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Trading Blog Tuesday (evening), November 28, 2017

11/28/2017

MARKETS UPDATE (8:00 pm EST)

Thanksgiving may be over, but Christmas is not far away, and the holiday spirit may be lingering on Wall Street as the DOW, S&P 500 and NASDAQ are all making new highs this week. Thus we will not see any bearish divergence this week as we enter a new reversal zone for the broad stock market (Nov. 28 - Dec. 6). It is getting quite late in the medium-term cycle of this market so a top is due to be followed by a significant correction soon. There is a good chance that top will happen in this new reversal zone. Equity markets are overbought and ripe for a correction so we may see a correction into the Christmas holiday. If the broad stock market doesn't start a downward correction this week, we will look for a bearish divergence signal early next week (i.e. one or two- but not all three- stock market indices making a new high).

One thing that has me concerned is the possibility of the "holiday spirit" and "irrational exuberance" joining forces now to drive a traditional "Santa Claus rally" into the end of December. Such a rally could develop if the U.S. Congress passes a new tax reform bill before Christmas. If this bill is passed quickly, it could help drive a strong holiday rally into the last week of December where we find yet another reversal zone (a very strong one). That could turn out to be the final top to this cycle (with a correction starting after New Year's Day). It looks like we could see a vote by Thursday this week; however, this is a controversial bill that has no support from Democrats as well as the disapproval of some Republicans. Since the U.S. Congress is famous for gridlock, we can't count on this bill being passed. Until it is passed, let's keep our eyes open for an earlier top (perhaps early next week) and another opportunity to sell short.
On the sidelines of the broad stock market but looking to sell short soon.

Gold prices made new highs on Monday near the $1,300 mark while silver did not make a new weekly high on Monday and is falling steeply today. We thus have an intermarket bearish divergence signal which could mean lower prices into this week's reversal zone for precious metals (Nov. 28 - Dec. 6 - same as the broad stock market). If that happens, and especially if one or both metals drop below their Oct. 6 lows ($1,262 in gold and $16.38 in silver), we will look to go long. If those Oct. 6 lows are breached, it means we are likely seeing the final bottom of an older medium-term cycle which would be an excellent spot to buy. On the sidelines of gold and silver and looking to go long soon.

The U.S. Dollar Index is rallying this week, but directional momentum in this market recently turned nearly 100% bearish so this rally may not get that far before turning down again. In terms of our precious metal strategy, this may suit us fine as we only want to see gold and silver move lower into late this week or early next week to form a bottom to buy. After that, we want those metals to rally, and another downturn in the dollar could kick start such a rally.

Crude oil prices topped out at $58.99 (Jan. contract chart) last Friday and are down a bit yesterday and today. This week's reversal zone (Nov. 28 - Dec. 6) is also relevant to crude. Prices could push higher and form a top here (possibly as high as $62), but if they continue down steeply we could instead see a final medium-term cycle bottom form by next Wednesday (somewhere below $55). If that happens, it would be a good buy spot. If crude does push higher into the end of the week or early next week, we will look to sell short what will likely be a steep correction from that high to the final cycle bottom sometime later in December. It is late in the medium-term cycle of crude so we should be seeing a correction soon. Still on the sidelines of crude oil.

Trading Blog Wednesday, November 22, 2017

11/22/2017

MARKETS UPDATE (3:30 pm EST)

All three broad stock market indices (DOW, S&P 500 and NASDAQ) are now making new highs this week so our earlier intermarket bearish divergence signal has been negated. It appears that the Thanksgiving holiday (tomorrow) is giving its traditional lift to the markets. As I stated in Monday's blog, we will now watch for another bearish divergence signal in next week's reversal zone (Nov. 28 - Dec. 6). Still on the sidelines here.

