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Trading Blog Monday, October 29, 2018

10/29/2018

UPDATE ON THE BROAD STOCK MARKET and PRECIOUS METALS (3:30 pm EDST)

We are still waiting for the final bottom of the current medium-term cycle in the broad stock market. As I have stated in previous blogs, it is late in this cycle. The final top (peak) of the cycle happened on Oct. 3 for the DOW (26,952), Sept. 21 for the S&P 500 (2,941), and Aug. 30 (8,133) for the NASDAQ. All three indices have been falling sharply from those highs. There is a small possibility that last Friday's lows were the final cycle bottoms as they happened in a weak reversal zone (which ends tomorrow) or they could bottom today, but it is more likely this market is headed lower (perhaps after a short bounce) into November to make a final cycle bottom in one of the stronger reversal zones coming up in that month. The center points for those reversal zones would be Nov. 7-8, Nov. 16, and Nov. 30. There is a chance that the end of this medium-term cycle will coincide with the end of a longer-term 4 year cycle. If that is the case, we might not see the final bottom until late November/early December (which would line up nicely with that Nov. 30 reversal point) with the DOW getting as low as 22,000 or possibly even lower. But let's not get too far ahead of ourselves. For now we will watch carefully for possible signs of an earlier low to the medium-term cycle (i.e. before the end of the 4 year cycle) happening either now, near Nov. 7-8, or near Nov. 16. We won't worry about any rally this week unless the DOW closes above 25,400 (that would be a sign that last Friday's or today's lows were/are the final cycle bottoms). Continuing to hold my short position in the broad stock market.

In last Thursday's blog on the precious metals I wrote:

"...we have a case of intermarket bearish divergence in this market, and it is happening in a (weak) reversal zone. This means we could see a short-term correction now. The cycle pattern in both metals at the moment also allows for a sharp correction either this week or next week."

It looks like we are getting that correction now as gold and silver prices are dropping today. If gold moves close to the $1200 level this week, we will be looking to buy both metals. On the sidelines of gold and silver for now.

Trading Blog Thursday, October 25, 2018

10/25/2018

MARKETS UPDATE (3:00 pm EDST)

Our decision to hold our short position and "ride out" the relief rally in the broad stock market from the Oct. 11 lows has been a good one (so far). After three or four days of rallying off those lows, this market has resumed its plunge to new lows. Yesterday was the center point of a minor (weak) reversal zone this week, and all three major market indices (DOW, S&P 500, NASDAQ) made new lows below their lows from Oct. 11. Could this be the final bottom of the medium-term cycle in these indices? It's possible, but note that all three indices made new cycle lows. That means we do not have an intermarket bullish divergence signal to encourage us to take profits and cover our short positions. As I stated in my previous blog:

"The second week of November (around the 16th) looks like an ideal spot for the cycle bottoms, but it could also be earlier (say, around Nov. 7th). Note that both of these times are after the Nov. 6 elections in the U.S. which is significant as reactions to the election results could potentially reverse a trend in the market."

Today equities are rising sharply from yesterday's lows. Let's wait and see if this rally can gain any legs over the next few days before we consider covering our shorts. Holding my short position in the broad stock market.

Have powerful "anti-Trump" market manipulators succeeded in pushing down the stock market to help Democrats in the upcoming mid-term elections? Maybe, but technical and cycle analysis show that this market was ready for a significant drop anyway. If equities continue down into Nov. 6 (election day), or even Nov. 16 (a strong potential reversal point), we will be looking to cover our short positions and possibly go long at the final medium-term cycle bottom.

Gold is making new highs this week (near $1240) while silver remains below last week's high so we have a case of intermarket bearish divergence in this market, and it is happening in a (weak) reversal zone. This means we could see a short-term correction now. The cycle pattern in both metals at the moment also allows for a sharp correction either this week or next week. For this reason, I am staying on the sidelines of the precious metals for now. Aside from this possible short-term correction, both gold and silver are looking quite bullish, and we are waiting for an ideal spot to go long soon in both metals. A drop in gold prices close to the $1200 area would give us a good buying opportunity.

The U.S. Dollar index has been rallying, most likely due to fear of a crash in equity markets, but it is now approaching a strong resistance line near the August high of 96.79. Because we are in a reversal zone (although a very weak one), it's possible the dollar could turn down from here. If the U.S. dollar does turn down soon, it will support a rally in precious metals (perhaps after a short correction in one or both metals).

