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Trading Blog Wednesday, October 30, 2019

10/30/2019

BROAD STOCK MARKET UPDATE and COMMENT ON THE FED MEETING (4:00 pm EDST)

Oooops! In yesterday's blog I speculated on the consequences of an FOMC meeting next week, not realizing that meeting was today. Oh well, we will see the Fed's effect on the markets much sooner now. As expected, the Fed did cut rates (1/4 point) for a third time in a row; however, the Fed's statement and Chairman Jerome Powell's rhetoric in a press conference following the rate cut announcement is suggesting that there won't be another rate cut anytime soon. This mixed dovish/hawkish message from the Fed did not stop equity markets from taking off just after the 2pm rate cut announcement. The DOW gained a little over 100 points, but this brief rally seemed to lose a little steam in the last hour of trading. We now wait to see if this rally can push higher. The S&P 500 is making new all-time highs unaccompanied by the DOW and NASDAQ so we still have a bearish divergence signal in place that could be suggesting a turn down now. We are also in our new reversal zone (Oct. 29 - Nov. 8), but it is early, and there's still plenty of time for markets to push higher, possibly even into next week. If the S&P 500 can break and close above 3055, this market could turn very bullish. Let's stay on the sidelines of the broad stock markt for now. If we do get a pullback from a high this week or next week, it may not be that serious and it may give us a good spot to go long.

Trading Blog Tuesday, October 29, 2019

10/29/2019

UPDATE ON THE BROAD STOCK MARKET (3:00 pm EDST)

Today we enter our new reversal zone for most markets (Oct. 29 - Nov. 8). It is early in the reversal but we are already seeing intermarket bearish divergence. Yesterday and today the S&P 500 broke above its all-time high of 3,028 while the DOW and NASDAQ remained below their all-time highs (although the NASDAQ 100 INDEX December contract chart has broken its all-time high). I am going to hold off selling short, however, because it is very early in the reversal period, and next week we have another FOMC meeting where the Fed will decide on whether or not they will put in place a third interest rate cut (following the cuts from their last two monthly meetings). There is a strong feeling among investors and analysts that there will be three cuts in a row. Nevertheless, over the last few years there has been divisiveness among Fed officials over rate cutting so it is possible the Fed will refrain from cutting this time. The anticipation of another cut could drive the markets higher into next week, but if the Fed disappoints, it could set the stage for a sell-off in the market. Even if the Fed delivers another cut, we could see a "buy the rumor, sell the news" effect with some sort of sell-off after the announcement. Let's stay on the sidelines for now and see if equities can push higher into next week for a short-selling opportunity. If the market does fall now, we could also see a buy spot next week and a possible bounce up from a sub-cycle low fueled by a Fed rate cut.

Trading Blog Sunday (late night), October 27, 2019

10/27/2019

MARKETS UPDATE (11:30 pm EDST)

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

"My bias at the moment is that these indices will push higher to challenge their all-time highs (27,399 in the DOW, 3,028 for the S&P 500, and 8,340 in the NASDAQ). If this happens with a bearish divergence signal [one or two but not all three breaking their high(s)] then we will want to sell the market short."

Well, the S&P 500 and NASDAQ both pushed higher and made new weekly highs (but not new all-time highs - although the S&P 500 came very close to its all-time high), but the DOW did not even make a new weekly high. We are entering a new reversal zone later this week (Oct. 29 - Nov. 8) so we will now watch for one or two of these indices (but not all three) to make new all-time highs in this time period (this week or next) for a possible short selling opportunity. If all three indices break their all-time highs, we will stay on the sidelines as the market could become very bullish (see last week's blog on a possible QE4 plan from the Fed that could turn this market bullish). Even if we do sell short, the correction may be sharp but brief. If it doesn't get too low, we may be looking to reverse position and buy back soon. Our technical studies and cycle analysis is telling us this market bubble wants to turn bearish, but the Trump Administration may now be putting heavy pressure on the Fed to keep equity markets buoyant into late 2020 as a stock market "crash" before next year's election would severely compromise Trump's chances of winning a second term. This is why I am leaning more towards a bullish market right now (although a bearish reversal is still a possibility).. Still on the sidelines of the broad stock market.

