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Trading Blog Wednesday, November 28, 2018

11/28/2018

MARKETS UPDATE (3:00 pm EST)

Today Fed Chairman Jerome Powell made some public comments on interest rate policy that many are interpreting as strikingly dovish compared to his normally hawkish enthusiasm for raising interest rates. Perhaps he's responding to Donald Trump's recent criticism that the Fed has been raising rates too quickly, or maybe he simply realizes that Wall Street is not ready for a rapid increase in interest rates and has shown its displeasure with the recent equity plunge. Either way, his dovish comments seem to be boosting the broad stock market today. The DOW is up over 500 points at the time of this writing. This rally is supporting the idea that the DOW and S&P 500 started new medium-term cycles with their lows on Oct. 29, but there are reasons to be cautious here. A dramatic rally triggered by some minor comments from Powell may not last. Furthermore, the market is rising steeply into the center of the current strong reversal zone for equities (Nov. 26 - Dec. 5). This means we could see a top by next Wednesday and possibly a dramatic reversal back down. The fact that we are in an unusually volatile trading environment that will probably last at least through the second week of December is also making me cautious about this rally. Let's stay on the sidelines of this market for now and see if this rally gains any momentum. If we are starting new medium-term cycles in the broad stock market, it is early in the cycle and there will be time to go long on any corrective dips later.

Not surprisingly, Powell's sudden dovish tone pushed down the U.S. Dollar Index and thus boosted gold and silver prices. But, as with the stock market, we have to ask ourselves if Powell's comments will trigger a legitimate rally in the metals or will the rally be a brief "flash in the pan". Our reversal zone for the precious metals also extends into next Wednesday so we have time to wait and see if it will correlate with a top or bottom (either one is still possible). Still on the sidelines of gold and silver.

Crude oil prices are down today despite Wall Street's rally. Because crude prices often take their cue from the broad stock market, this may be telling us that the equity rally is superficial and won't last. Crude may have made a medium-term and longer-term cycle bottom with Monday's low of $50.10 (Jan. contract chart), but it could also dip lower before next Wednesday (Dec. 5). We will probably be looking to go long over the next five trading days. On the sidelines of crude for now.

Trading Blog Monday, November 26, 2018

11/26/2018

MARKETS UPDATE (6:00 pm EST)

Last week's equity markets plunged into the Thanksgiving holiday which was unusual (and not a good sign) as pre-holiday markets are typically bullish. Despite the severe plunge, however, neither the DOW nor the S&P 500 broke below their Oct. 29 lows, but the NASDAQ did. This means we now have a potential bullish divergence signal in the broad stock market. It is possible that the DOW and S&P 500 are making double bottoms to their Oct. 29 lows (as they start new medium-term cycles) which would also be a bullish development. The NASDAQ, however, is still completing the bottom of an older medium-term cycle and will be bearish until that bottom is in. We are now entering another strong reversal zone for equities (Nov. 26 - Dec. 5) so the NASDAQ's bottom could be completed in this time frame.

The big question right now is whether or not the DOW and/or the S&P 500 will break below their Oct. 29 lows (24,122 and 2,603, respectively). If they do break those lows then they, like the NASDAQ, will likely be completing older cycle bottoms in this new reversal zone (i.e. by the first week of December). Ideally we would like to see at least one of these indices stay above its Oct. 29 low to maintain our bullish divergence signal. Today's strong rally in equities is supporting the idea of "double bottoms" and the start of new cycles in the DOW and S&P 500, but there is still plenty of time for these indices to turn south again and bottom in the new reversal zone. We are looking for cycle bottoms to buy, but let's wait a few more days to see how this market moves into the center of the reversal zone (Friday) before we go long again. (Note that although we did not get a Thanksgiving rally, we are now in a five week countdown to the Christmas/New Year holidays which often correlates with a "Santa Claus rally" in equity markets. This may kick in strongly if equity cycles bottom soon as I've described above.)
On the sidelines of the broad stock market for now.

We are now in the center of a reversal zone specifically for gold and silver, and prices seem to be falling into it. This reversal zone ends Friday, but it could overlap with the Nov. 26 - Dec. 5 reversal zone for equities so there is still time for these metals to rally and make a high instead of a low in the reversal zone. As with the broad stock market, I am going to stay on the sidelines here and see how prices move into the end of the week before making any trading decisions. A rally is possible, but it is also possible we could see a steep plunge to new lows in this reversal zone (especially in silver).