Gold and silver prices continue to vacillate and remain indecisive in their short-term directional trend. Gold's close above $1290 last week was bullish, but Monday's plunge to $1274 was bearish. Today gold is closing back above $1290 again. The minutes of this month's Fed meeting were released today and seemed to affirm another interest rate hike in the near future, but the minutes also stated that the pace of a rate rise could be more moderate than expected. This dovish tone likely pushed the U.S. Dollar Index down and boosted the precious metals. My preference is still to see gold and silver fall into next week's reversal zone and make a final (older) cycle bottom to buy, but if prices rally from here, we may have to switch to the idea of new bullish cycles starting from the precious metal's Oct. 6 lows (see earlier blog discussions). On the sidelines of gold and silver.

Crude oil prices are rising and are now challenging their Nov. 8 high at $58.14 (Jan. 2018 contract chart). We are late in the medium-term cycle of crude so a top is due to be followed by a significant correction to the final cycle bottom soon. Today is the last day of a critical reversal zone for crude so I am tempted to sell short here; however, short-term technical signals are mostly bullish at the moment, and another reversal zone for crude begins next week (Nov. 28 - Dec. 6). I am going to wait and see if prices can push higher. There is a small chance that last week's low at $55 was the end of the medium-term cycle (and start of a new one), but this is considered unlikely as the correction from the Nov. 8 top was very brief and shallow. If prices really take off, however, we will have to consider that possibility. On the sidelines of crude.

Trading Blog Monday, November 20, 2017

11/20/2017

MARKETS UPDATE (7:30 pm EDT)

We are now in the late stages of the current medium-term cycle of the broad stock market which means that we should be watching for a top or peak to this cycle to be followed by a steep correction to the cycle bottom. For the DOW and S&P 500 that cycle bottom would normally be expected anytime between now and the end of January. A bottom in the NASDAQ, however, could come earlier, say within the next three weeks, but it could also bottom with the DOW and S&P 500 in January. This correction could be severe (the DOW could easily fall to the 22,000 area and maybe even as low as 20,000). The bottom line here (pun intended) is that we should now be looking for a good spot to sell short. But when will the peak occur?

Last Thursday (the middle of a reversal zone for equities) the NASDAQ made a new all-time high while the DOW and S&P 500 did not (and are not making new highs today). Thus we have an ongoing case of intermarket bearish divergence within the current reversal zone for equities (that ends on Wednesday). The cycle peak may therefore already be in (the NASDAQ on Nov. 16 and the DOW and S&P 500 on Nov. 7) with this market ready to fall. But, momentum from this year's "Trumphoria" and "irrational exuberance" is persisting, and this is a major holiday week in the U.S. (Thanksgiving on Thursday) when equities are usually bullish. I wouldn't be surprised to see this market push higher into the next reversal zone coming up next week (Nov. 28 - Dec. 6). A lot may depend on whether or not the U.S. Congress passes a controversial tax reform bill next week (Congress is on vacation this week). If they don't pass a bill by the end of next week, this could be the trigger for a market sell off. The market is up strongly today so I am going to resist the temptation to sell short and wait to see if the DOW and S&P 500 can make new highs into Thanksgiving. If they do, we will look to next week's reversal zone for a top. Staying on the sidelines of the broad stock market for now.

Last Tuesday I wrote about gold and silver:

"The precious metals market is giving us a lot of mixed signals right now. It is still not clear if gold and silver started new medium-term cycles with their lows on Oct. 6 ($1,262 in gold, $16.38 in silver) or if both metals are completing older cycles that will bottom below those lows over the next several weeks. If these are new cycles, gold and silver could be very bullish now and prices could be poised to take off strongly......If gold breaks below $1,262, we could easily see prices drop close to $1,200 for a final bottom and a good buy spot. If that $1,262 level holds, however, prices could be ready to rally strongly. A break above $1,290 would suggest that is happening."

Well, gold closed at $1,296 on Friday, but today prices plummeted back to $1,277 to negate Friday's bullish signal. Silver also dropped severely today and made a double bottom to last week's low at $16.85. These severe drops broke through some important technical lines of support so it appears that we may be back on track to make final bottoms in older gold and silver cycles over the next few weeks. If gold can break below $1,262 we might see prices approaching the $1,200 area by late next week which would be right on time for the next precious metals reversal zone (Nov. 28 - Dec. 6). We will watch for this as it could turn out to be an excellent spot to buy. On the sidelines of gold and silver.

