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Trading Blog Wednesday, October 26, 2022

10/26/2022

MARKETS UPDATE (2;30 pm EDST)

The NASDAQ finally closed its Oct. 6th "gap-down" space with yesterdays close at 11,199, thus negating the downward momentum from that early October "bearish island reversal". We note, however, that the DOW and S&P 500 are both making new monthly highs, while the NASDAQ has not yet exceeded its Oct. 6 high of 11,260. This gives us a bearish divergence signal, and all three indices seem to be moving down today after an early morning rally. We are only two days past our "pivot point" (Oct. 24), so we may be getting a top and rollover now. If so, we could see a short-lived correction into our next strong reversal zone Nov. 2 - 11 where another significant bottom could form. That might be a good spot to buy. But if this market continues to rally into this new reversal zone, we would probably be looking to sell short. Let's stay on the sidelines of the broad stock market for now.

Both gold and silver prices are rallying a bit, but not enough to convince me they are turning bullish, especially as they are making new highs in a reversal zone specifically for precious metals. We remain on the sidelines here as well.

The only market making a clearly bullish move today is crude oil. It seems to be closing close to $88 today, and that is above the downward trend line we had identified last in the week in crude's chart. A close above $92.34 (we now switch to the December contract chart) would be a more convincing bullish sign. There are some short-term bearish technical signals at the moment, so I'm not so sure that's going to happen. There's a strong reversal zone for crude coming up in mid-November. As I mentioned in previous blogs, the Sept. 26th low ($75.70) may be the start of a new medium-term cycle as well as a longer-term (3 year) cycle. If so, crude could be very bullish now. But if prices fall lower into that November reversal zone, we would label that bottom as the start of the new cycles. Today's rally is supporting the idea of a Sept. 26 bottom. We will stay on the sidelines for now and watch to see if this rally can gain any legs.

Trading Blog Monday, October 24, 2022

10/24/2022

MARKETS UPDATE (6:30 pm EDST)

The broad stock market is rallying strongly today with the DOW taking the lead, the S&P 500 fairly strong, and the NASDAQ the least bullish. The DOW closed its "gap-down" space from Oct. 6 two weeks ago, the S&P 500 overcame its Oct.6 gap-down last week, but the NASDAQ has yet to overcome its Oct. 6 gap-down area. In other words, the NASDAQ is still encumbered by a "bearish island reversal" signal from early October until it closes that gap (i.e. breaks and closes above 11,052). We continue to have mixed signals in this market.

On October 14, I wrote:

"The DOW could be ending its old medium-term cycle and starting a new one with this week's double-bottom along with the new lows in the S&P 500 and NASDAQ (bullish divergence). The alternative view would be that one, two, or all three indices could be headed lower to make their final bottoms over the next several weeks. "

Its still not clear which of these scenarios is playing out. The DOW looks the most bullish right now and could be well into a new medium-term cycle (from its double-bottom lows on Sept. 30 and Oct. 13). But the S&P 500, and especially the NASDAQ, look like they could still roll over to complete the final bottoms of older medium-term cycles. We are at a pivot point (Oct. 24) in our current reversal zone and the indices are rising, so this "rollover" scenario could be imminent. If it happens, it's possible we could see the NASDAQ make a new low to complete an old cycle bottom while the DOW and S&P 500 stay above their Oct. 13 lows. That would be a good set-up to buy if it happens in our next reversal zone coming up Nov. 2 - 10. If instead the NASDAQ closes its "gap" this week and rallying continues into next week, we may have a good short-selling opportunity in that same Nov. 2 - 10 reversal zone. Let' remain on the sidelines of this market for now and wait to see if we get a rollover this week.

Longer-term, we are still bearish and waiting for a significant top to sell short as we are likely still in the downtrend of a severe correction in equities not due to bottom for at least two more years.

