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Trading Blog Tuesday, November 30, 2021

11/30/2021

MARKETS UPDATE (4:00 pm EST)

Fed Chairman Jerome Powell announced today that the Fed will now consider tapering back its bond-buying program (QE) and raising interest rates more quickly to counter high inflation. Although Wall Street seemed to be shrugging off its fear of the new "Omicron" COVID-19 variant yesterday, this hawkish rhetoric from the Fed today seems to be reigniting investor fear and causing the broad stock market to take another tumble.

As I pointed out in yesterday's blog, all three of our market indices (DOW, S&P 500, NASDAQ) are now taking significant sub-cycle corrections. The DOW is going below our original target (35,000 - 35,500), but the S&P 500 has not yet touched our target (4,500), and the NASDAQ is barely touching the upper range of our target (15,000 - 15,500). This means these latter two indices could still push lower into our new reversal zone (Nov. 30 - Dec. 15, with possible "pivot points" near Dec. 3 and Dec. 10). There is support for the DOW around 34,300 - 34,400, so that could be a new target for this index. As long as the DOW stays above 33,613 (the start of the current medium-term cycle), it can still be bullish and could make a new all-time high before falling to its final cycle bottom.

I think we are still on track for another rally into late December from a sub-cycle bottom in this new reversal zone. But if Omicron and Fed tapering worries trigger a panic sell-off now, I may have to change that view. We are still on the sidelines of the broad stock market.

Hawkish rhetoric from the Fed is usually good for the U.S. Dollar Index. The greenback was stable today, and it seems to be finding support at the 15-day moving average, so there is the potential for some rallying from here. If that happens, it could put downward pressure on the precious metals.

Gold made a new weekly low today, along with silver, so our bullish divergence signal from yesterday is now negated. This makes it more unlikely that these metals will rally now, as I suggested in yesterday's blog. The trend in both these metals may be turning bearish, so we will watch this situation carefully as we remain on the sidelines.

Crude oil prices continued to plunge today, but seemed to find strong support around $65 (January 2022 contract chart). As I mentioned in yesterday's blog, we don't want to see prices close below the area of $62 - $64 as this would be very bearish for this commodity. (Of course, this would - should - be good news at the gas pump - i.e. there is an upside to bearish crude). We are staying on the sidelines of crude for now.

Trading Blog Monday (evening), November 29, 2021

11/29/2021

MARKETS UPDATE (9:30 pm EST)

The announcement of the new "Omicron" COVID-19 variant last week discouraged any holiday rally into the week-end and instead sent the broad stock market into a dive on Friday. That dive pushed our three major indices (DOW, S&P 500, NASDAQ) into the range of our original targets for a sub-cycle correction. From my Nov. 10 blog:

"...a good downside target for the DOW would be around 35,000 - 35,500. We may consider going long if the correction stays above 35,000. (A break below there might lead to a bigger drop). In the S&P 500, 4,500 might be a good spot to buy. Somewhere between 15,000 and 15,500 could be a buying opportunity in the NASDAQ. We will watch for these targets within the time frame of our new reversal zone."

On Friday, the DOW got down to 34,750, the S&P 500 to 4,585, and the NASDAQ plunged to 15,456. Today, this market seems to be shrugging off its COVID-19 worries with a strong rally. Was Friday a significant sub-cycle bottom in these indices? Maybe, but tomorrow we move into a moderate reversal zone that will last through the middle of December (Nov. 30 - Dec. 15). (This reversal zone has two potential pivot points: Dec. 3 and Dec. 10, which means we should watch for a significant high or low near those days.) Here are two potential scenarios that could play out now:

1) If today's rally aborts, we could see a lower sub-cycle low this week or next. From that low, another rally could send these indices rising into a VERY strong reversal zone coming up Dec. 21 - 31 (possibly extending into early January). The top of THAT rally would probably be a good point to sell this market short for a long and potentially very severe correction down.

2) If today's rally gains legs this week and next, this new reversal zone might correlate to a high instead. In that situation, we may also look to sell short for a steep fall into that Dec. 21-31 reversal zone.

