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Trading Blog Sunday (night), November 30, 2014

11/30/2014

MARKETS UPDATE (11:30 pm EST)

The DOW and S&P 500 indices seemed reluctant to rally last week and remained essentially flat into the Thanksgiving holiday. Only the NASDAQ seemed to be in an optimistic holiday mood as it climbed almost 2% to make a new high on Friday. Directional momentum, however, remains strongly bullish in all three indices so I think my decision to unload short positions in this market early last week was a good one (especially if you were trading the NASDAQ). We may see a brief pullback this week, and if we do (especially into Friday) it may be a good opportunity to go long as it looks like this market could rally for another two to three weeks (possibly well above 18,000 in the DOW). A correction down to the 17,000 area in the DOW would be an ideal buy spot, but I don't think any downturn (if we get one at all) will get that far. Timing here is more important than price, and the end of this week would be the ideal time for a reversal (back up from a brief correction). If the broad stock market continues its rally (without a correction) past this week, we may have to wait until the second or third week of December for a good trading opportunity (not to buy, but instead to sell this market short as timing and cycle structures are suggesting the possibility of a steep correction then). On the sidelines of the broad stock market for now.

Today (November 30) the people of Switzerland voted no on the "Save Our Gold" referendum which would have forced the Swiss central bank to hold 20% of its reserves in physical gold that it could never sell. Gold investors were watching this event closely as had the referendum passed, gold prices could have taken off. The anticipation of this vote and the possibility of the referendum passing could be what has been buoying up the price of gold over the last several weeks (although polls suggesting a "no" vote have been sending the price down since last Thursday). Today's vote sent the price down another $15. This is good news for our short position in gold, but we have to keep a close eye on prices now as a bottom could be imminent and may come as early as next week. If the reaction to the Swiss vote is short-lived and gold prices remain above the $1140 - $1145 area then there is the possibility of a strong rally now, and gold could turn bullish. A break above our stop loss area of $1210 would suggest that is happening. On the other hand, if prices break below $1140 next week then we could see a more serious correction down to the $1000 area or even lower over the next 3 -6 weeks. Directional momentum is still strongly bearish in both gold and silver so I am going to hold my short position in gold until I see more bullish signals in the charts of these metals. That could come next week so stay tuned. Holding a short position in gold but out of silver at the moment.

Last Thursday crude oil broke dramatically below the baseline it had been establishing at $75. Two factors that are driving oil prices down right now are a glut in supply and possibly price manipulation by the U.S.and the EU to cripple Russia's economy in a new cold war. Directional momentum in this market is nearly 100% bearish, but the chart cycle is still suggesting an imminent sharp (but brief) rally from a bottom to be followed by a further decline to new lows. That bottom could be in now with today's price around $64 or it could go lower next week. If we see a rally in prices up to the $75 area into this Friday it could be a good spot to sell short. On the sidelines for now.

Trading Blog Monday, November 24, 2014

11/24/2014

BROAD STOCK MARKET TRADE ALERT and MARKETS UPDATE (2:30 pm EST)

We are undoubtedly living in unprecedented economic times. Many of the financial analysts that I follow and study (some of whom have been doing this for 25 years or more) have recently commented on how difficult the markets have been to call over the last several years. I certainly agree with this. I've been trading for a little over 10 years and have noticed that most markets, especially the U.S. stock market, are much more difficult to predict and trade now than they were when I first started. Market analysts are using terms like "bizarre", "distorted" and "manipulated" to describe today's markets. In my opinion, manipulation is a major factor contributing to this unusual market behavior. It seems the U.S. Federal Reserve and most likely other big banks and financial institutions are exerting enormous control over equity markets by several means, but most overtly through extended low interest rates and quantitative easing (QE). (Yes, I know the last round of QE has ended, but there is serious speculation among economic analysts that the Fed may announce a new round of QE sometime next year, possibly to quell investor fears around the same time they plan to raise interest rates.) Without sounding too much like a conspiracy theorist, it seems a bit more than a coincidence that the Bank of Japan recently made the surprise announcement of increasing its own QE program the day after the Federal Reserve officially announced the ending of QE in the U.S. This has boosted the appeal of U.S. equity markets (as well as the U.S. Dollar), especially to foreign investors, and the U.S. stock market has been rising to new heights since the announcement was made (on Oct. 31- Halloween - which was a "treat" for investors holding long positions in equities but a "trick" for analysts like myself who were expecting an overdue correction in the market).