We are now in the dead center of a reversal zone specifically for gold and silver. Gold made a new monthly low on Friday at $1619, just a tad above its Sept. 28 low of $1616. This could be a significant double-bottom, and we could see prices rally from here. Nevertheless, this precious metal reversal zone lasts into the end of this week, so prices could still go lower for another bottom. Today's price action was a little bearish, which supports this idea. We also need to be aware that if prices close significantly below $1616, that would also be a bearish sign. We also note that silver prices have been rising into this reversal zone (from a low of $18.10 on Oct. 14), which could mean a top is imminent. All of this is making me reluctant to buy at the moment, even though a significant rally could be just around the corner. Any minor corrective dips in both metals this week could be good buy spots as long as they both hold above last week's lows. Let's remain on the sidelines of both metals for now.

In my last blog on crude oil (Oct. 16) I wrote:

"....it is VERY early in a new 18 year cycle in crude that began with that generational low - near zero $/barrel that happened in April 2020, so we should anticipate higher prices for many more years. As with all cycles, there are significant corrective drops, even in bull markets, and crude's price drop this year from June through September has been one of them. This longer-term sub-cycle correction MAY be over with that Sept. 23 low at $76.25 (Nov. contract chart), or it could push even lower into two back to back reversal zones specifically for crude in November (Nov. 8 - 30). Right now, short-term signals are looking bearish. Any break below $76.25 would definitely be bearish and point prices down to $65 or even lower. Last week prices broke below a downward trend-line that is now around $86.60 and falling. Prices need to start closing above there to look bullish, and then above $93.64 to support the idea that a new bullish cycle began on Sept. 23"

All of this still applies. Prices have not broken below $76.25, but they are still a bit below that downward trend line, so we still have no confirmation that a significant sub-cycle correction is over. We will stay on the sidelines of crude until we can be more certain that a significant bottom is in.

Trading Blog Sunday (late night), October 16, 2022

10/14/2022

UPDATES ON GOLD, SILVER, AND CRUDE OIL (11:30 pm EDST) [MONTHLY OVERVIEW]

We are still holding the view that gold's long-term 23 year cycle topped out with the double-top highs of $2070 in August 2020 and $2066 in March 2022. This means that gold has already started its final correction down to this cycle's final bottom (due around 2023-2024 near $1000). But, as with the broad stock market, there could be significant corrective rallies along the way, and we may be seeing a set-up for one right now.

We had been thinking that the $1681 low on July 21 was a significant bottom from which a strong corrective rally should have followed. Instead, we saw a modest rally that peaked with the August 10 high of $1805. From that peak, prices fell, and they made a new low on September 28 at $1616. Prices then rallied sharply from this new low, so that could be the significant sub-cycle low we have been waiting for. We move into a reversal zone specifically for the precious metals next week (Oct. 18 - 28). If that low at $1616 can hold into next week's reversal zone, we could see another bottom and the start of a new medium-term cycle with a strong multi-month rally that could take prices back to $1850 or even higher. We don't expect any rally to take out those double-top highs around $2066 - $2070, but if that should happen (anything seems possible these days), we would have to change our labeling of the 23-year long-term cycle. For now, we may look to buy into this potentially strong rally, but we would plan on changing to a short position after a good rally to a sub-cycle top significantly below $2066- $2070.

It looks like silver likely started a new medium-term cycle (and possibly a longer-term 26-month cycle) with its low of $17.59 on Sept. 1. If that's true, silver could be very bullish now. The steep fall from the Oct. 4 high at $21.22 could be a deep sub-cycle correction now ending as we enter this new reversal zone for both gold and silver next week. As long as prices stay above $17.59, a strong rally could be imminent. This rally should get at least to $24, but it could even go as high $30.

We will look for a buying opportunity in both metals next week with a stop loss based on BOTH gold and silver breaking and closing below their lows of September (that would be $1616 for gold and $17.59 in silver). We are on the sidelines of both these metals for now.

