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Trading Blog Tuesday, October 31, 2017

10/31/2017

CRUDE OIL TRADE ALERT (5:30 pm EDT)

Crude oil prices edged higher today (to $54.85 - Dec. contract chart) and are pushing against resistance in the $55 area. We are now just past the mid-point of a strong reversal zone for crude (it ends Thursday) so we could easily be seeing a cycle top here. Because we are late in this medium-term cycle, a correction now would likely be sharp and move down to the final cycle bottom. A good target for that bottom would be the $47 -$48 area so selling short now could give us a decent profit. The danger here is if prices break and close significantly above $55. If that happens, it could be a "break out" and might require us to relabel the cycle points. What we can do here is enter a short position with a tight stop loss, say on a close above $55.60. Let's go short in crude oil at tomorrow's market open with a stop loss on a close above $55.60.

Trading Blog Monday, October 30, 2017

10/30/2017

MARKETS UPDATE (7:30 pm EDT)

The NASDAQ made a new all-time high today while the DOW and S&P 500 did not, and all three indices closed in the lower part of their day's range. Thus we are starting the week with a bearish divergence signal in a reversal zone. I am tempted to sell short here, but the reversal zone extends into Friday, and a positive jobs report is expected then. Bullish sentiment in this market could keep equities buoyant into the end of the week so I am going to stay on the sidelines for now. If markets do fall steeply into the end of the week, we will consider buying, but new highs into that time (especially if we maintain bearish divergence) would likely be a good shorting opportunity.

Gold and silver are starting the week in positive territory as we now enter a reversal zone specifically for the precious metals that lasts all week. I would prefer to see prices go lower into this reversal period towards the final bottom of an older medium-term gold and/or silver cycle and a good spot to buy.. But there is still the possibility that we started new cycles on Oct. 6. If we have newer cycles then these metals could rally strongly now. If gold closes above $1,286, that would support the bullish case. Breaking below last week's lows, and especially below gold and silver's lows from Oct. 6 would be bearish and would support the idea of older cycles. We will stay on the sidelines until one of these patterns asserts itself.

Crude oil prices are also moving up into a reversal zone this week, and today we are making new cycle highs. We are also approaching a resistance area around $55 (Dec. contract chart). We should be looking for a top to sell short this week. Let's see if we can edge up closer to $55 and watch for a short-term sell signal. That could come any day now. Still on the sidelines of crude.

Trading Blog Friday, October 27, 2017

10/27/2017

BRIEF UPDATE ON THE BROAD STOCK MARKET (2:45 pm EDT)

Today several important tech companies (e.g. Microsoft, Amazon) posted unusually high quarterly earnings that surpassed analyst's estimates. This caused a surge in the NASDAQ COMPOSITE INDEX as well the NASDAQ 100 INDEX (E-MINI) Dec. contract. This latter index was finally propelled above its high from last week so our bearish divergence signal is now negated. The S&P 500 is also making a new high for the week, but at the time of this writing (2:45 pm EDT) the DOW is still below its high from Tuesday. We will still watch for bearish divergence next week (i.e. one or more of these indices making new highs, but not all of them) for a possible signal to sell short. If we don't get it we will likely remain on the sidelines and wait for a corrective dip to buy.

Trading Blog Thursday (night), October 26, 2017

10/26/2017

MARKETS UPDATE (10:30 pm EDT)

We are now entering the next reversal zone for the broad stock market (Oct. 25 - Nov. 2). The S&P 500 and NASDAQ appear to be falling into this reversal from new highs early in the week. The DOW made a new high on Tuesday and is edging downwards but seems more reluctant to fall than the other two indices (it looks like it wants to push higher). The NASDAQ 100 (Dec. contract chart) has also been falling and never exceeded its high from last week so we still have an intermarket bearish divergence signal relative to the other indices. If all these indices fall steeply into next week, we could see a bottom to buy. The other possibility would be for one (perhaps just the DOW) or more (but not all four) of these indices to make a new weekly high next week. This might give us an opportunity to short the market for a brief (but sharp) correction into the third or fourth week of November. We will stay on the sidelines until we see how the market moves into next week.

Gold and silver prices plunged lower today, and it appears that there is a good chance they will fall into next week's reversal zone for the precious metals (Oct. 27 - Nov. 6). If they do, it could be an excellent spot to go long in both metals. We will watch for this. On the sidelines of gold and silver for now.

On Oct. 16 I wrote about the U.S. Dollar Index:

"There are also some chart patterns in the U.S. Dollar Index suggesting that a strong rally in the dollar could be imminent. Such a rally could really take off if the dollar can break above resistance in the 94 area. Needless to say, this would put downward pressure on the precious metals if it happens."