Last week was the second week of a reversal period (Nov.10-20) when there was a high probability of a downturn in the broad stock market, and the steep rally since mid-October did appear to be slowing down and leveling off. It seems that the strength of this market, however, is overriding the reversal zone as the DOW surged to a new all-time high on Friday and broke clearly through our stop loss resistance at 17,740. While it is still possible for this market to turn down, the factors supporting a strong correction now are diminished and won't be strong again until mid-December. We are also starting a holiday week here in the U.S. (Thanksgiving on Thursday) and equity markets often rally into holidays. For these reasons I am going to cover (unload) my short position in the broad stock market today. I entered this position on Nov.13 so we should be able to pull out here with a small loss of less than 1%. If the stock market continues to rise into mid-December, I will consider short selling again as there would be an even stronger chance of a steep correction then. Covering (unloading) my short position in the broad stock market today and standing aside this market for now.

Gold prices are staying below our $1,210 stop loss level (so far), and while both gold and silver could still break out, that possibility is starting to look less likely as gold and silver charts are now manifesting more bearish signals. Mid-December is the next potential turning point for this market, and we may have to wait until then before any serious correction starts. On the other hand, if the precious metals start a serious fall this week then mid-December could turn out to be a bottom and a potential buy spot. We will have to wait and see how prices move over the next three weeks. For now, I am maintaining (holding) my short position in gold.

Crude oil prices still seem to be forming some sort of base, and there is the possibility of a rally here to the $78 - $80 area. Such a rally, however, would likely be followed by a reversal (perhaps in mid-December) with oil prices sinking to new lows. I will consider selling short any rally that stalls in the $80 area. Out of this market for now.

Trading Blog Thursday (night), November 20, 2014

11/19/2014

BRIEF COMMENT ON THIS WEEK'S FOMC MEETING (11:15 pm EST)

The minutes of the latest Federal Reserve policy meeting released on Wednesday had no major surprises as the Fed expressed some concern about inflation and also mentioned an improved labor market. Most investors see the Fed raising short-term interest rates in mid to late 2015, and the minutes of Wednesday's Fed meeting did not give them any reason to change that view. Markets did not react very much, although gold prices took a small dive and closed the day (Wednesday) near $1178. The Fed sticking to its schedule for a rate hike in the second half of 2015 (i.e. not suggesting any delay in the hike) conveys a hawkish tone which is good for the U.S. Dollar but can depress gold prices (as gold is viewed as a hedge against inflation caused by dovish Fed policies). Today (Thursday) gold prices snapped back so the dip on Wednesday may have been just a short-term nervous reaction. Both gold and the broad stock market are still in ideal positions now to take steep corrections; however, if gold breaks above $1210 and/or the DOW closes above 17,740 we may have to abandon that idea and wait until mid-December for another opportunity to sell these markets short.

Trading Blog Wednesday, November 19, 2014

11/19/2014

GOLD TRADE ALERT (2:30 pm EST)

Gold and silver are at a crossroads right now with gold prices testing the upper level of a resistance zone at
$1180 - $1210 as we move out of a timing zone for a likely reversal in this market. This could be an ideal spot to sell short, but there are still some short-term indicators that are bullish and suggest the possibility of higher prices. What we can do here is sell short with a very close stop loss at $1210. If gold closes above that price over the next several days there is a good chance prices will go higher (possibly to $1250) and we may have to wait until mid-December for another opportunity to sell short (assuming the precious metals do not "break out"). I still think it is possible for gold to correct down to the $1000 level (or possibly lower) over the next several months. Directional momentum remains strongly bearish in both gold and silver so there is a good chance prices will move lower now.
If they don't, we have a tight stop loss very close to our entry point to minimize any loss. Because this market is a little tricky to call at the moment, I am only trading gold and not silver as silver prices move faster than gold and can incur large losses in a volatile trading environment. Entering a short position in gold today.

