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Trading Blog Monday, November 25, 2019

11/25/2019

MARKETS UPDATE (8:30 pm EST)

Today all three broad stock market indices rallied strongly, but only the S&P 500 and NASDAQ made new highs. The DOW got to 28,068 - just short of last week's high of 28,090. This gives us an intermarket bearish divergence signal inside a reversal zone (Nov. 20 - 27) that ends on Wednesday. Unless the DOW pushes past 28,090 tomorrow (very possible), we could see a reversal now in equities and the start of a sharp correction. Although I am tempted to sell short here, I think any correction will be brief as the overall trend of this market is still bullish (directional momentum is now 100% bullish in all three indices) so I am going to stay on the sidelines and wait for the bottom of any correction to buy. If the DOW does make a new high this week, we might even see a rally continue into our next reversal zone (Dec. 6 - 17); otherwise, we will watch for a correction down and a low to buy, possibly in that Dec. reversal zone. Staying on the sidelines of the broad stock market for now.

Gold and silver prices pushed lower today. The cycle patterns are still not clear for either metal so we are going to stay on the sidelines for now. We are still in a reversal zone for precious metals (Nov. 20 - 27) so we could see a bottom by Wednesday and a reversal back up. But last week's highs were also in this reversal zone so prices could just push lower into next week. Ideally, we would like to see a bottom in gold around $1400 and silver around $15.50. If prices get there, we will be looking to buy.

We may have missed a good buy spot with last Wednesday's low of $54.85 (Jan. contract chart) in crude oil - assuming that was a legitimate sub-cycle correction (it happened very fast). If it was, prices should rally now to a possible target of $61- $62 over the next several weeks. But it's still possible for prices to make another high in the current reversal zone (Nov. 20 - Dec. 2) and make another sharp correction down. If that happens, we will look to buy that low. We are still on the sidelines of this market.

Trading Blog Thursday (evening), November 21, 2019

11/21/2019

MARKETS UPDATE (9:30 pm EST)

The broad stock market indices (DOW, S&P 500, NASDAQ) all peaked on Tuesday (Nov. 19) with new all-time highs (no bearish divergence) before correcting down Wednesday and today. The lows on Wednesday did not get to our target areas (27,100 - 27,500 in the DOW and 3,020 - 3,080 in the S&P 500), and they were only one day after the peak so they do not really qualify as a normal sub-cycle correction. Tuesday's peak was also technically just outside our reversal zone (Nov. 20 - 27), and we like to see significant tops (or bottoms) within a reversal zone. Let's wait and see if equities can move lower into our target ranges over the next four trading days and give us a good spot to buy. If instead this market rallies higher tomorrow and into early next week, we may look to sell short (especially if one or two but not all three indices make new highs next week - i.e. bearish divergence) for what could be a brief but sharp corrective dip. Still on the sidelines of the broad stock market.

Gold and silver prices have been relatively flat this week with gold making a new weekly high yesterday and silver a new weekly high today. Both metals closed down a bit today at the lower end of their daily range (bearish). We are now entering a reversal zone specifically for the precious metals (Nov. 20 -27, same as for equities) so today's high could be a top and turning point; however, there is still plenty of time for either metal to make a new high by next Wednesday. The cycle pattern is still unclear for both gold and silver so we will just wait and see if we get a significant low or high in this new reversal zone. I should point out here that while precious metal prices may be temporarily "stuck" in a narrow trading range (or possibly setting up for another corrective drop), we have not abandoned our longer-term bullish outlook. At the moment it looks like gold could potentially drop into the $1380 - $1400 range, and silver down to $15.25 - $15.50. If those levels hold, they could be ideal buy spots for another major run up in both metals. A significant break below those levels, however, would likely force us to abandon our bullish view. Still on the sidelines of gold and silver.

