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Trading Blog Monday (evening), November 30, 2015

11/30/2015

MARKETS UPDATE (9:00 pm EST)

December is going to be an interesting month for the markets as they await two significant announcements - one from the European Central Bank (ECB) and one from the U.S. Federal Reserve - regarding monetary policy going forward for Europe and the United States. This Thursday it is expected that the ECB will announce an extension and expansion of its QE (quantitative easing) program to stimulate failing European economies. On Dec.15-16, the U.S. Federal Reserve will hold its final meeting for this year, and most analysts are expecting the Fed to announce its first interest rate hike in nine years. Of course, these two banks don't have to do what is expected of them which is why financial markets could see some wild fluctuations in this last month of the year. It is interesting to note that Europe is loosening its monetary policy with more QE and lower interest rates while the U.S. is tightening its policy with no more QE (at least for now) and raising interest rates (or at least saying it will). Another thing to watch for in December is the "Santa Claus effect". Investors often become relaxed and optimistic during the Christmas holiday season, and Wall Street frequently manifests a strong "Santa Claus rally" in equities into the New Year.

Today was the last day of our current reversal period for the broad stock market and the market was down. It is possible the markets are turning down now. The DOW and S&P 500 made new highs on Nov. 20 (the center of the reversal zone) and have not risen above them (yet), but we need to see more short-term bear signals that the market is turning down before we consider a short trade position. If the market rallies this week and the DOW and S&P 500 can exceed their Nov. 20 highs, we will likely wait for mid-December to sell the market short as that is our next reversal zone, and a top then would likely be the final top from which a significant correction to the current cycle bottom would take place. I am going to remain on the sidelines for the next few days to see if the market moves higher. On the sidelines of the broad stock market for now.

Today was also the last day of our reversal zone for gold and silver. Silver made a new monthly low on Nov. 23 at $13.92 and gold made a new monthly low last Friday at $1053. These were within the reversal zone so they could be the bottoms of a new cycle in both metals. This is why we went long in gold and silver last week. Several short-term signals are still bearish, however, so the danger of prices moving lower is still present. We want to now maintain a tight stop loss at those lows ($1053 in gold and $13.92 in silver - these are spot prices). If prices move below those lows, we could see new cycle bottoms for both metals in mid-December. Fortunately, prices are rallying today, but it is still possible for them to turn back down, maybe even later this week when the ECB announces more QE for Europe (or not). More QE for Europe could weaken the euro and strengthen the U.S. dollar, and more dollar rallying would likely push gold and silver prices down. We will watch this carefully during the week. I may decide to sell my long positions in gold and silver before the ECB announcement. Holding long positions in both gold and silver for now.

Crude oil prices moved a bit lower today, but they are still above the Nov.23 low of $40.41 which was in the center of a reversal zone that ends today. This means that Nov. 23 was a significant low, and prices could rally a little more (perhaps into mid-December) before falling again into a final cycle bottom that is due any time within the next two months. If prices continue to fall, however, we could see an early cycle bottom in mid-December instead of a high to sell short. In other words, the cycle pattern is not clear at the moment. If the broad stock market starts to rally into December, crude may follow suit so we may use equity charts to help us gauge the direction of crude oil over the next few weeks. Still on the sidelines of crude oil.

Trading Blog Friday, November 27, 2015

11/27/2015

MARKETS UPDATE (2:30 pm EST)

Gold and silver prices moved lower today. Gold appears to be closing around $1058, a bit below my suggested stop loss area of $1060. Silver dropped to $13.97 but snapped back up and seems to be holding above $14 which is well above my suggested $13.90 stop. Gold is making a new monthly low while silver is not (its low was $13.92 on Monday) so this could be a case of bullish intermarket divergence (as long as silver stays above $13.92) and these metals could rally now. But it has to be now as the reversal zone for precious metals ends next week on Monday. The U.S. Dollar Index broke over 100 and reached 100.20 this morning, but is now (2:00 pm EST) falling back. It may or may not close above 100, but there continues to be strong resistance for the dollar up to 100.50 so we could still see a pullback from any point below there. Despite today's sharp drop in gold's spot price, GDX (the gold and silver mining company ETF that mirrors the NYSE Arca Gold Miner's Index) remained stable and strongly above a support line (just above 13) that has been forming over the last few weeks. GDX may be a better gauge of the precious metals sector right now as spot prices can be a little jittery and, as I've mentioned before on the site, gold and silver mining company stock prices often lead the actual price of the metals. There is currently strong support for GDX from 13 down to 12.5. Based on all of this, I am going to hold my long position in gold and silver, at least until Monday. Any traders that were stopped out of gold can stay out until we see how prices move next week. As mentioned above, we don't want to see silver prices break below $13.92 or gold and silver continue lower past Monday.

