we may establish positions on Sunday for the market's open on Monday. I will post a longer blog sometime this weekend. We are currently on the sidelines of all markets.

The broad stock market is still looking ambiguous, but short-term technical signals are suggesting that this market could be turning bearish. If equities don't have a significant reversal up by the first half of next week, we may look to sell this market short to ride a final medium-term cycle correction down, possibly into the end of November.

Gold and silver prices are now rising into a strong reversal zone specifically for these metals that started yesterday and continues into next week (we actually have two reversal zones back to back here). We are now approaching our target area in gold to sell short (around $1,280) so we will consider a short position over the weekend.

Today crude oil is making a new low in a strong reversal zone, and prices are approaching our target ($47 - $48) for a bottom. We should be looking to buy here and will consider a long position this weekend.

Trading Blog Tuesday (late night), October 25, 2016

10/25/2016

MARKETS UPDATE (11:00 pm EDT)

As we enter the center of this week's reversal zone for the broad stock market (which could extend into the middle of next week), none of the three major market indices (DOW, S&P 500 and NASDAQ) seem to be making a significant high or low. All three did make a new weekly high yesterday, but because it was all three, there was no intermarket bearish divergence signal which we like to see before a significant reversal down. Yet, this market also seems reluctant to rally strongly. Nervousness over how markets will react to the results of the current U.S. presidential election, one of the strangest and most controversial in recent history, is likely responsible for the indecisiveness in equities now, and that may persist up until election day (Nov. 8th). There is still time (over the next five trading days) for these indices to move higher before reversing down, but if yesterday's highs were it, we could see equities fall into election day and even beyond to complete a final medium-term cycle bottom over the next several weeks. Directional momentum remains mixed bullish and bearish in all three market indices. I am going to remain on the sidelines here until I see more decisive directional signals.

Gold and silver prices have been rallying a bit this week. There is a very strong reversal zone for gold coming up on Thursday and Friday. If gold can rally to the $1,280 area over the next few days, we will consider selling it short. As I mentioned in earlier blogs, it is now looking like both gold and silver are late in their medium-term cycles. If this is correct then they are due to make their final cycle bottoms soon. If and when this happens, we will look to buy. Directional momentum in both metals is currently 100% bearish. On the sidelines of gold and silver for now,

It looks like last Wednesday's high in crude oil ($52.22 - December contract chart) did (slightly) exceed the high from Oct. 20 so that was likely the crest of the current subcycle. Prices are now falling to a subcycle bottom which could easily be in this week's reversal zone. A good target price would be in the $47 - $48 area. Let's see if prices can get there over the next few days. If they do, it may be a good spot to buy again. On the sidelines of crude for now.

Trading Blog Wednesday (late night), October 19, 2016

10/19/2016

MARKETS UPDATE (11:15 pm EDT)

The broad stock market is rallying (so far) this week but not that strongly. It is still unclear whether or not this market is going to make a medium-term cycle bottom into next week's strong reversal zone. If it does, we will look to buy. But if this rally continues into next week and the DOW stays below 18,450, we may consider a short position to ride a strong reversal down into that cycle bottom which could possibly be in late November. Because the U.S. presidential candidates both continue to have strong support (mainstream media polls are favoring Hillary, but many internet polls and alternative news sources claim that Trump is leading), equity markets are nervous and indecisive. Perhaps tonight's final presidential debate will determine a decisive lead. Or maybe not. Still on the sidelines of the broad stock market.

It doesn't look like gold or silver made a definitive bottom in last week's reversal zone but that could still happen as we approach next week's reversal. Today gold made a new weekly high while silver did not which could be a case of intermarket bearish divergence and supports the idea of a downward move into next week. If instead both metals break higher over the next several days with gold staying under $1,300 and silver under $19, we may consider selling short. It is a little unclear how these prices are moving right now so it is best to remain on the sidelines for now.