After making a high of $58.17 on Monday (Jan. contract chart), crude oil prices dropped to a low of $54.85 on Wednesday then rocketed back up to a new high of $58.67 today. Whew! This volatile roller coaster ride has caught us a little off guard. We were looking for a corrective dip to buy in the $54 - $55 range. We got that on Wednesday, but it was only a two day correction ( we like to see at least 3 corrective days), and it was only the first day of the new reversal zone. Did we miss the dip? Maybe. But I think it's more likely the sub-cycle top is still forming (or just formed today) and will be in (or is in) before next Wednesday. If this is correct, we may get a second chance to buy that corrective dip. Let's watch for it. On the sidelines of crude oil for now.

Trading Blog Monday, November 18, 2019

11/18/2019

MARKETS UPDATE (5:30 pm EST)

It is early in the medium-term cycles of all three major broad stock market indices as the DOW, S&P 500 and NASDAQ all began their new cycles with lows on Oct. 3. These indices have rallied from those lows, but we are now in a time frame for some sort of sub-cycle top and corrective dip. We like to see tops (and bottoms) happen in our reversal zones, and there is one coming up Wednesday (Nov. 20 - 28). After a shaky start this morning, equities rallied to a positive close. If this market can push higher into this new reversal zone, we will look for a top to be followed by a sharp corrective drop to buy into (if it doesn't get too low). Alternatively, if equities turn down now, we could see a corrective low in this new reversal zone and an earlier opportunity to buy. If this happens, good targets for lows could be around 27,100 - 27,500 in the DOW and 3,020 - 3,080 in the S&P 500 which we would look to buy. Otherwise, we'll wait for that later top and look to buy the corrective drop from there (we might even consider short-selling that top for a short-term trade). Still on the sidelines of the broad stock market.

Note that we are bullish on equities for now, but we are still anticipating a major correction soon. As I wrote in my Nov. 7 blog:

"Longer-term, we are still anticipating a 10-15% correction once the current medium-term cycle reaches its final peak (most likely at least several weeks or more from now). After that correction, another medium-term cycle will begin with a rally into 2020. The top of that new cycle may or may not make a new high, but once that high is in, a very severe correction (corresponding to a long-term 75 year cycle) could start that could be as severe as the 2008-2009 "crash". But I am getting ahead of myself here. We will certainly want to short sell the market if and when that opportunity comes next year, but for now we are being short-term bullish as it seems likely this market wants to rally some more."

It is interesting that the current ramping up of the impeachment process against President Trump by the Democrats does not seem to be having an adverse effect on Wall Street. Perhaps a negative impact will come as Democrat rhetoric heats up, or perhaps investors and traders just aren't taking the impeachment seriously. Time will tell. Something that investors ARE taking seriously now would be the U.S./China "trade deal" talks. Any progress in these negotiations seems to give a bullish kick to the broad stock market, but if they turn sour, watch out for a possible equity sell-off!

We are still getting a lot of mixed signals in the precious metals market, and the cycle patterns in both gold and silver are still not clear. There are some technical signals suggesting a sharp rally in both metals now, but even if that happens, there is a reversal zone specifically for gold and silver Nov. 20 - 28 (same as for equities) which would likely put a curb an any rally. Let's stay on the sidelines of these metals now until the cycle patterns become more clear.

Crude oil made a new high today at $58.09 (Dec. contract chart). We are now in between two reversal zones specifically for crude oil (Nov. 5 - 14 and Nov. 20 - Dec. 2) and the first sub-cycle top is due. This could be it, but we prefer to see tops and bottoms in reversal zones which means prices could still edge higher into the end of the week before they fall into a sub-cycle correction. We want to buy the bottom of that correction (as long as it stays above $50.89). If prices fall now, a good corrective target would be $54 -$55. If they edge higher and then fall, we will adjust that target accordingly. On the sidelines of crude for now but looking to buy a modest sub-cycle correction.