It is starting to look like gold and silver both started new medium-term cycles on October 1, but it is still not clear if these new cycles will be bullish or bearish. Both metals rallied last week, but there are still technical signals suggesting prices will turn down soon. If they do, and they hold above those Oct. 1 lows ($1456 in gold and $16.93 in silver) then we may look to buy. Moving below those lows, however, would mean the new cycles are turning bearish. Let's remain on the sidelines for now.

It looks like crude oil started a new medium-term cycle with its low of $51.40 on Oct. 9 (Dec. contract chart). That means a sub-cycle top is due now to be followed by a sub-cycle correction. That top could easily peak in this upcoming reversal zone (Oct. 29 - Nov. 8) in the $57 - $58 area (it's almost there now). If we see this and a correction that holds above $55, we may look to buy as the start of a new cycle is usually bullish. If prices drop below $53, however, it may indicate the cycle is turning bearish. A drop below $51.40 would confirm that and cause us to switch to a bearish trading strategy (i.e. looking for brief rallies to sell short). Let's stay on the sidelines for now.

Trading Blog (#2) Monday, October 21, 2019

10/21/2019

UPDATES on CRUDE OIL and the U.S. DOLLAR INDEX (3:00 pm EDST)

In last Monday's blog on crude oil I wrote:

"If prices continue to fall, we will have to abandon the idea of a new cycle starting last week and wait for a new low and final cycle bottom due within the next two weeks. That bottom could be around $50 or even lower."

Prices did push a little lower on Tuesday and Wednesday (to $52.76) but then surged back up on Thursday and Friday (to $54.62). They went down again today (to $52.71 - Nov. contract chart). It's still not clear if the low of Oct. 9 ($51.38) was the start of a new medium-term cycle or if an older cycle bottom is still forming (with a likely target of $50 or lower). The bottom to an older cycle would be due this week (or possibly early November if it expands), but if Oct. 9 was the cycle bottom, that low should hold and more rallying will commence shortly. This ambiguous situation will keep us on the sidelines for now. Crude's direction now may depend on where the broad stock market is going, and that looks bullish to me at the moment.

The prospect of QE4 (see my last blog) and the recent interest rate cut from the Fed has had a negative impact on the U.S. Dollar Index. Last week this index plummeted sharply from 98.4 to 97.2. It looks like a relatively new medium-term cycle in the dollar could be peaking early and may now be down for at least five more months. Normally this would be good news for gold and silver prices (as they usually move counter to the U.S. dollar), but as I mentioned in my last blog, the short-term technical picture for these metals is looking bearish so we may be seeing an unusual case of the precious metals falling with the dollar. Despite last week's plunge in the greenback, gold and silver prices remained relatively flat. If QE4 generates enthusiasm for equities, investors may lose interest in the "safe havens" of precious metals and/or the U.S. Dollar. We will keep a close eye on this situation moving forward. We haven't yet given up on the longer-term bullish view of gold and silver (see Gold Update on the home page of this website).

Trading Blog Monday (early AM), October 21, 2019

10/20/2019

UPDATE on the BROAD STOCK MARKET and PRECIOUS METALS (4:30 am EDST)

Last Monday I wrote:

"...all three major market indices (DOW, S&P 500, NASDAQ) most likely started new medium-term cycles from their lows on Oct. 3 (25,743 in the DOW, 2,855 in the S&P 500, and 7,700 in the NASDAQ). Now we watch to see if these indices can make new highs this week, and especially new all-time highs."

Well, all three indices did make new weekly highs last week, but none exceeded their all-time high. Thus we had no bearish divergence signal (although markets fell strongly on Friday, which is a bearish sign). We are also now out of our reversal zone (it ended last Thursday) so if Thursday's highs were not a top, this market will most likely push higher into November. This is only the third week of a new medium-term cycle so a lot more rallying is certainly possible, but if last week's highs were an early top to this new cycle then this market is turning very bearish and will be down for many, many more weeks. My bias at the moment is that these indices will push higher to challenge their all-time highs (27,399 in the DOW, 3,028 for the S&P 500, and 8,340 in the NASDAQ). If this happens with a bearish divergence signal [one or two but not all three breaking their high(s)] then we will want to sell the market short. Let's stay on the sidelines for now and wait and see if Friday's downturn gains any momentum this week or if the market turns higher. If last week's highs are exceeded, this market could be bullish for at least the next two weeks.