Crude oil prices are still holding above $55 (Dec. contract chart) as we near the end of the current reversal zone for crude (on Wednesday). If prices can edge up towards $58 or higher by then, we may consider selling this market short. If not, we will wait for the next reversal zone (Nov. 28 - Dec. 6) which starts next week and could end up being another high (sell spot) or a new low (probably a good buy spot). We will have to wait and see how prices move over the next few days before deciding how to trade. Still on the sidelines of crude oil.

Trading Blog Thursday, Nov. 16, 2017

11/16/2017

MARKETS UPDATE (3:30 pm EST)

The broad stock market continues to be difficult to call as we move into the second half of the current reversal zone for equities (Nov.13 - 22). Earlier this week it looked like these indices were headed down to a corrective bottom, but today's strong rally has changed that picture. The NASDAQ is surging to a new all-time high, and while the DOW and S&P 500 are also rallying, they are still below last week's highs (so far) so we have an intermarket bearish divergence signal (until those highs are broken). If this bearish divergence continues into early next week, I will consider entering a short position, but right now I am staying on the sidelines of this volatile market. Directional momentum in the S&P 500 and NASDAQ are still 100% bullish, but the DOW yesterday turned mixed bullish and bearish which could be a sign of an imminent correction. Please note that these markets are extremely overbought and susceptible to a strong correction which is why it is worth selling short at tops within reversal zones; however, equities are also currently being fueled by an "irrational exuberance" that seems to be a continuation of Wall Street's "Trumphoria" from early this year. This bullish energy could minimize corrections and push equity markets to new highs for at least several more weeks. It is not an easy market to trade. We are watching this situation very carefully and will try to buy or sell short when appropriate.

Yesterday gold and silver prices rallied strongly in the morning but then fell to close the day much lower. Gold prices came close to $1,290, but could not exceed it so the picture is still ambiguous for both metals (see Tuesday's blog). Gold did manage to make a new weekly high while silver did not so we now have an intermarket bearish divergence signal which is suggesting lower prices. But, as with the broad stock market, volatility is high right now so we can't rule out more rallying. Remaining on the sidelines of precious metals until we see clearer directional movement.

Crude oil prices may be finding support now around $55 (Dec. contract chart) as last week's alarm over the news of an anti-corruption crackdown in Saudi Arabia subsides. That bit of news from the Middle-East sent prices tumbling from a high near $58 on Nov. 8 to today's low just above $55. We are in the middle of a reversal zone for crude so we could now see prices reverse back up to challenge or exceed that $58 high. If that happens in this reversal zone or the next one (Nov. 29 - Dec. 6) it could be a good spot to sell short as it would likely be the final top to the current medium-term cycle in crude (see Tuesday's blog on crude). Still on the sidelines of crude oil.

Trading Blog Tuesday, November, 14, 2017

11/14/2017

MARKETS UPDATE (3:30 pm EST)

Today is the second day of yet another reversal zone for the broad stock market, and it looks like equities want to push lower. It's still possible for this market to push higher and make a top in this reversal period (which extends through Nov. 21), but right now I think we should be looking for a bottom to buy this week or early next. Cycle studies are telling us this drop could be steep (say, to 22,900 in the DOW and 2,500 in the S&P 500), but it doesn't have to be. Even a milder correction by early next week accompanied by some bullish signals would entice me to go long. We will remain on the sidelines for now and watch how these indices move over the next several days.