We took good profits in our crude oil long positions early Monday with the idea that prices could move lower, but crude jumped up today and nearly touched the recent high of Oct. 10 ($51.60 - Nov. contract chart) but did not exceed it. This suggests that the high of Oct. 10 may not be the current subcycle peak and that we could instead see it in next week's reversal zone. Crude could easily make a new high then, and if it does we will consider selling it short. On the sidelines of crude oil.

Trading Blog Sunday (late night), October 16, 2016

10/16/2016

CRUDE OIL TRADE ALERT and BRIEF MARKETS UPDATE (10:30 pm EDT)

It looks like it is a good time to take profits in our long crude oil position (which we entered on Sept. 26 around $44.50). Last week crude prices topped out at $51.60 (November contract chart) and then fell off sharply to close the week just above $50. While it is possible for prices to push higher over the next week or two, that top could be the peak of crude's current subcycle, and if so we could easily see prices move lower into the next reversal zone coming up at the end of this month. Because we already have a good profit on this trade, I am going to sell my long position in crude at the opening of tomorrow's market. If we do get a significant low in the last week of October, we will consider buying again as long as prices hold above $44; however, should prices push higher into that time, it may turn out to be a good opportunity to sell short. We will have to wait and see how the market moves. There is significant resistance in the $51 - $52 area. Selling all crude oil long positions tomorrow morning.

The broad stock market fell sharply last week. Unless equities can manage a strong rally this week, it looks like this market could be moving towards a medium-term cycle bottom in late October/early November (or possibly late November). We will watch carefully how the DOW, S&P 500 and NASDAQ move into the end of this week. On the sidelines of the broad stock market for now.

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

"Last week's sudden price plunge in silver (and gold) forced us to relabel silver's chart pattern as an older medium-term cycle (instead of a newer one) that, like gold's, should make a final cycle bottom this week or next. To stay bullish, silver needs to stay above $15.83 (which was the start of the cycle on June 1). If silver or gold (not both) break below last week's low while the other stays above its low from last week (intermarket bullish divergence) then we may have a good signal to buy this week or next."

There was no intermarket bullish divergence last week so we will watch for it this week. A good price target for silver would be around $16. Still on the sidelines of both gold and silver and waiting for a cycle bottom to buy.

Trading Blog Monday (late night), October 10, 2016

10/10/2016

MARKETS UPDATE (11:15 pm EDT)

The broad stock market was up a bit today after last night's second presidential debate. Again, the polls today are showing mixed results as to who won the debate, but it seems that Trump and Clinton are still generally on equal ground, and we probably shouldn't expect any dramatic impact on financial markets. As I mentioned in an earlier blog, it is late in the medium-term cycles of the DOW, S&P 500 and NASDAQ so we should be watching for a correction down to the final cycle bottoms in all three indices which is due any time between now and early December. The next reversal zone for equity markets comes in the last week of this month so it is possible equities could rally into that time and then start to correct down to the final cycle bottom in November or December. Alternately, if this market can't muster a rally into the election, we could see equities fall into a cycle bottom at the end of October. I think that the Federal Reserve and the current political establishment would prefer to see a rally into early November, but nervous investors may have other ideas (especially if Trump starts to gain on Hillary) and create a panic selloff that the Fed may not be able to control. On the other hand, if the Fed hints that there will be no rate hike in December, this could help stimulate a rally. If we do get a rally into the election, our strategy will be to look for a top to sell short for the final correction into a cycle bottom. But if equities fall significantly over the next two weeks into a final cycle bottom, we will be looking to buy. Still on the sidelines of the broad stock market.

In last Wednesday's blog on precious metals I wrote:

"...it's also possible that Sept. 1 was not the start of a new cycle and that gold is now correcting to the bottom of an older cycle which is due over the next two weeks. Next week is another reversal zone for gold and silver so that would be a good time for this bottom in gold to happen."