We are also watching for a medium-term (and maybe longer-term) cycle bottom to buy in crude oil. Tuesday's low at $65.74 (Dec. contract chart) in this week's reversal zone might be it, but I think prices could go lower as we move into November. Crude prices often follow the broad stock market so if equities continue down, crude may follow. We also need to keep in mind the upcoming sanctions on Iran that the Trump administration plans to impose in November. That could turn out to be a bullish trigger that could kick start a new medium-term cycle in crude (the start of a new cycle is almost always bullish). On the sidelines of crude for now, but looking to go long soon.

Trading Blog Sunday (night), October 21, 2018

10/19/2018

MARKETS UPDATE (9:00 pm EDST)

After reading over my posts from last week, I noticed that I have been referencing a lot of current cycle patterns which is most likely confusing to a lot of readers. When one is immersed in this kind of chart analysis, it is easy to get carried away and forget the "outsider's perspective". One of my objectives on this website is to try and avoid too much technical "chit-chat" so I apologize for perhaps not presenting a clearer picture of the recent cycle patterns. Sometimes, though, chart patterns are a little complex, and it is difficult to describe what's going on in simple terms.

Before I try and give a clearer overview of the current markets, let me first briefly clarify what I mean by a "cycle".
When you study the charts of most financial markets (e.g. the DOW and other indices, gold and other commodity prices, etc.), you will find that prices (or index values) rise and fall in regular, periodic cycles. Each cycle starts at a low point, rises to a peak, and then falls to another low point which starts another cycle, and so on. In a bull market, the final low point will be higher than the starting point; in a bear market, the final low is lower than the starting point. One way to visualize this is to think of a bull market as an upwardly sloping road with a series of consecutive, ascending speed bumps or hills (cycles) and a bear market as a down slope with a series of descending speed bumps or hills. An analyst's job is to try and buy at the start (bottom) of each bump (cycle) and sell at the peak or top of each bump. This task is made easier when we are able to predict and pinpoint "reversal zones".

"Reversal zones" are segments in time (usually about a week long) when a market is very likely to make a significant reversal in its trend (if it is rising, it should peak and start falling; if falling, it should bottom and start rising). Explaining how we determine reversal zones is beyond the scope of this brief discussion. The main point here is to understand that coordinating cycles with reversal zones makes it easier to identify when a market is peaking or bottoming. For example, if a cycle is twelve weeks long and it has been bullish and rising for, say, eight weeks, and we can see that the next reversal zone is coming up in the tenth week, there is a very strong chance that cycle will peak in the 10th week and we should sell (or sell short) then.

OK, I may have confused even more people with the above rambling, but hopefully some may better understand my use of cycles and reversal zones.

BRIEF OVERVIEW of CURRENT MARKETS

Broad Stock Market:
It is late in the current medium-term cycles of the DOW, S&P 500 and NASDAQ (all are 17 weeks old and most medium-term cycles last around 15 -23 weeks). Each of these cycles peaked recently (Sept.- early Oct.) and are now falling to their final cycle bottoms which can happen any time now over the next several weeks. It is possible that the recent sharp plunge to new lows on Oct. 11 was the end of this medium-term cycle (and the start of a new one), but it is more likely the final cycle low is still ahead and will happen in one of the upcoming reversal zones in October or especially November. The second week of November (around the 16th) looks like an ideal spot for the cycle bottoms, but it could also be earlier (say, around Nov. 7th). Note that both of these times are after the Nov. 6 elections in the U.S. which is significant as reactions to the election results could potentially reverse a trend in the market. The middle of this week has a minor (weak) reversal point that could also be a turning point for a bottom (if equities fall sharply this week and break their Oct. 11 lows). So our strategy now is to hold on to our short positions for an anticipated low coming up sometime over the next several weeks, most likely below the lows of Oct. 11.

One clue that the cycle lows are in would be to see a bullish divergence signal where only one or two (not all three) indices break their Oct. 11 lows. Of course, we will also remain aware of the (less likely) possibility that new cycles began on those Oct. 11 lows. If that is the case, this market will rally strongly now. To hedge our bets we will consider covering our short positions if the DOW breaks above 26,000 and/or the S&P 500 gets above 2,870. Holding my short position in the broad stock market for now.

Gold and Silver:
Gold and silver seem to be in the early stages of new medium-term cycles that started from the lows on Aug. 16 in gold and Sept. 11 in silver. That means both metals should be bullish. Gold also may have started a new longer-term cycle on Aug. 16 which is even more bullish. We sold our gold and silver long positions early last week (with a very good profit in gold) to avoid a possible sharp sub-cycle correction. That correction may be in progress now and could bring gold prices back down towards $1200. We will be alert for any technical signals to go long again in gold and silver once any correction has run its course. Out of gold and silver for now.