The precious metals market is giving us a lot of mixed signals right now. It is still not clear if gold and silver started new medium-term cycles with their lows on Oct. 6 ($1,262 in gold, $16.38 in silver) or if both metals are completing older cycles that will bottom below those lows over the next several weeks. If these are new cycles, gold and silver could be very bullish now and prices could be poised to take off strongly. This week's reversal zone could easily influence these metals so we should be on the lookout for a significant top or bottom (especially accompanied by bearish or bullish divergence). Right now this market could go either way, but I would prefer to see an older cycle bottom as that would give us an excellent spot to buy. If gold breaks below $1,262, we could easily see prices drop close to $1,200 for a final bottom and a good buy spot. If that $1,262 level holds, however, prices could be ready to rally strongly. A break above $1,290 would suggest that is happening. A bearish argument for gold and silver could be made now based on the current directional momentum in the two precious metal mining company stock indices HUI and XAU which are both 100% bearish. On the other hand, the U.S. Dollar index has failed in its recent attempts to break above resistance at 95, and it is falling steeply today. This is giving at least a temporary boost to gold and silver prices. We will remain on the sidelines of the precious metals until we get a more definitive buy signal which should come soon.

Crude oil's current medium-term cycle is in the process of making its final high before taking a steep correction towards its final bottom in the $50 area. On Nov. 3 we were stopped out of our short position in crude as prices pushed above the normal target for a cycle high. Prices surged to a new high of $57.92 on Nov. 8 (Dec. contract chart) but have been falling from there and today are sharply down (nearly touching $55 late this morning). It's possible that Nov. 8 high was the final high and prices are now moving down to the final cycle bottom, but Nov. 8 was not in a reversal zone. We like to see significant tops and bottoms in reversal zones (as statistically they occur more frequently there). We just entered a reversal zone specifically for crude today (Nov. 14 - 22) and there is another one coming up Nov. 28 - Dec. 6. If crude doesn't fall to $50 in this week's reversal zone, it's possible prices could push back up to $57.92 or higher for a final top and then correct down into the Nov./Dec. reversal for a final bottom. Our main strategy here will be to wait for a final bottom near $50 to buy, but if prices do push higher to a new high (or double top) this week or early next, we will consider selling short again. On the sidelines of crude oil for now.

Trading Blog Friday, November 10, 2017

11/10/2017

BRIEF MARKETS UPDATE (3:00 pm EST)

The broad stock market has been falling a bit since Wednesday, but not strongly enough to convince me that a major correction is underway (although that is possible). We enter another reversal period next week so equities could be headed for some sort of low and a bottom in that time period (Nov. 13 - 22). But this market seems very buoyant so I wouldn't be surprised to see it push higher into next week. If it does that with intermarket bearish divergence, we will consider selling short. The alternative would be a significant low next week to buy. Right now it could go either way.
Still on the sidelines.

Gold and silver rallied strongly early this week and that seemed to support the idea of a new bullish cycle in these metals (starting from their Oct. 6 lows). Prices dropped strongly today, however, so it is still possible we are dealing with an older cycle that will make a new bottom (below those Oct. 6 lows) sometime over the next few weeks. Next week's reversal zone is not specific to the precious metals but it could still affect them. If we get a significant bottom in this time (especially if we see intermarket bullish divergence) we will consider buying. On the sidelines of gold and silver.

Did crude oil make its cycle top at $57.92 on Wednesday (Dec. contract chart)? It's possible, but it was not in a reversal zone, and we are moving into another reversal zone specifically for crude next week (Nov. 14 - 22). It's more likely for prices to edge higher into that time. If they do move higher or even make a double top to Wednesday's high, we will look to sell short in this reversal period. On the sidelines of crude oil for now.

Trading Blog Monday, November 6, 2017

11/6/2017

CRUDE OIL TRADE ALERT and MARKETS UPDATE (3:30 pm EST)

My blog post early last Friday morning on crude oil stated:

" We have a tight stop loss at $55.60 for our short position in crude that we entered early Wednesday. "

Friday's prices closed at $55.70 (Dec. contract chart) so traders should have been stopped out of their short positions. Today prices are edging even higher, but we could still be making a top here, and if so we were "whipsawed" out of our short trade. If prices continue higher after Tuesday, however, we will have to look for a top in the next reversal zone for crude which is coming up Nov. 14 - 22. It would be better and would fit a more "normal" cycle pattern for crude to turn down now and make its final medium-term cycle bottom within that next reversal date, but this market seems to be taking its cues from the broad stock market which is also distorting its normal cycle and pushing outside its normal time range for a top. We will stay on the sidelines for now. If crude does turn down and falls into next week's reversal zone, we will look to buy what should be the final bottom of the current medium-term cycle.