It looks like this is happening as the dollar surged and broke above 94 today, closing around 94.80. This is what pushed precious metal prices down today. The question now is how long will the dollar rally last and how high will it go? Apparently European Central Bank President Mario Dracula (oops, I mean Draghi - Halloween on my mind!) made some "dovish" comments on economic policy today that sank the euro and boosted the dollar. This kind of overreaction to a news story often dies down quickly. Because next week is a reversal zone not only for gold and silver but for currencies as well, I suspect the dollar's surge will be short-lived. We will watch for signs of a top in the dollar (and a bottom in the metals) next week. Some analysts are projecting the dollar to go as high as 97. Nevertheless, the chart of the U.S. Dollar Index is still quite quite bearish looking, and it is possible this dollar surge could turn out to be a "swansong rally" before the greenback really starts to break down. We shall wait and see how this plays out next week.

Crude oil prices continue to edge higher as we now enter another reversal zone for crude (Oct. 25 - Nov. 2). Prices are again challenging that Sept. 28 high at $53.11 (Dec. contract chart) so they could easily be making another double top or even a new high in this reversal period. We will now watch for signs of a high to sell short, possibly next week. Still on the sidelines of crude oil.

Trading Blog Tuesday, October 24, 2017

10/24/2017

BRIEF COMMENT ON THE BROAD STOCK MARKET (5:30 pm EDT)

I would just like to make a brief and general comment about the broad stock market right now. Without going into a lot of detail, I want to point out that this market is extremely overbought and is pushing the limits of "normal" balanced market behavior. Many longer-term technical parameters and limits are being exceeded and cycle patterns are being distorted which makes the market highly unstable and susceptible to a strong correction or even a "crash". That said, shorter-term technical signals still look bullish as "irrational exuberance" seems to have infected Wall Street and is keeping equity markets buoyant.

The bottom line here is that we are watching this rally with very cautious eyes. As my recent blogs have indicated, we could see a brief, moderate correction soon. As long as that correction is not too severe we are looking to buy the bottom for another possible up-leg in this "exuberant" rally. The top of that second rally (if it happens) will be closely watched as it could be followed by a very severe correction. As usual we will look to our reversal zones to pinpoint significant turning points in the markets. Our strategy now is to be cautiously bullish.

Trading Blog Monday, October 23, 2017

10/23/2017

MARKETS UPDATE (4:30 pm EDT)

The DOW, S&P 500, and NASDAQ (Composite Index) are all starting the week with new highs which rules out an intermarket bearish divergence signal for this week. But wait! The NASDAQ 100 INDEX (E-MINI) (Dec. contract) is not exceeding its high from last week so an argument could still be made for bearish divergence. These markets could start turning down now, but it would be better if the bearish divergence persisted into the second half of this week as the next strong reversal zone for this market is Oct. 25 - Nov. 2. That would be a better time for a significant reversal to start. The reversal could be sharp and significant (the DOW could go to 22,400) but probably brief (one or two weeks). If the NASDAQ 100 does not make a new high by the end of the week, I will consider shorting this market. Otherwise, we will just wait for the correction and try to buy near its bottom (as long as it doesn't go too deep). At this point in time the cycles seem to be suggesting another rally to new highs after a brief correction. If this happens, we will definitely want to sell short the top of that second high as it would likely be the final high to the current medium-term cycle and could be followed by a severe correction to the final cycle bottom. But I'm getting ahead of myself here. For now, we will remain on the sidelines and see how these markets move into the end of this week.

It is still not clear if gold and silver are getting ready to rally strongly now or if prices are going to plunge lower. Certain technical signals (including persistently bearish COT charts) are suggesting lower prices, but others are pointing to a rally. If both metals started new medium-term cycles on Oct. 6 (this is not confirmed) then gold and silver will rally. But if we are still dealing with older cycles then prices are likely heading lower to their final cycle bottoms. Good price targets for a bottom would be around $1,200 in gold and $16 in silver. The next strong reversal zone for precious metals is Oct. 27 - Nov. 6 (next week). If prices do move to those target areas into that time frame, it will be an excellent spot to buy both metals. On the sidelines of gold and silver for now.

In my Oct. 16 blog I wrote about the U.S. Dollar Index:

"There are also some chart patterns in the U.S. Dollar Index suggesting that a strong rally in the dollar could be imminent. Such a rally could really take off if the dollar can break above resistance in the 94 area. Needless to say, this would put downward pressure on the precious metals if it happens."

Well, the dollar has been rallying and is now back up to to challenging that 94 resistance. Technical signals are suggesting it could break through that resistance. We will have to wait and see if it happens. If it does, we could see gold and silver react and move down closer to those target prices mentioned above.