Directional momentum in the U.S. Dollar Index has been nearly 100% bullish since early October, and that bullishness is not diminishing. The dollar made a significant low at 96.16 on Nov. 19 in the center of a reversal zone specific to currencies so it may be starting a significant rally from there. Last week the dollar found support around 96.5 and it may now attempt to challenge and break its 97.62 high from Nov. 12. This is all bearish news for the precious metals and supports the idea of lower prices in gold and silver.

Crude oil prices have been falling dramatically despite the Trump administration's sanctions imposed on Iran earlier this month. The reason for this seems to be the exemption of eight countries from sanction penalties which has kept the price of oil from skyrocketing. Crude prices got down to $50.10 today (Jan. contract chart) - a new low for the year. We are at the center of a reversal zone for crude, but it could easily overlap with the strong reversal zone for equities that extends into Wednesday (Dec. 5) of next week. Crude oil's medium-term and longer-term cycles are also due either this week or next so we should now be looking for a bottom to buy. On the sidelines of crude but looking to buy soon.

Trading Blog Wednesday, November 21, 2018

11/21/2018

BROAD STOCK MARKET TRADE ALERT (3:15 pm EST)

Early day rallying made it look like the DOW was going to to take a stab at clearing that 24,750 level today, but as we approach the closing bell, the broad stock market seems to be losing momentum quickly. It's time to unload our long positions in this market. Markets are closed tomorrow and open only to 1 pm EST on Friday so it seems unlikely we will close the week above that 24,750 level. If the Oct. 29 lows in the S&P 500 and/or the DOW hold, we may jump back in over the next week or two, but for now we need to be safe on the sidelines. Selling my long position in the broad stock market now.

Traders who don't sell today should attempt to unload their long positions on Friday before 1 pm EST (unless the market rallies strongly and the DOW closes above 24,750 - if that happens, I would stay long).

Trading Blog Tuesday, November 20, 2018

11/20/2018

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

Gold and silver both rallied a bit early this morning to make new weekly highs, but prices are now backing down from those highs, and it looks like the day will close in the red. We are thus getting a top in a reversal zone. This reversal zone ends tomorrow, but another one (that is specific to the precious metals) also begins tomorrow and ends next Friday (Nov. 21 - 30). What this means is that even if these metals rally and push past the first reversal zone, they will be making new highs in the second (stronger) one so the chances of getting a significant top soon are high. For this reason I am going to sell my long position in gold today. We have a small profit in this trade (we bought last Thursday). We bought gold with the idea that a new medium-term cycle started with the low of Nov. 13 (at $1196). That might still be the case, but the lack of a strong rally from there is increasing the chances of prices turning down and breaking below that low to complete the bottom of an older cycle. If a new (bullish) cycle did start on Nov. 13, we will have plenty of opportunity to go long again and buy the bottom of the next sub-cycle correction (which could be starting now as long as prices stay above $1196). Silver is most likely near the end of its current medium-term cycle so it too could soon be heading lower to make its final cycle low (especially if it can't clear $14.91 soon). We are still on the sidelines of silver.

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

"We should also keep in mind that even if we take out last week's lows, we are still in a major reversal zone through Wednesday, and as long as we stay above the Oct. 29 lows we could still reverse strongly back up and stay bullish. In fact, if the NASDAQ does break its Oct. 29 low of 6,922 (it is close) while the DOW and S&P 500 stay above their Oct. 29 lows (24,122 and 2,603, respectively), we will have a strong bullish divergence signal and a strong incentive to stay long in this market. Unfortunately, all financial markets could be very volatile over the next three to four weeks so we could see a lot of price fluctuations and testing of support and resistance lines."

Well, all of this is happening very quickly. Another big drop in equities today has pushed the NASDAQ below its Oct. 29 low which means that index is completing an older medium-term cycle which should see its final low between now and the first week of December. Both the DOW and S&P 500 are (so far) holding above their Oct. 29 lows so we now have a strong bullish divergence signal. Both these indices are very close to their Oct. 29 lows. This means it is possible we are seeing double bottoms here which often end old cycles and start new ones. If that is the case then these indices are bullish and will rally from here. But we don't want to see the DOW break its 24,122 low as that would mean this market is turning bearish. In fact, we don't even want to see the market close this week below our stop loss of 24,750 (it is below there now). If the DOW can't rally above 24,750 tomorrow, we will likely sell our long position. Note that the market is closed on Thursday (Thanksgiving holiday) and closes early at 1 pm (EST) on Friday.
Holding my long position today.