Crude oil's current medium-term cycle is not very clear at the moment. It could be either very bullish or very bearish (not very helpful, I know). But crude's longer-term cycles are bullish (e.g. it is VERY early in a new 18 year cycle in crude that began with that generational low - near zero $/barrel - that happened in April 2020), so we should anticipate higher prices for many more years. As with all cycles, there are significant corrective drops, even in bull markets, and crude's price drop this year from June through September has been one of them. This longer-term sub-cycle correction MAY be over with that Sept. 23 low at $76.25 (Nov. contract chart), or it could push even lower into two back to back reversal zones specifically for crude in November (Nov. 8 - 30). Right now, short-term signals are looking bearish. Any break below $76.25 would definitely be bearish and point prices down to $65 or even lower. Last week prices broke below a downward trend-line that is now around $86.60 and falling. Prices need to start closing above there to look bullish, and then above $93.64 to support the idea that a new bullish cycle began on Sept. 23. We will stay on the sidelines of this market for now.

Trading Blog Friday (late night), October 14, 2022

10/14/2022

UPDATE ON THE BROAD STOCK MARKET (11:00 pm EDST) [MONTHLY OVERVIEW]

In our last reversal zone (Sept. 30 - Oct. 6), the broad stock market made TWO reversals - a bottom on Sept. 30 and a top on Oct. 5. This demonstrates just how volatile this market is right now. In all three of our major indices (DOW, S&P 500, NASDAQ), there was a "gap-up" on Oct. 4 and a "gap-down" on Oct. 7. This created what is called a "bearish island reversal" chart formation. Yesterday and today, the DOW surged and closed that gap from Oct. 7, which negates this bearish signal for that index. Nevertheless, it persists in the S&P 500 and NASDAQ as their gaps have not closed (yet). Again, this shows how indecisive and volatile this market is at the moment. We also note that we have now entered another general reversal zone Oct. 12 - 28 (with "pivot points" around Oct. 17 and Oct. 24), so we could see more volatility with a significant top or bottom (or both) within this time frame. Let's turn to our cycle analysis to try and make some sense of all this.

We usually focus on medium-term cycles for trading (that would be around 13 -23 weeks for the DOW and S&P 500). The DOW and S&P 500 are most likely in the 17th week of their current medium-term cycles. This means they are old and could make a final bottom anytime now. The DOW may have already done that with its low of 28,716 on Sept. 30. Supporting this idea is the fact that the DOW made a "double-bottom" to that low yesterday and is rallying very strongly from there and closing it's previous "gap-down" as mentioned above. The S&P 500, however, broke well below its Sept 30 low (3,585) yesterday and has not yet closed its "gap-down" space from Oct.7 (ditto for the NASDAQ). We thus have mixed signals (bullish - DOW, and bearish - S&P 500 and NASDAQ) in these markets right now. The DOW could be ending its old medium-term cycle and starting a new one with this week's double-bottom along with the new lows in the S&P 500 and NASDAQ (bullish divergence). The alternative view would be that one, two, or all three indices could be headed lower to make their final bottoms over the next several weeks. This ambiguity in our cycle analysis (yes, it is very confusing) will keep us on the sidelines of trading for now, but we will be open to some short-term trading - especially if we see significant highs or lows around Oct. 24 and Nov. 7 (the center of another reversal zone Nov. 2 -10).

In our longer-term perspective of equity markets, we are still holding to the idea that a major long-term 90 year cycle most likely topped out with the all-time highs in January this year in the DOW and S&P 500 (and in November 2021 in the NASDAQ). From this perspective, the market has already started a multiyear correction that will take it much lower. But such a severe correction (crash) usually moves down in waves, and there could be significant corrective rallies along the way. I don't think any rallies now will challenge, let alone exceed, those all-time highs from January (2022) and November (2021), but that scenario still cannot be completely ruled out. If this market keeps making new highs after mid-November, we might see new all-time highs and a 90-year cycle crash aborted. For now, we will consider that to be very unlikely.