After nearly making a double top to the Sept 28 high of $53.11 with last Monday's high of $52.65 (Dec. contract charts) and then falling, crude oil prices are rising again. It is getting very late in the current medium-term cycle of crude and we are anticipating a correction to the final bottom of the cycle before the end of November. The next two strong reversal zones for crude are Oct. 25 - Nov. 2 and Nov.14 - 22. The final bottom will most likely be within one of these two time frames. Our target for the bottom is in the $47 area. If prices drop close to that target near the end of this week or next week, we will consider going long. Another possibility could see crude making another top in the first reversal zone and then falling to a bottom in the second one. That could give us a good shorting opportunity before we buy the final cycle bottom. We will wait and see how prices move into the end of this week. Still on the sidelines of crude oil.

Trading Blog Monday, October 16, 2017

10/16/2017

MARKETS UPDATE (4:30 pm EDT)

The broad stock market continued edging higher today as all three market indices (DOW, S&P 500, NASDAQ) made new weekly highs. This rules out any intermarket bearish divergence signal for this week. Can these markets still correct down now? Yes, but if they do, the correction is likely to be short-lived and not severe. The next important reversal zone for equity markets is Oct. 25 - Nov. 2. (it starts next week on Wednesday). If these indices correct down into that time period and the correction is not too severe, we will look to buy. The other possibility is for this market to continue rising this week and next. If that happens and we get a bearish divergence signal in the reversal zone, it will be a good spot to sell short. At some point before the end of the year we will see a final top to the current medium-term cycle in this market followed by what could be a very severe correction to the end of the cycle. We will want to sell short at that top. Currently on the sidelines of the broad stock market.

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

"COT charts are still bearish on the precious metals, and gold is still below $1,300 and silver below $17.47. Next week could be very volatile for these metals. That could mean a sudden break out, but it could also mean another correction down."

Well, gold broke above $1,300 on Friday, but today prices are closing at $1,293, and silver is still under $17.47. Both metals closed in the lower part of today's range. This and the fact that COT charts are still bearish on gold and silver suggests more downside for these metals. There are also some chart patterns in the U.S. Dollar Index suggesting that a strong rally in the dollar could be imminent. Such a rally could really take off if the dollar can break above resistance in the 94 area. Needless to say, this would put downward pressure on the precious metals if it happens. Right now the analysts that I follow seem to be divided on whether or not gold and silver are breaking out or moving lower short-term. There is a possibility that gold and silver could have started new medium-term cycles from their lows on Oct. 6. If that is the case, they could be very bullish now and ready to rally strongly. A break and close above $1,320 in gold and $17.50 in silver would suggest that is happening. A more bearish scenario could see gold and/or silver falling below their Oct. 6 lows ($1,262 in gold and $16.38 in silver) to make a final (older) cycle bottom probably in the last week of this month (the next reversal zone for precious metals). Precious metal prices could fluctuate strongly this week so we will remain on the sidelines until a directional trend becomes more defined. I should point out here that even if gold and silver prices correct down some more, the medium and long-term picture for both metals is still quite bullish, and we would be looking to buy the bottom of any correction.

It is getting late in the current medium-term cycle of crude oil. I had thought that the high of $52.86 (Nov. contract chart) on Sept. 28 was the cycle top, but it looks like that high may be challenged now as prices got to $52.37 today. Crude could make a new high or perhaps just a double top to Sept. 28. If that happens in the next reversal zone for crude (Oct. 25 - Nov. 2) then it will be a good opportunity to sell short as such a top would likely be followed by the final correction to the bottom of the current cycle. If prices start falling again we may just have to wait for the cycle bottom to buy near the end of this month. On the sidelines of crude oil for now.

Trading Blog Thursday, October 12, 2017

10/12/2017

MARKETS UPDATE (1:30 pm EDT)

I am traveling tomorrow and will not have much time to analyze the markets so I thought I would post a brief update today.

Not much has changed since my last post on Tuesday. The broad stock market is rising just a bit and does not seem to have much enthusiasm for a rally. It is nevertheless buoyant and seems equally unenthusiastic about taking a correction. We are not in a reversal zone (the next one is Oct. 25 - Nov. 6) and we have no intermarket bearish divergence signal this week so it seems our best position right now is on the sidelines.

Gold and silver prices are still rising a bit, but the short-term bearish factors that I mentioned in Tuesday's blog still apply. COT charts are still bearish on the precious metals, and gold is still below $1,300 and silver below $17.47. Next week could be very volatile for these metals. That could mean a sudden break out, but it could also mean another correction down. I am remaining on the sidelines of this market for now.