Crude Oil:
My blog post on crude oil from Thursday seems to clearly describe the current cycle and remains unchanged. I am therefore going to re-post it here:

"Crude oil prices continue to fall and now look like they are heading to the final bottom of the current medium-term cycle which is due any time over the next three or four weeks (probably in November). We missed our opportunity to sell short near the cycle high in early October so we may just have to wait for the final bottom to buy. A normal target bottom for the medium-term cycle would be around $68 - $72 (we are there now - Nov. contract chart), but because crude may also be completing a longer-term cycle, it could go lower. Out of crude oil for now."

Trading Blog Thursday, October 18, 2018

10/18/2018

MARKETS UPDATE (3:00 pm EDST)

In Monday's blog on the broad stock market I wrote:

"Final cycle corrections almost always take 2-5 weeks so last Thursday was a bit early for a bottom. There are no major reversal zones until the month of November (but there are some minor potential reversal points Oct. 18, 22, and 24 - we will watch these carefully). Ideally we would like to see the final bottom to the medium-term cycle in November. In the meantime, however, we could get a significant bounce or relief rally from the current support around 25,000 in the DOW and 2,700 in the S&P 500."

We have indeed been getting a strong bounce from those support levels, but today (Oct.18) we are hitting one of those minor potential reversal points, and the rally seems to be losing some momentum. If the market doesn't turn back down here, there are two more reversal points (next Monday and Wednesday) that could potentially turn the market down for our ideal scenario of a final medium-term cycle bottom in November. We are now ending the second week of the final correction (from early October's highs), but as stated above, corrections to the final cycle bottom could take up to five weeks. We need to keep in mind, however, that It's still possible the DOW's and NASDAQ's final cycle bottoms happened last Thursday (that would be bullish). We need to see those lows break soon to support the alternative (preferred) scenario of a final cycle bottom coming in November. We are anticipating that as we continue to hold our short position in the broad stock market.

Gold and silver have both been falling slightly from highs earlier in the week so unless they jump to new highs tomorrow, it looks like we took profits in our long positions near the top of the rally. The correction thus far has not been strong which is a good sign that this market is bullish and that gold and silver started new medium-term cycles in August and September, respectively. Gold may even be starting a new longer-term cycle, which is even more bullish. We are waiting for a good spot to go long again in both metals soon. On the sidelines of both metals at the moment.

The U.S. Dollar Index has rallied strongly this week but is now approaching a strong resistance zone from 96 to 96.80. If it backs down from this resistance, we could see gold and silver rally again. On the other hand, if the dollar breaks through this resistance, gold and silver prices could fall lower. As I mentioned in Monday's blog, the U.S. dollar may be losing some of its appeal as a safe haven investment, but we can't completely abandon the idea of panic selling in equities (like we're seeing now) giving some strength to the greenback. We should also note that it is possible under some circumstances for the precious metals and the U.S. dollar to rise together.

Crude oil prices continue to fall and now look like they are heading to the final bottom of the current medium-term cycle which is due any time over the next three or four weeks (probably in November). We missed our opportunity to sell short near the cycle high in early October so we may just have to wait for the final bottom to buy. A normal target bottom for the medium-term cycle would be around $68 - $72 (we are there now - Nov. contract chart), but because crude may also be completing a longer-term cycle, it could go lower. Out of crude oil for now.

Trading Blog Tuesday, October 16, 2018

10/16/2018

GOLD AND SILVER TRADE ALERT (2:30 pm EDST)

The short-term gold and silver rally off of last week's lows could be topping out now as gold is making a new weekly high while silver is not (bearish divergence), and both metals seem to be slowing down today. We have a nice profit in our gold long position and a small one in our silver trade so I am going to take profits and sell both positions today. Any correction now in these metals (if not too deep) should give us another buying opportunity soon. Selling my long positions in gold and silver today.

Trading Blog Monday, October 15, 2018

10/15/2018

UPDATE ON THE BROAD STOCK MARKET and PRECIOUS METALS (3:30 pm EDST)

After last week's severe plunge, the DOW is finding support at the 25,000 level, and the big question on the minds of traders and investors is whether or not this correction in the broad stock market is over. I would say that it probably is not. Although there's a chance that last Thursday's lows were the final bottom of a medium-term cycle, the lows were not in a reversal zone, and the correction from the peak on Oct. 3 to those lows only lasted a week. Final cycle corrections almost always take 2-5 weeks so last Thursday was a bit early for a bottom. There are no major reversal zones until the month of November (but there are some minor potential reversal points Oct. 18, 22, and 24 - we will watch these carefully). Ideally we would like to see the final bottom to the medium-term cycle in November. In the meantime, however, we could get a significant bounce or relief rally from the current support around 25,000 in the DOW and 2,700 in the S&P 500. We won't get too concerned for our short position until any rally gets above say 26,100 in the DOW and 2,840 in the S&P 500. If instead of rallying, the market continues to fall this week, we may take profits and cover our short position around 24,500 in the DOW (if it gets that low). If the S&P 500 breaks below 2,692 while the DOW stays well above 23,997 (these were the lows that started the current medium-term cycles) then that would also be a good signal (bullish divergence) to cover our shorts and possibly go long. So far we have an excellent profit on our short position. Let's hold our short position for now as we watch the direction the market takes this week.