I prefer the first scenario (strong "Santa Claus" rally into the end of the year), but right now, it looks like it could go either way.

Bottom line here: All three indices now appear to be taking a significant sub-cycle correction in the middle of their medium-term cycles. That correction may have completed on Friday, or it could continue lower this week. Once that correction is in, we need to watch the rally that follows to see how high it goes. If one or two, but NOT ALL THREE, indices make a new all-time high, we will have a strong intermarket bearish divergence signal and a good point to sell short for a potentially long and severe correction in the broad stock market - possibly a "crash" into 2023 - 2024.

Gold is near the end of its current medium-term cycle and should be forming its final cycle bottom anytime over the next few weeks. Prices seem to be stabilizing just above $1780 over the last several days, but it is a little too early for the final cycle bottom (although that is a possibility). Gold did stay above last week's low today while silver made a new weekly low, and this creates a bullish divergence signal. There are other technical signals suggesting a potentially strong rally now, but also signals indicating a potential plunge. Even if we see a rally now, it may be short-lived and then prices could plunge lower to the final cycle bottom. These mixed signals will keep us on the sidelines of gold for now.

Silver's medium-term cycle is a bit younger than gold's. Silver seems to be taking a steep sub-cycle correction in the middle of its medium-term cycle. That may have been completed today as prices dipped down to $22.76, but prices could still go lower (say, all the way down to $22.00) as we are not in any strong reversal zone today. Anything lower than $22 would be a bearish sign. As with gold, there are some technical signals suggesting a strong rally now, but that has to start NOW. Lower prices tomorrow will tend to negate the possibility of that rally. If we don't get a rally tomorrow, there is a chance of a strong plunge down. Let's stay on the sidelines of silver for now and see how prices move over the next few days.

The U.S. Dollar Index peaked last week at 96.94 and has been falling from there, but it seems to be finding support around 96 - just above the 15-day moving average. If the greenback can resume its rally from there, it could put pressure on the precious metals and push gold and silver prices lower. We'll watch for that.

The news of the Omicron virus hit crude oil especially hard on Friday, sending prices from a high of $78.65 to a low of $68.15 (January 2022 contract price) at the closing bell - a drop of $10 in one day! This plunge means that the current medium-term cycle has now turned bearish, and prices should continue lower over the next 4 - 7 weeks to the final cycle bottom. If prices can stabilize in the $62 - $64 area over the next several weeks, we may have a good spot to buy at the start of a new medium-term cycle. But if crude starts closing below there, this commodity could be in trouble with significantly lower prices ahead. We will remain on the sidelines of crude for now.

Trading Blog Wednesday, November 24, 2021

11/24/2021

UPDATES ON GOLD, SILVER, and the U.S. DOLLAR INDEX (9:00 pm EDT)

It is very late in the medium-term cycle of gold. This means the cycle's final bottom could come anytime between now and the end of December. Gold's price has been falling steeply from its recent high of $1875 on Nov. 16. That final cycle bottom could be forming now OR we could get another rally in this old cycle before the final fall. Either way, prices have broken below several support zones this week, so this could put a damper on any rally - even if we start a new medium-term cycle. Gold would have to break above that $1875 high soon to start looking bullish again. That would be a steep rise from the current price around $1784, but it's not impossible because there are some technical signals suggesting a strong rally into December could happen from a low this week. We usually like to buy the bottom of an old cycle and start of a new one, but the current cycle labeling as well as the trend (bullish or bearish) is not clear at the moment, so we will remain on the sidelines for now.

Note that our long-term view of gold still includes the possibility of a "blow-off" top that could challenge or exceed the $2070 high from Aug. 2020. I think that right now through the end of December represents an opportunity for gold to do this.

Unlike gold, silver is early (young) in its current medium-term cycle which began with its low of $21.44 on Sept. 29. Young cycles tend to be bullish, and this one has been no exception (so far). Silver is taking a significant sub-cycle correction now that is testing the 45-day moving average. If this correction can stabilize and stay above $23, there is a possibility of a very strong rally from here into December. If we get a bullish divergence signal (gold OR silver making a new monthly or weekly low without the other) this week or next, we may consider buying silver and/or gold for a strong rally into December. We are on the sidelines for now.