The broad stock market has been very quiet this week with little rallying which is unusual for a holiday week, especially near Christmas. This could be a bearish sign. We did not, however, get any bearish intermarket divergence signal this week where one or two of the three major stock market indices (DOW, S&P 500 and NASDAQ) make(s) a new monthly high, but not all three. That could still happen on Monday and would be a good signal to sell short. If this market continues to rally past Monday, we may have to wait until the second week of December before we see the market turn down. Still on the sidelines of the broad stock market and waiting to sell short a correction to the bottom of the current medium-term cycle..

Trading Blog Wednesday, November 25, 2016

11/25/2015

GOLD AND SILVER TRADE ALERT and BROAD STOCK MARKET UPDATE (2:00 pm EST)

As I mentioned in my last blog, we are nearing the end of the current medium-term cycle in both gold and silver, and so we want to watch for a significant bottom to buy as the start of a new cycle is always bullish. We may be close to those bottoms now. This week is a major reversal zone for the precious metals, and both metals appear to be finding support in an acceptable price range for a cycle bottom after a steep fall over the last several weeks. A major reversal to the upside is therefore likely, and short-term signals are suggesting this could be on Friday or next Monday. The chart of the U.S. Dollar Index is also supporting the idea of gold and silver turning up now as today the dollar broke briefly above 100 intraday but then quickly retreated back down, and it appears to be closing in the lower half of the day's range. This is a bearish signal, and it could be signaling the start of a significant correction as the dollar is very overbought and a corrective dip is possible now. Such a correction in the dollar could drive a strong rally in the precious metals. For all of these reasons, I am going to enter long positions in gold and silver today. We can use a close stop loss around $1060 in gold and $13.90 in silver. Prices could drop lower on Friday or even Monday, but since the reversal zone ends next Monday, we don't want to see prices drop lower beyond that day. We also don't want to see the dollar break and close above 100. That would also be a signal to abandon our long position in the precious metals. Risk adverse traders may just want to go long in gold as silver tends to be more volatile and would incur more loss should this trade turn south. Going long in both gold and silver today.

The broad stock market has been quiet and stable so far this week. Tomorrow is a holiday in the U.S. (Thanksgiving Day) and the markets will be closed. Equities often rally on the day after Thanksgiving so on Friday we will watch for signs of intermarket bearish divergence. This is when one or two of the three major stock indices- DOW, S&P 500, NASDAQ- make(s) a new high, but not all three. If this happens Friday or Monday, it will be a good signal to sell short the broad stock market. If all three indices make new highs and/or a rally continues past Monday, we will likely wait until mid-December (the next strong reversal date) and sell short then. On the sidelines for now.

Trading Blog Monday (evening), November 23, 2015

11/23/2015

MARKETS UPDATE (7:30 pm EST)

Directional momentum in all three broad stock market indices (DOW, S&P 500 and NASDAQ) is still mixed bullish and bearish although these indices broke and closed above some resistance lines last week which is a bullish sign.
We are, however, now in the center of a strong reversal zone (which could extend into next Monday) and should be watching for a top in this market to be followed by a strong reversal down into the end of the current medium-term cycle (which could be in December but may extend into January 2016). We want to sell short from this top as the correction could be significant. As I mentioned in last Thursday's blog, this is a holiday week in the U.S. (Thanksgiving on Thursday), and equities often rally into holidays. It is a little early for the cycle peak so I suspect we will see more rallying into Thursday - Monday, but we are on alert for signs of a top any time now. One thing to watch for is "intermarket bearish divergence" where only one or two of the stock indices mentioned above make(s) a new monthly high, but not all three. This could be a strong signal to sell short, especially if it happens this week. If this market gets really bullish, we might see all three indices make new highs and push through the current reversal zone (perhaps after a minor dip). In that case, we would look for a top to sell short around mid-December. At the moment, though, it seems like a top is more likely to happen this week so we will watch for this.

I should mention here that the Fed has recently been giving signals suggesting it will announce an interest rate hike in December. The December meeting may thus be another turning point for the market. In reference to the above discussion, that turning point could be either a top or bottom. The movement of the broad stock market over the next two weeks will likely tell us which it will be. If markets continue to rally past next Monday without a significant correction, it will probably be a top. On the other hand, if we see a top this week, equities could easily fall into mid-December and make a cycle bottom. On the sidelines of the broad stock market for now.