Trading Blog Tuesday (evening), November 12, 2019

11/12/2019

MARKETS UPDATE (7:30 pm EST)

Today the S&P 500 and NASDAQ both made new weekly (and all-time highs), but the DOW did not (but came very close). This intermarket bearish divergence could mean that equities will fall now, unless the DOW makes a new high tomorrow (very possible). We will continue to watch for a modest correction to buy. That may come now, but if these indices push higher into late this week, we may see the rally continue into our next reversal zone (Nov. 20 - 28) before any significant correction. Good targets now for a correction would be around 27,250 in the DOW and 3,040 in the S&P 500). Still on the sidelines of the broad stock market.

In last Thursday's blog on gold and silver I wrote:

"It appears there is a good chance gold and silver could break below their Oct. 1 lows ($1456 and $16.93, respectively) or at least form double bottoms to those lows. I am hesitant to buy here as the trend of this market may be turning bearish."

It looks like this is happening. Gold has broken, but not yet closed below $1456. Silver, however, is closing below $16.93. It's likely prices will move lower now. The cycle labeling of both metals is now in question with several different possibilities. Other technical signals are suggesting a significant low by next Wednesday to be followed by a strong rally. Gold prices could get down to the $1400 area for this low, and silver as low as $15.50. These could be good buy spots if prices get there. Let's stay on the sidelines of the precious metals for now.

It looks like last week's high in crude oil at $57.88 (Dec. contract chart) could have been a sub-cycle top (it happened in our reversal zone specifically for crude). If so, prices are now falling to the first sub-cycle correction in the current medium-term cycle. A good target for that corrective dip would be $54 - $55. If instead prices push higher into the end of this week, it would mean the sub-cycle top is still forming. Either way, we will wait for a sub-cycle correction to buy. If that correction goes significantly below $54 (and especially below $50.89), however, then we will abandon our plans to buy as the market would be turning bearish. Still on the sidelines of crude oil.

Trading Blog Thursday, November 7, 2019

11/7/2019

MARKETS UPDATE (5:00 pm EST)

The DOW, S&P 500 and NASDAQ are all now making new all-time highs so our bearish divergence signal from last week is negated. Nevertheless, we are nearing the end of our current reversal zone for the broad stock market (Oct. 29 - Nov. 8) and we could still see a top and a reversal by the end of this week (or maybe early next week). A sub-cycle correction is also due now. I suspect it will be a minor corrective dip and will give us a good spot to buy for another strong rally. We will watch for that. If these indices push higher into next week with no significant correction, it's possible rallying could continue into our next reversal zone coming up Nov. 20 - 27 before correcting down. For now, let's watch for a high this week or early next week and a corrective dip to buy.

Longer-term, we are still anticipating a 10-15% correction once the current medium-term cycle reaches its final peak (most likely at least several weeks or more from now). After that correction, another medium-term cycle will begin with a rally into 2020. The top of that new cycle may or may not make a new high, but once that high is in, a very severe correction (corresponding to a long-term 75 year cycle) could start that could be as severe as the 2008-2009 "crash". But I am getting ahead of myself here. We will certainly want to short sell the market if and when that opportunity comes next year, but for now we are being short-term bullish as it seems likely this market wants to rally some more. Still on the sidelines of the broad stock market.

In last Sunday's blog on gold and silver I wrote:

"Gold and silver markets are presenting mixed signals right now. There is the potential for a strong rally in both metals now, but there are also signals suggesting a corrective downturn. It still looks like both metals started new medium-term cycles on Oct. 1 and are young and therefore likely bullish. We will continue to watch for a corrective dip to buy in both gold and silver, but we don't want to see gold fall below $1456 or silver fall below $16.93 as that could mean the cycles are turning bearish."

It looks like the precious metals have decided on a corrective downturn instead of a strong rally. On Tuesday gold prices plunged dramatically, and today they are sharply down again. Silver prices are also falling steeply this week. Today gold's spot price reached $1462.50 and silver's spot price got to $17. Directional momentum in both metals also turned from 100% bullish to mixed bullish and bearish. It appears there is a good chance gold and silver could break below their Oct. 1 lows ($1456 and $16.93, respectively) or at least form double bottoms to those lows. I am hesitant to buy here as the trend of this market may be turning bearish. Let's stay on the sidelines for now.