Trading Blog Monday, November 19, 2018

11/19/2018

MARKETS UPDATE (6:30 pm EST)

The broad stock market gave us a little scare today with the DOW's nearly 400 point drop (especially as we entered a long position last Thursday); however, last week's low (24,787) has not been broken, and today's close was above the support line of 25,000. Nevertheless, we are on alert for the possibility of this market turning bearish and breaking below the Oct. 29 lows that may have started new cycles in all three market indices (DOW, S&P 500, and NASDAQ). Let's lower the stop loss on our long positions to a close below 24,750 in the DOW and keep it at 2,650 for the S&P 500. One bullish factor now is the fact that this is a major holiday week in the U.S. (Thanksgiving on Thursday) and equity markets are often bullish into long holiday week-ends. Trading volume should also taper off significantly by Wednesday. We should also keep in mind that even if we take out last week's lows, we are still in a major reversal zone through Wednesday, and as long as we stay above the Oct. 29 lows we could still reverse strongly back up and stay bullish. In fact, if the NASDAQ does break its Oct. 29 low of 6,922 (it is close) while the DOW and S&P 500 stay above their Oct. 29 lows (24,122 and 2,603, respectively), we will have a strong bullish divergence signal and a strong incentive to stay long in this market. Unfortunately, all financial markets could be very volatile over the next three to four weeks so we could see a lot of price fluctuations and testing of support and resistance lines. We will need to watch these markets carefully and be nimble in our trading. Holding my long position in the broad stock market for now.

We also need to keep a close eye on the precious metals now. Gold and silver rallied a bit today, but not very strongly. Gold may have started a new medium-term cycle with last week's low at $1197, but it needs to rally strongly above $1246 to confirm that. Otherwise, the current rally may end soon with prices turning down and dropping below last week's low. Silver needs to rally above $14.91 soon to stay bullish or else it too could turn back down and make a new low below the $13.95 low that started its medium-term cycle on Sept. 11. We are currently long in gold but out of silver. Let's keep our stop loss for this gold trade on a close below $1181.

We are now entering (today) a reversal zone for crude oil that will last through Nov. 28. Crude made a new low today at $55.08 (Dec. contract chart), and a medium-term and longer-term cycle bottom are due (overdue). Today's low could be it or it could go lower over the next five trading days. A drop closer to $53 would be an ideal target to buy so we will watch for that this week or next. Still on the sidelines of crude oil.

Trading Blog Thursday, November 15, 2018

11/15/2018

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

Early today the DOW and S&P 500 plunged below our targets (25,000 and 2,700, respectively) for a correction in the broad stock market, but quickly recovered and are snapping back now with steep gains into the end of the day. This is a very bullish sign and it looks like a reversal. It is still early in the current reversal zone (it lasts through next Wednesday), but it looks like today's lows could be the bottom. I am going to enter a long position in the broad stock market today. It might be best to avoid the NASDAQ for this trade as there is a chance that index is still completing the bottom of an older cycle. A good stop loss for this trade would be a close below 24,800 in the DOW or a close below 2,650 in the S&P 500.

Trading Blog Wednesday (evening), November 14, 2018

11/14/2018

GOLD TRADE ALERT and BROAD STOCK MARKET UPDATE (7:00 pm EST)

Today was the first day of a reversal zone that runs from Nov. 14 - 21. This reversal could apply to all the markets we trade.

Today silver broke briefly below the $13.95 Sept. 11 low that started its current medium-term cycle then closed in the upper part of today's trading range ($14.13). Gold tested the $1200 level Monday, Tuesday, and today and closed today at a new weekly high ($1210). This is all bullish behavior, and because silver broke the low that started its medium-term cycle while gold remained well above the low that started its cycle ($1161 on Aug. 15), we have a strong case of bullish divergence and a strong buy signal in a reversal zone. Although we could make an argument to buy both metals now, the fact that silver went below the start of its cycle means that even if it rallies from here, that rally may be brief (but possibly sharp) and prices could turn down again to make a final cycle low well below $13.95. Gold's current medium-term cycle, however, is a little older than silver's (it started a month earlier), and there is a possibility that yesterday's low was the end of the cycle and start of a new one. If that is the case, gold would be ready to rally strongly now. My point here is that at the moment a bullish position in gold is less risky than one for silver. Let's buy gold now for tomorrow's market open and stay on the sidelines of silver for now. A good stop loss for this long position in gold would be a close below $1181.