This seems to be happening. The low of last Friday at $1,243 could be the cycle bottom, but it is more likely we will see the cycle bottom this week or early next week at a lower price. If that bottom stays above $1,200 then gold can still be bullish, but if prices break below $1,200, the medium-term trend could turn bearish. We will watch prices carefully for a potential buy spot. Last week's sudden price plunge in silver (and gold) forced us to relabel silver's chart pattern as an older medium-term cycle (instead of a newer one) that, like gold's, should make a final cycle bottom this week or next. To stay bullish, silver needs to stay above $15.83 (which was the start of the cycle on June 1). If silver or gold (not both) break below last week's low while the other stays above its low from last week (intermarket bullish divergence) then we may have a good signal to buy this week or next. On the sidelines of both gold and silver for now.

The U.S. Dollar Index surged dramatically last week on speculation that the Fed will raise interest rates in December. This is what tanked precious metal prices. It is not clear from the dollar index chart, however, whether or not this rally can be sustained. If the Fed decides to delay a rate hike into next year to keep stock markets strong into the election then the dollar could fall back.

Crude oil prices continue to rally strongly, and our long positions purchased on Sept. 26 are now up nearly 14%. Crude has exceeded its Aug. 19th high ($50) and directional momentum for the current cycle is now 100% bullish. We aren't expecting a significant correction in crude for at least another week or two so I'm going to hold my long position here for now as it looks like prices could still go higher and reach our $53 - $54 target.

Trading Blog Wednesday, October 5, 2016

10/5/2016

MARKETS UPDATE (7:00 pm EDT)

Yesterday's plunge in gold and silver prices caught us by surprise as there had been several strong bullish technical signals and patterns developing in the charts of both metals over the last several weeks. Nevertheless, the current precious metals market (like most financial markets right now) can be very volatile, and chart patterns can always "abort". When this happens we can turn to cycle patterns and timing to reanalyze the situation and get back on our feet with a new trading strategy. Up until yesterday's price drop, it had looked like gold started a new medium-term cycle on Sept. 1. That may still be the case, and if so gold would be very bearish now because prices have fallen below the start of the cycle ($1,303). But it's also possible that Sept. 1 was not the start of a new cycle and that gold is now correcting to the bottom of an older cycle which is due over the next two weeks. Next week is another reversal zone for gold and silver so that would be a good time for this bottom in gold to happen. Silver's chart pattern strongly suggests that it also started a new medium-term cycle in late August. If true, this would make silver also very bearish. Directional momentum in both metals is now almost 100% bearish which is not a good sign. We will stay out of this market for now and watch how prices move into next week's reversal zone. It may be more clear by then whether or not a longer-term bearish trend is developing. Out of gold and silver for now.

The broad stock market continues to be indecisive as it seesaws up and down in a very narrow trading range. It could be that this market is waiting for the results of the Nov. 8th presidential election before deciding in what direction it wants to move. Fear of a Donald Trump victory as well as a possible December interest rate hike are two factors that are a bearish weight on equities right now. The next reversal zone for this market is in the last week of October (a week before the election). We will remain on the sidelines of the broad stock market until we see a stronger directional trend.

Our crude oil trade is doing very well. We bought crude on Sept.26 and the price is up 10% in nine days. As I mentioned in Monday's blog, crude is now challenging its Aug. 19th high of $50 so it may pause here and consolidate a bit. It's a little early in crude's cycle to take a major correction, and the next reversal zone for crude is about two and a half weeks away. A good target for the current rally would be around $53 - $54. I am going to hold my long position here with the idea of seeing a top closer to that target.

Trading Blog Tuesday, October 4, 2016

10/4/2016

GOLD and SILVER TRADE ALERT (3:30 pm EDT)

Gold and silver prices are plunging today. Gold and silver have broken below the $1,300 and $18.40 levels that I mentioned in yesterday's blog so if stop losses have not yet been triggered in these metals, traders should sell them as soon as possible. Today's sudden plunge was unexpected and I will comment on this later today or tomorrow. We are bailing out here to avoid any more unexpected damage, but I should point out that there is a good chance this correction will bottom in next week's reversal zone and that could be a good point to get back in and recover our losses. Stay tuned. Selling my long positions in gold and silver.