Trading Blog Monday, November 17, 2014

11/17/2014

MARKETS UPDATE (6:15 pm EST)

The DOW, S&P 500 and NASDAQ all made new highs last Thursday and are looking "toppy", but they don't seem to be in any hurry to take a correction. In terms of timing, these indices still have the rest of this week to make new highs before turning down (unless Thursday's highs were it) so we will watch for a correction to start over the next several days with the expectation of a bottom possibly down to the 17,000 area in the DOW (and maybe the 1950 - 1960 area in the S&P 500). We now have a short position in the broad stock market with a tight stop loss on a close above 17,740 in the DOW. If this stop loss is triggered and these markets continue to rise past this week then it would mean a short-term cycle is being bypassed and we would then try to get long and look for the next longer term cycle top to sell short (probably in mid-December). But until that happens I am anticipating a correction to start this week (it may have already started) and a steep drop towards new weekly lows. Holding my short position in the broad stock market.

Gold prices are pushing into our resistance area of $1180 - $1210 and we are at the center of a timing zone for a likely reversal in precious metals, but there are some short-term technical indicators that are still quite bullish suggesting gold prices could push higher. There is also a chance (as I've discussed in recent blogs) of gold and silver "breaking out" now and turning bullish (the momentum trend is presently bearish) if prices can clear that resistance. For these reasons I am a little hesitant to sell short right now and will wait for a stronger sell signal to do so. This could happen over the next few days. Still on the sidelines and waiting to sell short.

The "distorted" cycle pattern interpretation of crude oil charts that I have been using for many weeks now is starting to look flawed, and there is an alternative interpretation that makes the recent price movements in this market more clear. It appears that we are in the middle of an older cycle in crude oil and not starting a new one as I had previously thought. This makes more sense because the momentum trend and technical signals in this market continue to be strongly bearish, whereas the start of a new cycle is usually very bullish. What this means is that we can now expect a short-term rally from a bottom that probably formed with last week's low at $73.25. If we get such a rally and it stalls in the $79 - $82 area, we will look to sell short a decline to more serious lows as this cycle is pointed down and should not bottom for at least four more weeks. Out of this market for now.

Trading Blog Thursday, November 13, 2014

11/13/2014

BROAD STOCK MARKET TRADE ALERT (2:30 pm EST)

We are now at the center of a timing zone when a reversal in the broad stock market is likely, and the DOW is pushing against resistance in the 17,700 area. Today the DOW touched 17,705 and then pulled back strongly. This is bearish behavior. Positive momentum indices are also showing some weakness today in this market. For these reasons I am going to sell the broad stock market short today in anticipation of a short-term correction that may not last long but could be quite steep (ideally back down to the 17,000 area). I am going to set a tight stop loss on a close above 17,740 which gives this trade a good risk/reward ratio. Entering a short position in the broad stock market today.

Trading Blog Wednesday, November 12, 2014

11/12/2014

BRIEF MARKETS UPDATE (5:30 pm EST)

The broad stock market appears to be rising into our mid-November reversal zone (Nov.10-21) so I am expecting a top to form between now and early next week to be followed by a brief but possibly steep correction that could take the DOW back towards the 17,000 area. Market volatility is high this week with the potential for sudden, large moves so calling a top here is a little tricky. At the moment it seems like the rally could edge up a bit more, and I would like to see at least a short-term bear signal before considering a short position. We may get one over the next few days. Still on the sidelines.

Gold and silver charts are still showing an ambiguous pattern, and it is not clear whether they are going to "break out" and make new highs or break down to new lows. If this market is going to turn bullish, gold prices need to first clear strong resistance in the $1180 - $1210 area. Right now I favor the bearish view, and I am looking to sell short the top of any rally into (but not above) that resistance. It would be ideal to see this happen over the next several days. If gold does break down, we could see prices approaching $1000 (or lower) by the end of the year. On the sidelines and looking to enter short positions in both metals soon.

Crude oil seems to be establishing a baseline support at $76, and a cycle bottom is overdue, but directional momentum remains 100% bearish in the crude oil price charts. It is still possible for prices to drop lower this week or early next week so I am remaining on the sidelines of this market.

Trading Blog Sunday (night), November 9, 2014

11/9/2014

MARKETS UPDATE (11:30 pm EST)

This week could be an exceptionally volatile one for all financial markets. We may also see setups for good trading opportunities in several markets as the middle of this month is a timing window when significant directional reversals can occur in all of them.

Momentum in the broad stock market is now strongly bullish, but it looks like this market is ready to take a short-term correction which could give us a good opportunity to go long. If the DOW moves down to the 16,800 - 17,000 area this week and holds, it will be an ideal buy spot for a reversal from that bottom support. An alternate scenario would be for these markets to continue to rise into this (and possibly the following) week. If that happens, there could be a reversal from a top instead of a bottom and I may consider selling short. Even in this second scenario the correction would probably be brief and we would be looking to cover any shorts and go long at its bottom.