The broad stock market continued lower today, and the DOW and S&P 500 are now touching our target points for a normal correction in a bullish market. But it is still possible for this market to turn bearish if this correction goes deeper and breaks those Oct. 29 lows (24,122 in the DOW, 2,603 in the S&P 500 and 6,922 in the NASDAQ) that may have started new medium-term cycles in all three indices. Since this current reversal zone extends into Wednesday of next week, there is plenty of time for the market to plunge lower before reversing. Let's wait a few more days and see if these target areas (25,000 in the DOW and 2,700 in the S&P 500) can hold the correction before we consider going long in this market. Staying on the sidelines for now.

Trading Blog Monday (late night), November 12, 2018

11/12/2018

MARKETS UPDATE (11:30 am EST)

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

"...equity markets could be turning bullish now, and that is supporting the idea that a new medium-term cycle started with those lows in the DOW, S&P 500 and NASDAQ on Oct. 29. If that is the case, we could see strong rallying in this market for another 8-13 weeks. We mustn't forget, however, that we have potential reversal points coming up Nov. 8 (weak), Nov.16 (strong) and Nov. 30 (very strong). Any rally into these reversal zones could see a top followed by a significant correction. Our strategy will now be to buy any significant correction that stays above those Oct. 29 lows (that would be 24,122 in the DOW, 2,603 in the S&P 500 and 6,922 in the NASDAQ). Breaking below those lows would negate our bullish view of this market."

OK. It looks like the market topped out on our first reversal point (Nov. 8) and is now in a steep downward correction. As stated above, we now want to be looking for the bottom of this correction to buy, as long as that bottom doesn't break below the Oct. 29 lows that may have started new medium-term cycles in all three market indices. Because we are about to enter another reversal zone this week (Nov. 14 - 21 and centered on Nov. 16), it is highly likely the corrective bottom will occur then. A good target for this correction in the DOW would be around the 25,000 level (say between 24,800 and 25,200). This is our ideal scenario, and it is based on the DOW (and most likely the S&P 500 and possibly the NASDAQ) having started new medium-term cycles off their Oct. 29's lows. But, as usual, we need to be aware of some other possibilities that could play out.

If this current correction finds support before Wednesday and starts to rally again, we could possibly see a top into the Nov. 16 reversal zone and not a bottom. (I don't think that is going to happen, but if it does, we may look to sell short.) But what we really need to watch carefully are those Oct. 29 lows (24,122 in the DOW, 2,603 in the S&P 500 and 6,922 in the NASDAQ). We don't want to see all three indices break their lows. That could signal that this market is turning very bearish. However, if the DOW remains above its low while the S&P 500 and (or) especially the NASDAQ break their lows, we would have a strong bullish divergence signal to buy. (This is a very possible scenario because the NASDAQ may not have ended its previous cycle on Oct. 29 and could still be moving towards its final bottom sometime this month.)

Even if this analysis is a bit complicated, our strategy here is simple. We are looking to buy the DOW sometime this week or next week in that 25,000 area. A good buy target in the S&P 500 would be around 2,700. Any significant plunge below these levels would be viewed with caution, and any break below those Oct. 29 lows would negate our bullish view altogether. Still on the sidelines of the broad stock market.

After last week's down slide, gold and silver prices continued lower today with both metals making new weekly lows. Silver prices are nearly touching the low that started the current medium-term cycle on Sept. 11 ($13.95). If that low breaks, silver would be bearish and headed lower for at least several more weeks. If silver breaks that low and gold can stay above the low that started its current cycle( $1161 on Aug. 16), however, we would have a strong bullish divergence signal to buy (gold first, then silver near its final low). We don't want to see gold below $1161 and silver below $13.95 as that would be a sign the market is turning bearish. Let's remain on the sidelines of the precious metals for now and see how prices move into this week's Nov. 16 reversal zone.