Trading Blog Monday, October 3, 2016

10/2/2016

MARKETS UPDATE (10:00 pm EDT)

Last week's equity markets were truly a roller coaster ride with large triple digit price swings up and down in the DOW, but the week's average remained centered around 18,200 which was not much changed from the previous week. The DOW, S&P 500 and NASDAQ are now all getting late in their medium-term cycles (which started in late June) which means we should start seeing tops in all three indices from which a significant correction will follow. I have been bullish on the broad stock market since the start of these cycles because it seems likely to me that the Federal Reserve and the current political establishment (both Democrats and Republicans) would not want a major stock market crash before the November 8th presidential election since that would favor the non-establishment candidate Trump. Also, the early stage of a new cycle is usually bullish. But we are now in the late stage of this equity cycle, and the rally from late June has been very weak. Despite the Fed's efforts to delay interest rate hiking, equity markets seem reluctant to rally strongly. In my last blog I stated:

"Politics aside, Wall Street does not like uncertainty, and in this presidential race Hillary Clinton, an establishment politician with a long history in political office, is a known quantity whereas Donald Trump, a political newcomer, is an unknown variable."

I believe that Donald Trump's continued strength in this race is making Wall Street nervous and is working against the Fed's efforts to buoy the markets with low interest rates. Right now Trump and Hillary seem to be running neck and neck, but if Hillary starts to move significantly ahead, we could still see a strong equity rally into November. On the other hand, if Trump takes the lead these markets could tumble down into the election. (Please note that I am not trying to tout the merits or deficiencies of either candidate - I am simply observing how financial markets are reacting to them.) Because we are late in the cycles of the DOW, S&P 500 and NASDAQ, it is possible that the tops to these cycles already happened with the highs of Aug. 15 in the DOW and S&P 500 (18,688 and 2,194 respectively) and the more recent high in the NASDAQ on Sept. 22 (5,343). In fact, the large time gap between the DOW - S&P 500 highs and the high of the NASDAQ is actually a case of intermarket bearish divergence as the NASDAQ has made several new highs since Aug. 15 while the DOW and S&P 500 are still below those mid-August tops. We also need to keep in mind that there is resistance for the DOW at 18,400 -18,450 (this is a "gap down" area from Sept. 8-9 and is the right side of a "bearish island reversal" - see my blog on Sept. 12). My point here is that it's possible for this market to turn bearish now, especially if Trump continues to be a strong rival against Hillary. We still can't rule out more rallying into the election, but I would at least like to see that gap down area in the DOW exceeded before I can feel comfortable being bullish. We will remain on the sidelines of the broad stock market for now.

Gold and silver prices continue to edge lower and challenge our long positions in both metals. Gold is staying above $1,300, but silver has broken below our original second stop loss point of $19. In my blog last Tuesday I wrote:

"We may even tolerate silver falling below $19 as long as gold remains above $1,300 (but we don't want to see silver go below $18.40)."

Silver closed today at $18.84. Tomorrow is the last day of the strong reversal zone for precious metals from last week so both metals need to start rallying now if that reversal is going to be valid. There is another reversal zone for gold and silver next week so it is possible for prices to fall lower into that time frame before turning up. If that happens, we could get a case of bullish intermarket divergence if silver falls below $18.40 but gold stays above $1,300 or the opposite with gold falling below $1,300 and silver remaining above $18.40. Both scenarios would be a bullish signal. What we don't want to see is gold below $1,300 and silver below $18.40. That would be bearish and would likely force us to abandon our long positions. I am going to hold my long positions in both gold and silver for now. Any traders who were stopped out of their long silver position should remain on the sidelines.

We are doing well with our long position in crude oil which we entered on Sept. 26. The current medium-term cycle in crude began on Aug. 3 at $40.77 (November contract chart) and prices reached $50 on Aug. 19 before correcting back down. Today crude got back up to $49.02 in intraday trading so it is challenging that August high. Directional momentum in crude also recently switched from 100% bearish to mixed bullish and bearish which is suggesting a trend change and the possiblility of exceeding that $50 high. The subcycle structure in crude is also telling us that it may be a bit early to take profits in this rally. Let's hold our long position here and see if crude can exceed $50 over the next week or two. Holding my long position in crude oil for now.

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