Recent hawkish rhetoric from the Federal Reserve seems to have given a lift to the U.S. Dollar Index, We have witnessed a steep rally in the greenback since early November. There are no major reversal zones for currencies until late December, so this rally is not facing any major obstacles right now. Nevertheless, strong rallies often take "breaks" to unwind momentum, and this one may be due for a small pullback soon. Such a pullback could trigger a rally in the precious metals as I have suggested above.

Trading Blog Tuesday, November 23, 2021

11/23/2021

UPDATE ON THE BROAD STOCK MARKET and CRUDE OIL (9:00 pm EST)

I apologize for making no blog entries last week. I was dealing with some minor health issues that took up most of my time. Fortunately, there was no major drama in the markets last week, but this week is already showing us some action (especially in the precious metals).

Let's start our analysis with the broad stock market. In my last blog (Nov. 10), I wrote:

"It looks like our new reversal zone (Nov. 9 - 18) may correspond to a bottom instead of a top. Unless something happens to scare the markets into a major sell-off, I think this correction will be brief and modest, and we could see more rallying into December (perhaps a seasonal "Santa Claus rally") before a potentially VERY severe correction."

I also wrote:

"...a good downside target for the DOW would be around 35,000 - 35,500. We may consider going long if the correction stays above 35,000. (A break below there might lead to a bigger drop). In the S&P 500, 4,500 might be a good spot to buy. Somewhere between 15,000 and 15,500 could be a buying opportunity in the NASDAQ. We will watch for these targets within the time frame of our new reversal zone."

Well, that reversal zone did correspond with a bottom. Nov. 11 in the DOW and Nov. 10 in the S&P 500 and NASDAQ saw the bottom of a shallow sub-cycle dip that was followed by more rallying in all three indices. (Those dips, however, did not reach the targets mentioned above.)

This week started off with the S&P 500 and NASDAQ both making new all-time highs on Monday without the DOW (the DOW is still well below its all-time high of 36,566 from Nov. 8). This is another strong bearish divergence signal, so these indices could take another sub-cycle dip now - and maybe even get closer to those targets. Let's watch for that now. If we see those target lows into next week, we may then see those lows followed by another strong rally into late December (Santa Claus rally?) when one, two, but maybe not all three of these indices will make a new all-time high. If that happens, the high would likely be followed by a VERY severe corrective drop. We would want to sell short at that high. For now, we are still on the sidelines of the broad stock market.

In my last blog on crude oil (Nov. 10) I commented that crude was making a potential "double-top" to its $83.83 (Jan. 2022 contract chart) peak from Oct. 25. I wrote:

"This could be a double-top formation if prices can't exceed that Oct. high. This current medium-term cycle in crude is relatively young and could still rally towards the $90 mark, but if prices don't break to a new high soon or they start falling below $75, then the cycle high could be in, and the trend could be turning bearish..."

The bearish scenario is still possible. Prices fell briefly just below $75 on Monday, but seem to be rising from there. The peak to this current medium-term cycle could be in if prices can't get above that "double-top" area soon. In that case, we would probably wait for the cycle's final bottom and consider buying there. We will stay on the sidelines of crude oil for now.

I will analyze gold and silver tomorrow.

Trading Blog Wednesday (late night), November 10, 2021

11/10/2021

MARKETS UPDATE (11:00 pm EST)

In my last blog (last Wednesday) on the broad stock market I wrote:

"We are still due for some sort of sub-cycle correction soon. If this market can rally into next week, we may see a top then followed by a corrective dip as we enter another reversal zone for equities Nov. 9 - 18."

Well, the DOW rallied to a new high on Monday, but the S&P 500 and NASDAQ did not, thus creating a bearish divergence signal between these indices. All three are now taking a sharp correction down as we were expecting.
It looks like our new reversal zone (Nov. 9 - 18) may correspond to a bottom instead of a top. Unless something happens to scare the markets into a major sell-off, I think this correction will be brief and modest, and we could see more rallying into December (perhaps a seasonal "Santa Claus rally") before a potentially VERY severe correction.