One reason for my bullish view of the broad stock market right now is the fact that the Federal Reserve just recently announced a new program to pull the economy out of a potential financial crisis. Fed Chairman Jerome Powell stated in late September that there may be a need to "resume balance sheet growth sooner than expected". Although the Fed is stating that this program is different than the asset purchase program that was used to "rescue" equity markets in the 2008-2009 financial crisis (i.e. QE or "quantitative easing"), some analysts are calling the new plan QE4. Without going into the details of this new scheme from the Fed, we can assume it will give at least a temporary boost to the broad stock market. I emphasize the word "temporary" here because this is obviously a desperate attempt by the Fed to postpone an overdue correction of an extremely overbought and bloated equity market bubble. From our cycle point of view, any "QE4" right now could theoretically push equity markets into a "blow off" to new highs that would quickly be followed by a severe crash. If all three major market indices can break through their all-time highs then we may see this scenario unfold.

"QE4" should have a positive effect on equities, but it may have the opposite effect on the precious metals market. We have been watching gold and silver prices for a good spot to buy as it looks like we are close to the start of new medium-term cycles in both metals. COT (Commitment of Traders) charts for gold, however, are currently looking quite bearish which means we could see a significant correction soon. This may mean an older cycle bottom is still forming, but it could also mean a newer cycle will peak early and then fall to its final bottom (which would be very bearish). Needless to say, this makes me very cautious about going long until we see some sign of this market turning bullish. If gold can stay above $1465, it may be able to rise into a bullish pattern, but a break below $1460 would reinforce the bearish view. Let's remain on the sidelines of both gold and silver for now.

Trading Blog Monday, October 14, 2019

10/14/2019

MARKETS UPDATE (4:00 pm EDST)

Equity markets rallied (and gapped up) strongly on Friday and confirmed that all three major market indices (DOW, S&P 500, NASDAQ) most likely started new medium-term cycles from their lows on Oct. 3 (25,743 in the DOW, 2,855 in the S&P 500, and 7,700 in the NASDAQ). Now we watch to see if these indices can make new highs this week and especially new all-time highs. If all three can make new all-time highs then this new cycle will be bullish and could be up for at least eight more weeks. But if they cannot exceed their all-time highs (that would be 27,399 for the DOW, 3,028 for the S&P 500, and 8,340 in the NASDAQ) or if only one or two, but not all three, make new all-time highs then this market is likely turning bearish and is about to start a long and deep correction. Even If just last week's highs are challenged and not exceeded by all three indices, that could be a bearish signal that an early top is in and a steep correction is starting. Our reversal zone is in effect through Thursday so we will watch for these bearish divergence signals in this time frame for an opportunity to sell the market short. If instead all three all-time highs break, we will abandon our bearish view and look to buy any short-term corrective dips. This market could go either way right now, but the trend should be clear by the end of the week. Still on the sidelines of the broad stock market.

It looks like there's a good chance both gold and silver started new medium-term cycles with their recent lows on Oct. 1, but I don't see enough bullish signals to rule out another price dip by one or both metals to the final low of an older cycle. We need to see gold get at least above $1518 and silver above $17.90 to confirm the idea of bullish new cycles. Let's stay on the sidelines of the precious metals for now.

In last Thursday's blog on crude oil I wrote:

"Crude oil's medium-term cycle is presenting an interesting picture now. The cycle began on June 5 at $51.54 (Nov. contract chart). It made a double bottom to that low on Aug. 7 at $52.06, and yesterday and today made a triple bottom at $51.38. Prices closed today at the top of the day's range ($53.90), we are in the center of a reversal zone, and the end of this current medium-term cycle is due. We could easily be seeing the start of a new cycle here, and if so, prices could rally strongly now. We still can't rule out another plunge down tomorrow or early next week..."