Both gold and silver prices surged up after touching new bottoms on Friday. (We predicted this and covered our short gold positions on Thursday). Momentum in the precious metals market is still strongly bearish so I am expecting any rally now to be short-lived and turn back down, possibly this week. The cycle pattern in the charts of these two metals, however, is ambiguous at the moment and allows for another interpretation which is much more bullish. It is possible that last week's lows were gold and silver's long-term cycle bottoms, and if so, these metals could turn bullish and soon break upside to new highs. To keep my bearish view, I don't want to see gold prices break clearly through resistance in the $1180 - $1210 area. If that resistance can hold back any rally, I will be looking to sell this market short again, maybe this week. Any break above that resistance and/or the appearance of bullish momentum signals may instead have me looking for a place to go long.

The price of crude oil may also find a bottom this week (unless it already formed on Nov.4 at $75.84) and begin a new cycle. This could give us a good spot to go long (the start of a new cycle is usually bullish), but this market seems very bearish right now which makes me wary of buying. Any rally now could be small and brief unless directional momentum can start to turn bullish. It may be best to avoid trading this market until we can identify a clear cycle bottom.

Trading Blog Thursday, November 6, 2014

11/6/2014

GOLD TRADE ALERT and MARKETS UPDATE (2:15 pm EST)

Gold prices have moved down to our ideal target in the $1140 area and seem to be finding some support there.
There are also some short-term technical signals suggesting we could see a bounce now in the precious metals.
The U.S. Dollar Index rose to a new high of 88 today but looks a little overbought. Because we are now approaching the center of a timing window (Nov. 5-13) when currencies could suddenly reverse direction, it is possible the dollar could turn down here and trigger at least a short-term rally in gold and silver. For all of these reasons I am going to take profits in my gold short position today. I went short in gold on Oct. 23rd so we have a good profit on this trade (a little over 7%). Ideally, gold will rally briefly now, perhaps to the $1170 - $1180 area into next week, and we will look to sell it short again. If any rally breaks and closes above $1180 we will have to consider the possibility that gold is turning bullish and adjust our trading accordingly. If gold continues lower into next week there is still a good chance it will find a bottom (below $1140) and rally from there. (If that happens I may consider going long). Covering (unloading) my short position in gold today, taking profits and standing aside gold and silver for now.

The broad stock market is continuing its bullish rise this week, with the DOW, S&P 500 and NASDAQ all edging up to new highs. These markets are quite overbought now and this steep rally is getting a little long in the tooth. It is entitled to at least a little breather. It may get that soon as we are about to enter another reversal zone (the second two weeks of November) when there is a high probability of markets reversing directional trend. However, the charts for all three of these indices are now showing very strong bullish directional momentum, so even if we do get a correction now I think it will be brief and followed by more rallying. Ideally, I would like to see the DOW correct back down to the $17,000 area and find support there over the next two weeks. That setup would give us an ideal spot to go long. Should this market move higher into next week, we may even get a good opportunity to sell short. We will have to wait and see how the market moves into next week. Still on the sidelines here.

We are now at the center of a timing window for a reversal in crude oil (it lasts through the 17th) and this market still seems to be trying to find a bottom to its overdue cycle. On Monday it made a new bottom at 75.84, but it still has all next week to go lower before the reversal period ends. I'm thinking it might do that because momentum remains strongly bearish in crude charts, and there are other short-term indicators suggesting lower prices. This cycle is now distorted (overdue) so we are standing aside this market until a clear bottom forms and we see a new cycle starting. On the sidelines of crude oil.

Trading Blog Monday, November 3, 2014

11/3/2014

CRUDE OIL TRADE ALERT and IMPORTANT MARKETS UPDATE (3:15 pm EST)

There were some major developments in all financial markets last week that requires us to update and clarify our trading strategies. On Wednesday the Federal Reserve officially announced the termination of its extended bond buying program known as "quantitative easing" (QE) which had been sustaining the U.S. stock market's steady rise since the crash of 2008 -2009. Markets at first seemed a little hesitant about how to react to this and were flat on Wednesday. On Thursday and Friday, however, equities had clearly decided to be bullish as the DOW, S&P 500 and NASDAQ all surged to challenge their highs for the year. Apparently these markets had already factored in the end of QE (which the Fed had repeatedly stated throughout the year would likely occur in October). But another factor that helped drive up markets on Friday was the unexpected announcement by the Bank of Japan to significantly expand its own QE program in order to "...shake the country from its economic torpor..." according to a report by The Economist. Suddenly the U.S. is looking very fiscally responsible in the global marketplace, and the U.S. stock market is now being perceived as a safe haven for investor capital fleeing the crumbling economies of Europe and parts of Asia. Of course, Japan's move to further debase its own currency also gave a huge boost to the U.S. Dollar which also surged on Friday.