We got our predicted sharp rally in gold (and silver) last week, but that rally is due to top out sometime this week and could be followed by a sharp correction. The depth of that correction will tell us whether or not the precious metals have turned bullish. There is strong evidence that the $1161 Aug. 15 low in gold was not only a medium-term cycle bottom but also a longer-term cycle bottom. If so, gold may be starting a longer-term rally that could take prices as high as $1500 next year. But that long-term cycle is not confirmed yet. For now, we are concerned with a short-term top this week in the $1240 area. Let's hold our long positions in both gold and silver and see if prices can push higher over the next few days.

Two important recent developments in the precious metals market:

1) Readers of this blog may recall that in the summer months I pointed out the formation of giant "inverted head and shoulders" chart patterns that had been forming in the charts of both gold and silver since 2013 and were near completion and signaling a strong bullish trend about to manifest in this market. I also pointed out that it was possible for these chart patterns to abort if the trend suddenly turned bearish. Well, it looks like the "inverted head and shoulders" in silver has aborted; however, it has morphed into what looks like a giant "double bottom" pattern which is also very bullish. Gold's giant "inverted head and shoulders" bottom has remained intact so it, of course, remains bullish (for now).

2) The recent plunge in the broad stock market did not seem to adversely affect the precious metals (they rallied strongly). This is significant because many investors (myself included) have been fearing that a general stock market crash could initially take down the precious metals as it did in 2008-2009 when panicking investors liquidated equities and commodities and fled to the perceived safety of the U.S. dollar. The strength of gold and silver during this recent equity plunge suggests that the U.S. dollar may have lost some of its appeal as a safe haven, and we may not have to worry about the precious metals initially falling with any significant broad stock market correction.

Trading Blog Thursday, October 11, 2018

10/11/2018

SILVER TRADE ALERT and UPDATE ON THE BROAD STOCK MARKET and CRUDE OIL (4:30 pm EDST)

We have another good call (besides our short position in the broad stock market) with our long position in gold that we entered yesterday. In yesterday's blog I made the case for a sharp rally, and indeed, we are seeing that today as gold prices soared up over $30 and closed at $1224. We stayed out of silver as it seemed a bit weaker than gold, and in fact, it is not rising as sharply as gold today, but I think the yellow metal will lead this rally and silver should follow for at least the next several days. I am going to go long now in silver for tomorrow's market open with a stop loss based on prices moving below yesterday's low ($14.26).

The broad stock market continued its descent today as the DOW lost another 546 points. The DOW is already down to the 25,000 level, and we may see some support now at this line, but it's a little early for a final cycle bottom. If we break below 25,000, the final bottom could end up considerably lower, and we may not see it for another few weeks.
We are happily holding our short position in the broad stock market for now.

Although we accurately called the correction of the broad stock market with a short position right at the top, we unfortunately missed an equally good opportunity in crude oil. I had suspected crude's final cycle top was at $76.90 on Oct. 3 (Nov. contract chart), but fears concerning the Trump administration's sanctions against Iran coming up in November were making me think another spike in price was possible. This made me hesitant to sell short. Today's steep drop in crude prices suggests that the current medium-term cycle's final corrective drop is underway. Any kind of short-term relief rally (perhaps in reaction to those looming sanctions) may give us another opportunity to sell short, but for now we will stay on the sidelines of crude.

Trading Blog Wednesday, October 10, 2018

10/10/2018

GOLD TRADE ALERT and BROAD STOCK MARKET UPDATE (2:30 pm EDST)

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

"It is possible a strong rally could start from a low by Wednesday, but lower prices past Wednesday would probably negate that scenario. If gold breaks below $1161 and silver breaks below $13.95, this market's short and medium-term trend could turn very bearish."

Here we are on Wednesday, and so far prices have not dipped below those lows. Technically, there is about an 80% chance for a rally, but also a 20% chance of a plunge to lower prices. The current U.S. Dollar Index chart seems to suggest that the dollar is in the process of taking a significant correction off of last Wednesday's high (96.12) which was in the middle of a reversal zone specifically for currencies. This is supporting the idea of a rally in the precious metals now. What I am going to do here is go long in gold with a tight stop loss based on a break below $1180. If these metals do turn south, silver's losses would exceed those in gold so let's stay out of this metal for now. Entering a long position in gold today.