In last Thursday's blog on gold I wrote: "That sharp rally we've been waiting for could be starting now, but directional momentum in gold is still 100% bearish so prices could still head lower into next week." It looks like the rally has aborted and both gold and silver prices are now headed lower so it is likely there will not be a significant top to sell short. Because silver and especially gold are close to the end of their current medium-term cycles, we should now be looking for a cycle bottom to buy as a significant rally should follow. Gold's cycle bottom is due any time between now and mid-December, but silver's cycle bottom could come a bit later (possibly in January although it doesn't have to - it could end with gold in December or sooner). The bottom line is that we want to focus now on finding a good spot to go long in both precious metals as it looks like we are close to the start of new cycles in both gold and silver, and the start of a new cycle is always bullish. Identifying those cycle bottoms is going to be a challenge. The financial analysts I follow seem to be divided in their trading strategies at the moment as some are holding short positions in gold and anticipating new lows while others feel we are at the bottom now, and they are going long. This week is a strong reversal zone for precious metals so a significant price turn up could be imminent; however, strong bearish signals appeared in both gold and silver charts today as both metals made new lows so I am putting off any buying at least until I see a short-term buy signal. That may come later in the week. On the sidelines of both gold and silver for now.

The U.S. Dollar Index seems to be close to the edge of a break through the 100 mark. Today this index nearly touched that 100 level intraday before backing down and closing the day at 99.75. Directional momentum is almost 100% bullish in the dollar chart so it seems like the greenback is ready to overcome that strong resistance at 100. Nevertheless, the dollar has been rising steeply for over a month now and is very overbought so it is entitled to take a breather and at least a moderate correction. If it does this now it might be the trigger that kick-starts a rally in the precious metals.

Crude oil prices made a new monthly low today at $38.99 before closing the day a bit above $40. This timing of this new low suggests that any relief rallies now will not be strong until the end of the current cycle. The cycle structure shows crude prices pointing down for at least two more weeks (and possibly up to nine weeks). We will continue to watch for any short-term rally that gives us a top to sell short. We may get one soon as we are seeing new lows in this week's reversal zone. On the sidelines of crude and still looking to sell short the top of any rally.

Trading Blog Thursday, November 19, 2015

11/19/2015

MARKETS UPDATE (6:30 pm EDT)

Our decision to take profits in our short positions on Monday was a good one as the broad stock market is rallying strongly this week. The DOW, S&P 500 and NASDAQ are all breaking through strong resistance levels, and many short-term chart signals are looking bullish right now. Another bullish factor for this market could be the upcoming U.S. Thanksgiving holiday next Thursday as equities tend to rise into holiday weekends. So does this mean the broad stock market will rally into next week? Maybe, but we are now approaching the center of a strong reversal zone for this market (Nov.23-24) so a top and a turn down are possible at any time (although the reversal zone could extend into next Thursday). We are moving towards the end of the current medium-term cycle in all three market indices (which will likely be in December) so we are still expecting a downward correction into that time. Our challenge now is to identify a top to sell short into that correction. The lows of Monday seem to be the start of a new subcycle, and if so, we should now be watching for that final top before the correction to the cycle bottom likely in December. I should note here that the final top and subsequent bottom could both be in December if the current rally can sustain itself through Dec. 10. Directional momentum is currently mixed bullish and bearish in all three market indices so we need to stay alert and be flexible in our trading strategy as this market is volatile and can make strong moves both up and down. Remaining on the sidelines of the broad stock market for now.

In last Sunday's blog on gold and silver I wrote: "We will continue with our strategy of waiting to sell short the top of a brief rally. If we get no rally next week and precious metal prices continue to fall, we will look to buy the final medium-term cycle bottom which will likely come at the end of this month or into early December." Gold and silver prices dropped steeply on Monday and Tuesday but are now rising again. That sharp rally we've been waiting for could be starting now, but directional momentum in gold is still 100% bearish so prices could still head lower into next week. We will wait and see how prices move into the first three days of next week before making any trade decisions. On the sidelines of gold and silver.

Today crude oil made a new monthly low at $39.89. We are now in the center of a reversal zone for crude so any new low over the next several days could be a subcycle bottom from which a rally should follow. Directional momentum remains 100% bearish in this market so we will continue with our strategy of trying to sell short the top of any minor rally. We may see such a top in early December (the next reversal zone). On the sidelines of crude oil for now.