The broad stock market indices (DOW, S&P 500 and NASDAQ) are all making new highs today so again we will have no intermarket bearish divergence signal for the week. We are also now moving out of a reversal zone for equities so there is a good chance this market will move higher into the next reversal zone (Nov. 13 - 21). As I mentioned above, the current medium-term cycle in the broad stock market is not behaving normally and is distorting. Equity markets are extremely overbought and yet are resisting normal corrections in an ongoing display of "irrational exuberance". As with crude, it would be better for equities to correct down into the next reversal zone as it would give us a good spot to buy; but if this market continues to push higher, we will look to sell short a top in that same time period. Still on the sidelines of the broad stock market. I realize it is frustrating to be on the sidelines of trading for such long periods of time, but the unusual behavior of all markets right now is requiring us to be especially cautious.

It is still not clear if gold and/or silver are starting new bullish cycles from their Oct. 6 lows or if prices are ready to fall lower to complete older cycle bottoms over the next several weeks. Today is the last day of the current reversal zone for precious metals, and silver is making a new weekly high while gold is not so we are getting a bearish divergence signal here. On the other hand, both metals are up strongly today and silver's directional momentum is 100% bullish (gold's is mixed bullish and bearish). Gold is close to making a new weekly high, and if it does that tomorrow or even later in the week it will support the idea of a younger, bullish cycle. Otherwise, we watch for a correction with gold possibly falling to the $1,200 area and/or silver below $16. On the sidelines of gold and silver for now.

The U.S. Dollar Index has been rallying, but it needs to break above resistance at 95 soon in order to continue to look bullish short-term. More precisely, it needs to close above its Oct. 27 high of 95.15 which was made in a reversal zone specifically for currencies. As long as that high holds, the greenback is in danger of losing its recent upward momentum and could start falling again. I would prefer to see the dollar push higher now as it would put downward pressure on gold and silver and possibly push their prices to the bottom of an older cycle and a good spot to buy.

Trading Blog Friday (early AM), November 3, 2017

11/2/2017

MARKETS UPDATE (3:30 am EDT)

All three broad stock market indices made new highs yesterday so the intermarket bearish divergence signal from earlier in the week is now negated. However, the DOW made a new high today while both the S&P 500 and NASDAQ dropped. This could be signaling the start of a correction. If not, we could easily see equities push higher into next week. I am going to extend the reversal period for equities, precious metals, crude oil and currencies into early next week. We are not getting any strong sell signals this week in the broad stock market so I am not comfortable selling short just yet. If we see bearish divergence next Monday or Tuesday in equities, however, we will consider selling short. Still on the sidelines of this market.

Gold and especially silver prices have been rising this week, but both metals are making new highs in this current reversal zone and are thus susceptible to a reversal back down. As with equities, we may have to wait until next week for a bearish divergence signal (where gold or silver, but not both, makes a new weekly high). Ideally, I would like to see one or both of these metals break back below their Oct. 6 lows to form an older cycle bottom which would be an ideal place to buy. If those lows hold, however, we may have to assume that new cycles started on Oct. 6 and this market is already turning bullish. On the sidelines of gold and silver for now.

Crude oil prices may have topped out on Wednesday at $55.22 (Dec. contract chart), but that $55 resistance area is being challenged again as I write this in the early AM hours of Friday. We have a tight stop loss at $55.60 for our short position in crude that we entered early Wednesday. Let's hold that short position and see if this market can turn down now in this reversal zone (which ends Friday but may be extended into next Tuesday) and make a final correction down to a cycle bottom in the $47 - $48 area.

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