Our short position in the broad stock market is doing extremely well as equities continue plunging today. If the Trump administration has a "plunge protection team", they have not been able to stop this significant correction now unfolding. But the odds were against them, because it is late in the medium-term cycle of this market, and equities were technically "ripe" for some sort of correction. How far will the drop go? That is hard to say, but a normal target for a cycle bottom would be in the range of 25,100 - 25,800 in the DOW. We are already close to the upper part of that range; however, there are no significant reversal zones for the rest of this month so there is plenty of time for this market to go lower. Holding my short position in the broad stock market.

Trading Blog Monday, October 8, 2018

10/8/2018

MARKETS UPDATE (5:00 pm EDST)

Today is technically the last day of our reversal zone for equities. All three indices (DOW, S&P 500, and NASDAQ are making new lows but are also closing up from those lows. There is a chance the DOW is making a sub-cycle low here and could start another rally to new highs, but it is too late in the cycles of the S&P 500 and NASDAQ for such a sub-cycle dip so this is not being supported by those indices. It is more likely all three indices are headed lower over the next few weeks to their final medium-term cycle bottoms. We will keep our eyes open for the bullish possibility, however, and will be ready to cover our short position in this market if necessary. Holding my short position in the broad stock market for now.

I recently commented on the possibility of powerful "anti-Trump" groups manipulating the markets and creating a deep stock market correction to help the Democrats in the upcoming mid-term elections in the first week of November. I should also say that there could be powerful Republican groups working hard to keep equity markets buoyant at least through that election week. If this is the case, we could see a lot of market volatility over the next several weeks as both groups battle it out. Because the broad stock market is extremely overbought and the cycle picture is pointing to an imminent steep correction, odds favor the "anti-Trumpers" getting their way. Nevertheless, we cannot not rule out the possibility of more "Trumphoria" energy pushing this market higher into election week. If that does happen, we can expect a steep correction soon after the election as the final cycle bottoms will be due.

On Friday I wrote on the precious metals:

"Gold and silver prices seem to be stuck in neutral at the moment with the potential to either rally or take another correction. Both metals made new highs in this week's reversal zone and could still fall to new lows by next Wednesday. That could set up an ideal buying spot."

Both metals fell sharply today to new weekly lows, but because it was both metals, we don't have a bullish divergence signal. Let's see if prices move lower tomorrow and Wednesday. It is possible a strong rally could start from a low by Wednesday, but lower prices past Wednesday would probably negate that scenario. If gold breaks below $1161 and silver breaks below $13.95, this market's short and medium-term trend could turn very bearish. On the sidelines of gold and silver.

Crude oil's situation is the same as the DOW's right now. A sub-cycle low could be forming today from which we could get a rally to new highs shortly. I think it's more likely, however, that last Wednesday's high at $76.90 was the cycle top, and the final correction has started. Let's see how prices move as we leave the current reversal zone that ends today. Staying on the sidelines of crude for now.

Trading Blog Friday, October 5, 2018

10/5/2018

MARKETS UPDATE (1:30 pm EDST)

There is a good chance we are now seeing the final corrective drop in the current medium-term cycles in the DOW, S&P 500 and NASDAQ to their final cycle bottoms. If this is the case, the drop will be steep and equity markets will continue lower for at least a few more weeks. A break below 25,700 in the DOW, especially after next Monday, would confirm this scenario. We called this correction at the top (Wednesday) so our short position is doing very well. Holding my short position in the broad stock market.

Gold and silver prices seem to be stuck in neutral at the moment with the potential to either rally or take another correction. Both metals made new highs in this week's reversal zone and could still fall to new lows by next Wednesday. That could set up an ideal buying spot. On the other hand, if prices edge up higher into early next week, we could be setting up for a more serious plunge. Let's wait and see how this market moves early next week. On the sidelines of gold and silver for now.

Crude oil may have made a final cycle high on Wednesday at $76.90 (Nov. contract chart), but there is a "wild card" factor influencing crude prices right now that could push them higher. That would be the upcoming sanctions to be imposed on Iran by the Trump administration next month. Mr. Trump does not seem to be backing down on this policy so it would not be surprising to see crude prices higher as we approach November. Crude's current medium-term cycle is near its end so a final top could come at any time now (it may have happened Wednesday), but cycle timing would also allow for higher prices over the next few weeks before a final correction. Let's stay on the sidelines of this market for now.

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