Indeed, we are seeing crude prices diving today.They dropped to $52.77 intraday and are closing around $53.50 (Nov. contract chart). If prices continue to fall, we will have to abandon the idea of a new cycle starting last week and wait for a new low and final cycle bottom due within the next two weeks. That bottom could be around $50 or even lower. Let's stay on the sidelines of crude for now.

Trading Blog Thursday, October 10, 2019

10/10/2019

MARKETS UPDATE (5:00 pm EDST)

As we move into the center of our current reversal zone for several markets (Oct. 3 - 16), we still have no confirmation as to whether or not the Oct. 3 lows in all three broad stock market indices (DOW, S&P 500, NASDAQ) were the starting points for new medium-term cycles. If they were, equities should be rallying now to challenge their all-time highs (not far away). So far, Monday's rally was encouraging, but Tuesday's plunge was not. Yesterday and today's rallies seem a bit half-hearted so it's still not clear where this market wants to go. Despite President Trump's new trade negotiations with China this week, Wall Street still seems nervous and insecure. The ongoing efforts by Democrats to impeach Mr.Trump (whether you agree with them or not) is also most likely contributing significantly to market instability (Wall Street never likes uncertainty). Even if new cycles started on Oct. 3, any rallying may be short-lived if this market's trend is turning bearish. If these indices cannot exceed their all-time highs (that would be 27,399 for the DOW, 3,028 for the S&P 500, and 8,340 in the NASDAQ) then this market is turning bearish. (One or two, but not all three indices making new highs would also be a bearish sign.) If Trump's trade talks with China go well, it could kick this market higher. But if the talks go sour, we will probably see equities turn south rather quickly. Even if trade negotiations go well, we may get a case of "buy the rumor, sell the news" where a rally tops out and then falls sharply. Let's remain on the sidelines for now but be on the lookout for a possible top to sell short.

Silver rallied a bit this week, but gold prices have stayed relatively flat. As we near the end of our reversal zone specifically for precious metals (Sept. 30 - Oct. 11), both metals may be topping out and ready to turn down. Today silver made a new weekly high while gold did not, and both metals are closing in the lower part of today's range. This is a bearish signal. It may be that one or both metals are still completing an older cycle and are now headed to their final medium-term cycle bottom (s). If this happens, we will look to buy at those final lows. I haven't completely given up on the idea that gold and/or silver started new cycles from last week's lows ($1456 in gold and $16.94 in silver), but we would have to see these metals "break out" now to new highs instead of reversing down, and I think a reversal is more likely. Lets's stay on the sidelines of gold and silver for now.

Crude oil's medium-term cycle is presenting an interesting picture now. The cycle began on June 5 at $51.54 (Nov. contract chart). It made a double bottom to that low on Aug. 7 at $52.06, and yesterday and today made a triple bottom at $51.38. Prices closed today at the top of the day's range ($53.90), we are in the center of a reversal zone, and the end of this current medium-term cycle is due. We could easily be seeing the start of a new cycle here, and if so, prices could rally strongly now. We still can't rule out another plunge down tomorrow or early next week, but right now it looks very bullish. If this is the start of a new cycle in crude, it may be corresponding to a new cycle in the broad stock market as well. Let's remain on the sidelines for now.

Trading Blog Sunday (late night), October 6, 2019

10/6/2019

MARKETS UPDATE (11:30 pm EDST)

Last week equity markets gave investors another roller coaster ride with a 1000+ point drop in the DOW early in the week followed by a nearly 800 point recovery on Friday. We are now entering another reversal zone Oct. 4 - 16. The deep low on Oct. 3 last week was one day out of this range; nevertheless, that low (25,743 in the DOW) could have been the final medium-term cycle bottom in the DOW as well as in the other two major market indices (2,855 in the S&P 500 and 7,700 in the NASDAQ). The sharp rally off those lows is supporting this idea of a final bottom and the start of new cycles. An argument against this is the fact that all three indices made new lows so we have no intermarket bullish divergence signal (which we like to see at the start of new cycles). I am favoring the idea of new cycles starting now off those Oct. 3 lows. If that's the case, the broad stock market will likely rally now to challenge the all-time highs in this new reversal zone. If not, we could see markets plunging again this week to make new lows in the same reversal zone as the older cycle establishes its final bottom. It's still too early to make any trading decisions as we wait to see if we get new highs or new lows this week and/or early next week. Still on the sidelines of the broad stock market.