I will update crude oil and the precious metals over the week-end.

Trading Blog Tuesday, October 4, 2022

10/4/2022

MARKETS UPDATE (5:00 pm EDST)

In last Thursday's blog I wrote:

"The broad stock market MAY be stabilizing and finding a bottom this week or next as we remain in a general reversal zone through Oct. 6 (next Thursday). Although the DOW and S&P 500 have broken below the starting points of their current medium-term cycles, the NASDAQ is still just a tad above the start of its medium-term cycle, so we still have a bullish divergence signal here."

On Friday, the NASDAQ moved lower but still did not break below its medium-term cycle starting point (10,565 from June 16), and yesterday and today it is rallying strongly with the DOW and S&P 500. It looks like a significant cycle or sub-cycle bottom has formed in the center of our reversal zone. Now we watch to see how strong this rally will be. All three indices have already fallen significantly (over 20%) from their all-time highs in January (DOW and S&P 500) and November 2021 (NASDAQ), so the longer-term cycle trend is bearish. Their current medium-term cycles are also bearish as the DOW and S&P 500 have fallen below their starting points, and the NASDAQ got close. This means we shouldn't expect any rallies now to exceed the mid-August highs of these indices. In fact, I would expect resistance at much lower levels (say around 31,000 - 32,000 in the DOW, 3,800 - 4,000 in the S&P 500, and 11,500 - 12,000 in the NASDAQ). In other words, we may now see a bear market rally that won't get very far before turning down and resuming a serious correction that could take these indices much lower into next year. We are therefore on the lookout for a good point to short the market again from the top of a short-term relief rally. We are on the sidelines of this market for now.

In my blog on Monday last week for the precious metals, I suggested that both gold and silver prices might bounce up. After dipping a bit lower last Wednesday, they did do that, and that rally is accelerating this week. The cycle labeling of both metals is still ambiguous (that should be more clear next week). Silver broke strongly above resistance at $20, so it looks a bit more bullish than gold, which is now pushing through a heavy resistance band from $1700 - $1800. I'm not so sure these rallies will get very far, especially since we already have a bearish divergence signal as silver is breaking through its mid-August highs and gold is not. Let's see how far this rally can go. There is a reversal zone specifically for gold and silver coming up Oct. 18 - 26, and another general reversal zone coming up Oct.12 - 20. We might see a significant top to sell short in those time frames. We remain on the sidelines of gold and silver for now.

The sudden surge in precious metals over the last five trading days is not surprising as the U.S. Dollar Index has been falling. Last Wednesday, the U.S. dollar topped out a steep rally just a tad short of 115. It was entitled to take a corrective "breather". It's overall trend, though, still looks bullish, so I wouldn't be surprised to see it resume its rally soon. It already has fallen to a support level at 110. If that breaks, there's more strong support at 108 and 106. As I mentioned in last Wednesday's major update on all markets, the U.S. dollar has most likely moved into a long-term bullish "political" cycle that could see it challenging its 121 high from 2001 over the next few years. If that happens, it will put significant downward pressure on the precious metals in that time frame. This reinforces our prediction that gold is in the process of falling to its long-term (23 year) cycle bottom due around 2023 - 2024 close to $1000. A bullish dollar now also supports my belief that the U.S. dollar will be the preferred "safe-haven" investment if the broad stock market collapses (which it appears to be doing).

Crude oil prices have also been rallying strongly from last Monday's low at $76.25 (Nov. contract chart). As with all the other markets, this may be a bear market rally. Let's stay on the sidelines of crude for now and see if this rally can gain any legs. If it can't, we could see prices soon headed back down again to break below $76.25.

Trading Blog Wednesday, October 26, 2022

Trading Blog Monday, October 24, 2022

Trading Blog Sunday (late night), October 16, 2022

Trading Blog Friday (late night), October 14, 2022

Trading Blog Tuesday, October 4, 2022

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