We are now in a reversal zone specifically for crude oil (Nov. 5-14) and prices have been edging higher this week. Today they got to $57.88 (Dec. contract chart) before backing off a bit. We are in our range (and timing) for our first sub-cycle top ($57 - $58) so we could see a reversal any day now. It is tempting to sell short here, but I think this market is turning bullish, and like the broad stock market, any correction now could be short and shallow (perhaps to the $54 - $55 area). Let's wait for a corrective dip and see how far it goes for a possible spot to buy. Any break and close below the Oct. 3 low of $50.89 would turn this market bearish and negate our buy strategy. Staying on the sidelines of crude oil for now.

Trading Blog Sunday (evening), November 3, 2019

11/3/2019

MARKETS UPDATE (8:00 pm EDST)

It is early in the medium-term cycle of the broad stock market as all three major market indices (DOW, S&P 500, NASDAQ) started their new cycle on Oct. 3. Once we reach the peak of this cycle, a rather severe correction to the final cycle bottom will commence. That correction could be around 10-15% (no, this isn't the "big one") off the peak so we want to watch carefully now for this peak as a good opportunity to sell short. Note that it seems likely the Trump administration will keep putting pressure on the Fed to keep equity markets buoyant into next year's election. Nevertheless, markets are very overbought now, and even the Fed rolling out a "QE4" plan (see my Oct. 21 Trading Blog) will not be able to keep markets rallying unchecked over the next twelve months without a significant correction. A 10-15% corrective drop in the broad stock market would do much to ease any bearish pressure and perhaps set the stage for more rallying into next November's presidential election.

So when can we expect the current cycle's peak and that deep correction? Well, a high could be forming now in our current reversal zone that ends this Friday. Could this be the top of the medium-term cycle already? It's possible, but I think it's more likely any correction now will be minor and followed by another high over the next several weeks. We already have a case of intermarket bearish divergence from last week as the S&P 500 and NASDAQ both made new all-time highs while the DOW did not. The DOW did come close, however, and closed the week very bullish so that bearish divergence signal could be negated this week if the DOW exceeds 27,399. If that happens, we might see a top near the end of the week or even early the following week. Whether we see a top now or near the end of this week, we will wait for a subsequent corrective dip to buy for another multi-week rally (possibly to that final peak). A good target to go long would be around 27,000 in the DOW and around 3,000 in the S&P 500. If any correction plunges much lower than those levels, we will put off our buying strategy as the market could turn bearish. On the sidelines of the broad stock market for now and looking to buy soon.

Gold and silver markets are presenting mixed signals right now. There is the potential for a strong rally in both metals now, but there are also signals suggesting a corrective downturn. It still looks like both metals started new medium-term cycles on Oct. 1 and are young and therefore likely bullish. We will continue to watch for a corrective dip to buy in both gold and silver, but we don't want to see gold fall below $1456 or silver fall below $16.93 as that could mean the cycles are turning bearish. Still on the sidelines of gold and silver.

In last Sunday's blog on crude oil I wrote:

"It looks like crude oil started a new medium-term cycle with its low of $51.40 on Oct. 9 (Dec. contract chart). That means a sub-cycle top is due now to be followed by a sub-cycle correction. That top could easily peak in this upcoming reversal zone (Oct. 29 - Nov. 8) in the $57 - $58 area (it's almost there now)."

Well, last week crude prices dropped sharply Monday - Thursday to a low of $54.07. At first it looked like the Oct. 27 high at $56.85 was the sub-cycle peak, but then prices shot back up on Friday to $56.43 so that peak could still be forming in the $57 - $58 range. There is a reversal zone specifically for crude oil Nov. 5 - 14 so a peak in this time frame would be ideal. We may look for a spot to sell short if prices push higher into late this week. If instead prices fall and do not make a new high, we will assume the sub-cycle peak is in and look for a corrective dip and a buy spot in the $53 area ideally around Nov. 24 +/- 3 trading days. Still on the sidelines of crude oil.