Trading Blog Monday, November 16, 2015

11/16/2015

BROAD STOCK MARKET TRADE ALERT (2:45 pm EST)

The Paris attacks do not seem to have had an immediate negative impact on equity markets as stocks are rallying strongly today. Because we are well into our target range for a correction and have a decent profit, I am going to cover (move out of) my short position in the broad stock market now. Yes, the markets could drop further into our lower target range, but if they continue to fall into next week we would be looking to reverse position and buy at that point anyway. A second likely scenario would be a short rally now into early next week and then a final drop into December for the cycle bottom. If that plays out, we will look to sell short again the top of that rally. Covering (unloading) my short position in the broad stock market today.

Trading Blog Sunday (night), November 15, 2015

11/15/2015

MARKETS UPDATE (11:30 pm EST)

Our decision to reenter our short position in the broad stock market (on Nov.9) has been a good one. The markets fell sharply last week, but we are now approaching our second target range in the S&P 500 (1950 - 2000) and we should be thinking about taking profits and even going long as a subcycle bottom is due this week or next to be followed by another rally. We are also entering a time period (this week and next, but especially Nov.19 - 25) when a major market reversal is likely. A "wildcard" factor in the markets right now is the atrocious terrorist attack on Paris last Friday. A geopolitical event of this magnitude can easily panic equity markets. Many financial analysts have for some time been expecting some sort of "black swan" event to be the pin that "pops the bubble" of the grotesquely overbought (and jittery) stock market. We will have to wait and see how this is going to affect the markets on Monday. We might see the S&P 500 push further down toward our lower target quickly. Last week directional momentum in the S&P 500 and the NASDAQ changed from bullish to mixed bullish and bearish (the DOW remains bullish) so this could be a sign that the market's trend is changing again (to bearish). These are crazy, volatile times and we need to be flexible and nimble in our trading and not get too attached to one position. We will watch this technical situation carefully. I am going to hold my short position in the broad stock market for now, but I will be looking for a bottom this week or early next week to take profits and possibly switch to a long position.

Gold and silver are both in the late stages of their current medium-term cycles which means that a bottom is due in each. We have been hoping for a brief relief rally before prices fall to their final medium-term cycle bottoms at the end of the month or into early December. That is still a strong possibility. There are several technical signals now indicating the potential for a strong short-term rally to start in the precious metals this week. The alternative (less likely) is for gold and silver prices to continue falling directly to their cycle bottoms. The Paris attacks may have the effect of temporarily boosting gold and silver (geopolitical instability can sometimes drive nervous investors into "safe haven" investments like gold), but we won't really know until the markets open on Monday. We will continue with our strategy of waiting to sell short the top of a brief rally. If we get no rally next week and precious metal prices continue to fall, we will look to buy the final medium-term cycle bottom which will likely come at the end of this month or into early December. On the sidelines of gold and silver for now.

Trading Blog Thursday, November 12, 2015

11/12/2015

MARKETS UPDATE (7:00 pm EST)

Our broad stock market short sell is doing well so far this week. The S&P 500 has today fallen down to our minimal target area around 2050. We should be looking for a bottom and a reversal any time now, although it is possible for the correction to continue lower into next week towards 2000 or even 1960. Conservative traders could take partial (or full) profits now as our first target has been achieved. I am going to wait for a stronger upward momentum signal, however, before covering my short position as I think this index can still hit one of these lower targets. Holding my short position for now.

Gold and silver prices rallied very weakly on Monday but then continued their downward plunge and today both metals made new weekly lows. This market has not yet given us a rally to sell short. These metals could simply be "crashing" into their cycle bottoms, but a normal cycle structure would still suggest a brief rally now before a final plunge to a cycle bottom in the next three or four weeks. There are some short-term signals in both gold and silver charts today and tomorrow that suggest a reversal so we will wait for that. If prices continue to plunge into next week, we will start looking for a spot to go long as we are expecting the cycle bottoms for these metals in late November or early December. Still on the sidelines of gold and silver.

The U.S. Dollar Index, encouraged by this month's positive jobs data, surged close to the 100 mark last week. It seems to be taking a corrective breather this week, however, and may back down a bit more before attempting to break through that 100 level. If it does go lower it could drive the short rally in gold and silver that we are hoping to see.

Like gold and silver, crude oil rallied weakly on Monday and did not give us a chance to sell short before falling again. Crude prices have now broken below their Oct. 27 low of $42.28 which means this market is probably going a lot lower over the next four to twelve weeks. We will try to look for a spot to sell short now on any rally that stays under $44. On the sidelines of crude for now.