As I mentioned last week, a major factor influencing these markets now is the status of the U.S./China 'trade deal" negotiations. President Trump's positive statement about upcoming talks with China likely boosted the markets on Friday. If investors remain optimistic about this, we could see an extended rally into the scheduled time period (mid-October) for these talks. But note that this falls right in the center of our reversal zone. If the talks don't go well, we could see the markets tank shortly after. Of course, the Democrat's current impeachment rhetoric is also not helping equity markets, and equities will also be sensitive to whether or not the Fed decides on another rate cut later this month. The broad stock market's roller coaster ride may not be over yet!

We are still in a reversal zone specifically for the precious metals this week (and possibly early next week). Last Tuesday gold prices dropped down to $1456 and then rallied sharply off that low. The same day silver prices dipped to $16.94 and also rallied from there. Even though we didn't get a bullish divergence signal, those lows may have been the final medium-term cycle lows and the start of new cycles. If so, both metals are bullish now. There's still a chance the old cycles are not finished and still time for new lows in the reversal zone. We will watch for that (and a bearish divergence signal) for a good spot to buy or we may just buy any small dip next week, so stay tuned. If prices rally strongly before we get a chance to buy, we will wait to see if gold can break above its Sept. high at $1557 and then try and buy as that break will confirm a bullish trend. On the sidelines of gold and silver for now.

Last Friday crude oil prices made a new low at $52.04 which is a double bottom to the low of $52.06 on Aug. 7 (Nov. contract chart). Friday was the first day of our current reversal zone (Oct. 3 - 16) so that could be the final bottom to our current medium-term cycle (which is due now). But directional momentum also turned from mixed bullish and bearish to 100% bearish on Friday. This reversal zone extends through this week and early next week so there's plenty of time for prices to edge lower. If they do, we may look to buy in the $45 - $46 area. On the sidelines of crude for now.

Trading Blog Tuesday, October 1, 2019

10/1/2019

MARKETS UPDATE (5:00 pm EDST)

After a small rally yesterday and a brief surge up early this morning, equity markets took a sharp plunge today with the DOW losing 343 points. Unless this market pushes higher into the end of the week or next week, there is a good possibility we are already seeing a corrective move down to the final medium-term cycle bottom for this market. If so, we could hit that bottom as early as next week. If this market is to remain bullish, that correction should end up in the 26,000 - 26,500 area in the DOW. But if the market is going to turn bearish now (a strong possibility), prices could end up considerably lower by the end of the year (or early next year). It is too early to label this a bullish or bearish market, but today's directional momentum turned from 100% bullish to mixed bullish and bearish which is not a good sign for bulls.

Unfortunately, the fate of the broad stock market is now being strongly influenced by political and geopolitical news. Although Democrats in this country have correctly pointed to the "loose-lipped" nature of President Trump and his tweeting habit as a destabilizing influence on equity markets, that party's recent official announcement to impeach Mr. Trump may ultimately turn out to be the pin that collapses the current stock market bubble. Wall Street will panic no matter which party is supplying the chaos. We will stay on the sidelines of the broad stock market for now.

We were stopped out of our long position in gold yesterday as both gold and silver broke lower to seek their final medium-term cycle bottoms. We are now in a new reversal zone for the precious metals Oct. 1 - 11. We should be watching for the final cycle bottoms to buy in both metals within this time frame. Gold could get to the low $1400's quickly and silver below $17. On the sidelines of gold and silver for now.

As with the broad stock market, directional momentum in crude oil today changed from 100% bullish to mixed bullish and bearish as prices edged even lower to $53.05 (Nov. contract chart). A break below $51 would officially turn this market bearish. Let's see how low prices go as we approach our next general reversal zone (Oct. 4 - 16) as that is a good time frame for the final cycle bottom of our current medium-term cycle to happen. On the sidelines crude oil for now.

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