The broad stock market's directional momentum has suddenly turned bullish. This abrupt switch from bearish to bullish is unusual and is creating a distorted cycle in this market right now. Technically, it looks like the lows of Oct.15 (15,855 in the DOW and 1,820 in the S&P 500) were cycle bottoms and we are now starting new cycles in the broad stock market. The Oct.15th bottom in the S&P 500 represented a 9.8% correction off its Sept.19th high while the DOW corrected only 8.6%. These are both lower than the expected 10 - 20% corrections (or more) that were (are) overdue based on technical and cycle studies. These markets may therefore still be unstable and susceptible to a deeper correction. The next major turning point for these markets could come in the second or third week of November so we will watch how the indices move into that time frame. All markets could continue to be quite volatile for the entire month, and we may end up making some short-term trades with tight stop losses. We will try to focus, however, on that Nov.10-21 window. We could see a new high to sell short or another low to buy (or both) within that time frame. On the sidelines for now.

The Bank of Japan's decision to boost it's QE (and debase the Yen) and the subsequent surge in the U.S. Dollar on Friday was the kick in the pants that gold needed to break below its strong support level at $1,180. Both gold and silver dropped steeply last week which is setting up an ambiguous cycle pattern in their charts. There are two possible scenarios for the precious metals right now, one bearish and one bullish. If the early October lows in both gold and silver were the start of of new cycles then the price of these metals will likely continue down into the end of the year with gold possibly going as low as $1000, or even the $900 area (this is because prices have already broken below those early October bottoms and so the cycle is pointed down). However, it is possible that new cycles are starting with the new lows we are seeing now or sometime over the next two weeks, and if that is the case gold and silver could become very bullish as these lows could be the final long-term cycle bottoms. So how do we trade from here? In both of these scenarios gold will likely find short-term support in the $1140 area (possibly this week). If that happens, I will cover my short position in gold. Gold may then rally, but if the rally stalls in the $1170 - $1180 area and looks like it is turning down, I will sell short again as prices would likely be heading down to the $1000 area (or lower) by the end of the year (this is the first - bearish - scenario, which I favor at the moment). If any rally clearly breaks through the $1180 level, however, then we will have to consider that the precious metals are turning bullish and look to go long. Gold would have to close above $1250 to confirm a bullish trend (accompanied by bullish momentum and other technical signals). Nov.6, Nov. 10-12, and Nov.14 could be significant turning points for gold and silver so we will watch those dates carefully. Momentum signals are currently very bearish for both gold and silver. I want to emphasize here that should gold move down to the $900 - $1000 area (and silver to the $13 - $14 area), it would not be the end of the bull market in precious metals but would most likely represent the final long-term cycle bottoms in these two metals and a "golden opportunity" to buy.
Still holding my short position in gold.

Crude oil prices have today broken below my final "line in the sand" stop loss level of $79 so I am going to take a loss here and bail out of my long position in crude. When I entered this position in late September I wrote :
"Because crude prices can be very volatile under the current circumstances I am investing only a moderate amount of money in this trade." This mitigates to some degree the loss from this trade, and considering the profit we are now making with our short gold position, we are in pretty good shape with our capital. As I've mentioned in recent blogs, crude's cycle is distorting which means its bottom is overdue (for 3 weeks now) so it still could happen anytime. The boost to the dollar from Japan's debasement of the Yen is likely putting downward pressure on oil prices, but another factor may be a deliberate downward manipulation of prices by the West to weaken Russia's economy (see my Oct.15th blog). This may explain why crude is so reluctant to rally now despite the fact that technical and cycle factors are indicating it should. If downward pressure on crude continues, we may see a small rally followed by a further breakdown in prices. Directional momentum in this market is now 100% bearish. I am selling my long position in crude and staying out of this market for now.

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