Trading Blog Sunday (night), November 8, 2015

11/8/2015

MARKETS UPDATE and BROAD STOCK MARKET TRADE ALERT (11:15 pm EST)

In last Wednesday's blog I said that we might get a second chance to short the broad stock market and make back some of our loss from bailing out of our short positions on Nov. 3. Such an opportunity may be setting up now. Our trading here should be focused on the S&P 500 (rather than the DOW or NASDAQ) as its subcycle structure shows the strongest potential for a significant short-term correction.

Last Tuesday the S&P 500 made a new weekly high at 2116 and then fell into Friday, closing the week at 2099. Tuesday's high was within a major reversal zone. The next significant reversal zone is the last week of this month, but that will be too late for the peak of the subcycle we are analyzing here. In other words, it is highly likely that last week's 2116 high was the current subcycle peak and that the bottom to this subcycle will come at the end of this month. The minimum target for this correction would be around 2050, but it could go as low as 1950 - 2000. In my opinion these targets make it worth taking another shot at a short trade here, especially since we can place a close stop loss on any break above last Tuesday's high (2116) which is less than 1% away from the current level of the S&P 500. This is a very minimal risk for a potentially significant gain. I want to point out here that this is a short-term trade, and that we will likely be turning bullish at the bottom of any correction because the trend of this market has recently turned bullish. Any traders who are uncomfortable moving against the trend can just wait for this bottom and then buy. Entering a short position now in the S&P 500 for the opening of tomorrow's market with a tight stop loss on a break above 2116 - 2118.

As I discussed last Wednesday, gold and silver prices are breaking down, and last Friday's jobs report, which was much better than expected, accelerated this plunge. The dramatic increase in job numbers triggered more buzz about a possible December interest rate hike by the Fed, and this boosted the U.S. dollar as it kicked down precious metal prices. Despite this bearishness, there are some short-term technical signals now suggesting a brief relief rally this week that could give us a good spot to sell these metals short into a final medium-term cycle bottom that I expect at the end of this month or into December. We will watch for this relief rally and pay special attention to silver as it may be a better short sell than gold due to its slightly different cycle pattern at the moment. On the sidelines of both metals for now.

In my last blog on crude oil (Nov. 1), I stated : "A short-term technical bull signal was triggered in crude charts, but overall directional momentum remains bearish which suggests caution in going long." This situation has not changed. Crude's rally from the Oct. 27 low ($42.58) did not get very far before turning back down from a high of $48.36 on Nov. 3. That high was within a strong reversal zone so it is possible that was the current cycle peak. If so, crude could be headed down for at least another month to prices well below the $39 low that began the current cycle. Our trading strategy should thus be bearish now in this market, and we will be looking for a good spot to sell short as long as directional momentum remains bearish. Still on the sidelines of this market.

Trading Blog Wednesday (evening), November 4, 2015

11/4/2015

GOLD and SILVER UPDATE and BRIEF BROAD STOCK MARKET UPDATE  (7:00 pm EST)

In last Sunday's blog I wrote : "...both gold and silver are in the last half of their current respective cycles. Prices should therefore be moving lower into a corrective bottom within the next month or two." Gold prices are breaking down severely this week as they have plunged through a strong support zone from $1140 down through $1120. This means that prices will likely continue lower into the end of the month although we may get a small corrective relief rally this week or next that could be a good spot to sell short. Silver is falling too, but not as dramatically as gold, and prices are approaching our target area around $15 for a possible bounce. That could happen this week or next, and there is an even greater chance of a relief rally here that could be sharp. I feel the best trading strategy now is to try and sell short the top of any relief rally in silver (and possibly gold) for the final plunge to the medium-term cycle bottoms in both metals which could be in the last week off this month or sometime in December. Further support for this bearish view of the precious metals now is coming from the gold and silver mining company stock indices HUI and XAU. Both recently turned 100% bearish. As I've mentioned before in my blogs, these stocks often lead the prices of the metals themselves. On the sidelines of both gold and silver for now.

Brief Update on the Broad Stock Market:
It was very frustrating to bail out of our short positions yesterday with no profit and some loss; however, we may soon get a chance to recoup that loss and more. The recent technical signals for a short-term surge in equities are dying down, and we may yet see the subcycle correction that we had been expecting last week. Stay tuned for more information. On the sidelines of this market for now.

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