Crude oil prices rallied strongly Tuesday and Wednesday but are falling sharply today. Unless prices break above the $52.86 high from Sept. 28, we will stick to the idea that this market is falling into a cycle bottom over the next several weeks and possibly into the next reversal zone for crude in the last week of this month. Still on the sidelines of crude oil,

Trading Blog Tuesday, October 10, 2017

10/10/2017

MARKETS UPDATE (5:15 pm EDT)

We are now at the end of a major reversal period for equities with still no strong sell signal for this market. Yesterday we did have a case of bearish intermarket divergence as the DOW and NASDAQ made new weekly highs while the S&P 500 did not. That signal was negated today, however, as the S&P 500 broke above last week's high. Although we like to have a bearish divergence signal before a market turn down, it is not absolutely necessary. The broad stock market is very overbought and due for a correction, and that is supported by many other technical signals. We could still see a correction start any time now. Nevertheless, it is also possible to see this market continue its rally into the next reversal zone coming up in the last week of this month. I am not comfortable going long here without seeing some sort of correction first so I am am going to stay on the sidelines of the broad stock market for now.

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

"Gold and silver both made new lows this week on Monday (gold at $1,268 and silver at $16.54) at the dead center of this current reversal zone, but prices have not really rallied much from there, and they are back down close to those lows today. Let's see if we can get a bullish divergence signal early next week with gold but not silver making a new weekly low. If silver moves lower next week, we may have to wait a few more weeks for a bottom to buy. Despite the short-term bearishness we are seeing now in this market, the medium and longer-term picture for gold and silver still looks quite positive and bullish."

On Friday (the last day of the reversal zone for precious metals), gold and silver both plunged to new lows (gold to $1,261.80 and silver to $16.39 - spot prices) and both metals have been rising sharply from those lows. This is a very tricky market to call right now. There is a possibility that last week's lows represent the start of new medium-term cycles in gold and silver. If so, that would be very bullish. However, we didn't get a bullish divergence signal with those lows. Also, COT ( Commitment Of Traders) charts, which are rarely wrong, are still rather bearish on gold and silver (although their bearishness has eased a bit over the last week or two). This is suggesting that prices could still go lower. The next major reversal zone for these precious metals is coming up in the first week of November, but next week could also be a turning point (both metals could be very volatile next week). I am reluctant to go long until we can be more certain new cycles have started. Let's wait and see how prices move this week and into next week. If silver can close above $17.47, that would be a strong bullish sign. Gold closing the week above $1,300 would also be bullish. Still on the sidelines of gold and silver.

It appears that the current medium-term cycle in crude oil peaked with that high of $52.86 on Sept, 28, and if so, prices should be falling to a cycle bottom over the next several weeks. The next reversal zone for crude is Oct. 25 - Nov. 2 which would be a good time for that bottom to happen. A good target price for the bottom would be around $47, but it could go as low as $45. On the sidelines of crude oil for now.

Trading Blog Thursday, October 5, 2017

10/5/2017

MARKETS UPDATE (4:00 pm EDT)

We are now at the end of a strong reversal zone for the broad stock market (as well as precious metals) and equity markets are still looking very bullish. The NASDAQ 100 INDEX (E-MINI) Dec. contract chart finally broke above its previous all-time high (6,026) so now all of this market's indices (DOW, S&P 500, NASDAQ) are in record breaking territory. We will not see any intermarket bearish divergence this week. Equities are often bullish into holiday week-ends, and we have one this week-end (Columbus Day) in the U.S. For this reason, I'm going to extend the current reversal zone into next Tuesday. If we get a bearish divergence signal then (i.e. one or two, but not all three indices making new weekly highs) we may see a reversal in these markets and the start of some sort of correction. Still on the sidelines of the broad stock market.

Gold and silver both made new lows this week on Monday (gold at $1,268 and silver at $16.54) at the dead center of this current reversal zone, but prices have not really rallied much from there, and they are back down close to those lows today. Let's see if we can get a bullish divergence signal early next week with gold but not silver making a new weekly low. If silver moves lower next week, we may have to wait a few more weeks for a bottom to buy. Despite the short-term bearishness we are seeing now in this market, the medium and longer-term picture for gold and silver still looks quite positive and bullish. On the sidelines of gold and silver and waiting to buy.

As always, the U.S. Dollar Index will likely influence the direction of the precious metals. The dollar has been rallying since Sept. 8 and today nearly touched 94. Short-term technical signals are suggesting that the rally could continue a bit longer, but medium and longer-term charts still show the dollar to be in trouble. The current reversal zone for currencies ends next Wednesday. We could see the dollar form a top between now and then. If we do, that might correspond to a bottom in the precious metals.

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