The U.S. Dollar Index "broke out" above a strong resistance line around 97 today. This is a new high for the year, and if the greenback can stay above 97 it could move considerably higher. This week's reversal zone (Nov. 14 - 21) is a reversal zone specifically relevant to currencies so if the dollar continues to rise into the end of the week or next week, it could potentially get turned back down. The U.S. dollar's recent strength could be coming from frightened investors fleeing falling equity markets and moving into the perceived safety of the greenback. Some analysts are suggesting that we are now seeing the start of an all out sell-off in equities and commodities similar to 2008-2009 when panicking traders liquidated their stocks as well as precious metals (and crude oil) investments and fled to the U.S. dollar. While this scenario is possible, cycle and technical analysis is showing us that there could still be some bullish rallying left in these markets so we are not ready to throw in the towel (or sell short) just yet.

Crude oil prices continue to fall and today they closed below $60 (Dec. contract chart) for the first time since early February this year. This is confirming that we are approaching the end of a longer-term (3 year) cycle in crude that could bottom any time now and very likely in the upcoming reversal zone for oil (Nov. 19 - 28). Still on the sidelines of crude but looking to buy soon.

Trading Blog Friday, November 9, 2018

11/9/2018

UPDATE on PRECIOUS METALS and CRUDE OIL (1:30 pm EST)

The Federal Reserves's meeting this week and its policy statement released yesterday basically gave the message that the Fed is "staying the course" with their plans to raise interest rates. Although there was no rate hike this month, one is expected in December, and more are slated for next year. This hawkish tone from the Fed is boosting the U.S. Dollar Index which in turn is driving gold and silver prices lower. We have been looking to buy a correction in the precious metals, but we don't want to see that correction go too low. If gold can stay above $1200, we will still look to buy, but a close below there would be a bearish sign and would keep me on the sidelines. We also don't want to see silver move below $13.95 (that was the start of the current medium-term cycle on Sept. 11) as that could also suggest this market is turning bearish. Still on the sidelines of both metals.

Crude oil prices are also falling. As I've stated recently, we are near the end of the current medium-term cycle in crude, and prices have been falling towards the final cycle bottom. There is also the possibility that the end of this medium-term cycle will also coincide with the end of a longer-term (3 year) cycle in crude. The deep correction we are seeing now is supporting that idea. The bottom line here (pun intended) is that we are looking to buy this final bottom in both cycles as a good rally should follow from there. There is a reversal zone specifically for crude coming up Nov. 19 - 28. We will watch for a final cycle low in that time frame. On the sidelines of crude oil for now.

Trading Blog Wednesday, November 7, 2018

11/7/2018

BROAD STOCK MARKET UPDATE and COMMENT ON THE ELECTION (3:00 pm EST)

The mid-term elections are over. The Democrats took control of the House while the Republicans strengthened their control of the Senate. There was no real blue wave or red wave as some had anticipated. Both parties are dealing with gains and losses in different states, but we now have a Congress that will be more resistant to Trump administration policies, and we can expect more congressional "stalemating" for at least the next two years.

So what does this mean for the broad stock market? Today's massive rally in equities is showing us that Wall Street is most likely breathing a sigh of relief that we avoided any one party victory which could have led to strong emotional back-lashing and instability in financial markets - i.e. we made it through the election in one piece. Indeed, some analysts are already saying that the likely stalemating we can expect in Congress from this point on is good for the stock market as it will suppress the passing of major changes in legislative policy (which makes Wall Street nervous). President Trump will also now find it more difficult to wage "trade wars" with countries like China, and this should be beneficial to equity markets. Whether or not such trade wars are helpful to our country's economy in the long run, in the short-term we have recently seen these policies frighten Wall Street and send equity markets into a tailspin.

It appears that covering our short position in the broad stock market on Monday was a good idea as we avoided what would have been losses from a 500+ point rally (so far) in the DOW. Based on my comments above, equity markets could be turning bullish now, and that is supporting the idea that a new medium-term cycle started with those lows in the DOW, S&P 500 and NASDAQ on Oct. 29. If that is the case, we could see strong rallying in this market for another 8-13 weeks. We mustn't forget, however, that we have potential reversal points coming up Nov. 8 (weak), Nov.16 (strong) and Nov. 30 (very strong). Any rally into these reversal zones could see a top followed by a significant correction. Our strategy will now be to buy any significant correction that stays above those Oct. 29 lows (that would be 24,122 in the DOW, 2,603 in the S&P 500 and 6,922 in the NASDAQ). Breaking below those lows would negate our bullish view of this market. On the sidelines of the broad stock market for now.

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