Right now, a good downside target for the DOW would be around 35,000 - 35,500. We may consider going long if the correction stays above 35,000. (A break below there might lead to a bigger drop). In the S&P 500, 4,500 might be a good spot to buy. Somewhere between 15,000 and 15,500 could be a buying opportunity in the NASDAQ. We will watch for these targets within the time frame of our new reversal zone (now through next week). We are still on the sidelines of the broad stock market.

Gold and silver have recently been somewhat indecisive in their trend pattern, but that trend is looking more bullish this week as both metals have now broken to new weekly and monthly highs. Despite this bullish signal, we note that we are currently at the center of a reversal zone specifically for precious metals (Nov. 4 - 15), so a top and corrective drop could be imminent (the top may have been today). Last week I was projecting a possible corrective low to buy in this reversal zone, but it looks like both metals want to make a top instead. We may look for a buy spot in both metals on any significant dips that follow from a top that forms by the end of this week, but I think we may have missed a good buying opportunity at last week's lows. Gold is late in its current medium-term cycle, so we may just wait for its final cycle bottom before considering any long position. Silver's cycle is younger, however, so it might be worth chasing its current rally on any significant dips. We will remain on the sidelines of both metals for now.

The U.S. Dollar Index has been relatively flat for the last six weeks. It's current medium-term cycle seems to be young and slightly bullish, so it may be ready to rally soon. Any rally in the greenback usually puts downward pressure on gold and silver, so we will watch carefully to see if this limits any rallies in the precious metals over the next several weeks.

Today crude oil challenged its $85.41 (Dec. contract chart) high from Oct. 25 but did not exceed it and then closed near the bottom of today's range. This could be a double-top formation if prices can't exceed that Oct. high. This current medium-term cycle in crude is relatively young and could still rally towards the $90 mark, but if prices don't break to a new high soon or they start falling below $75, then the cycle high could be in, and the trend could be turning bearish. In that situation, we would probably wait for the cycle's final bottom for an opportunity to buy (as the longer-term trend still looks bullish into 2022). Let's stay on the sidelines of crude for now.

Trading Blog Wednesday (late night), November 3, 2021

11/3/2021

MARKETS UPDATE (11:30 pm EDST)

The Fed announced today that it would begin to taper its bond purchasing program (QE) this month. Normally, such hawkish news would send equity markets tumbling. Well, the broad stock market did look nervous and indecisive this morning and early afternoon, but once the Fed's announcement was made at 2:00 PM, it took off in a strong end- of-day rally. The Fed's tapering announcement was not unexpected, so after it was clearly stated (with no other surprises), it seems we had a case of "buy on the news" (i.e. the market had already factored in the taper). All three indices (DOW, S&P 500, NASDAQ) closed the day at new all-time highs. This bullish behavior seems to be aligned with our cycle analysis which is suggesting more rallying into the end of the year. We are still due for some sort of sub-cycle correction soon. If this market can rally into next week, we may see a top then followed by a corrective dip as we enter another reversal zone for equities Nov. 9 - 18. We are still on the sidelines of this market.

Hawkish rhetoric from the Fed is usually not favorable for precious metal prices, and today gold and silver did take a hit with both metals making new weekly lows. As discussed in Sunday's blog, we are looking for a sub-cycle low now in both gold and silver for a possible buying opportunity. But today's weekly lows negates any bullish divergence signal for the rest of this week. We may get that next week, however, when we are in the center of a reversal zone specifically for precious metals (Nov. 4 - 15). If prices keep falling from here, we will watch for that. Still on the sidelines of gold and silver.

Crude oil prices also took a substantial hit today. Prices closed below the lower channel trend line I mentioned in my last blog, and they also went below last week's $80.58 low. (Last week's low may have been a significant sub-cycle bottom). If that's the case, this cycle could be turning bearish with lower prices ahead. Another possibility is that the sub-cycle bottom was not last week and is forming now. In that situation, prices would start rising again soon. Prices need to start closing above $82 now to keep the trend bullish. We are on the sidelines of crude oil for now.

Trading Blog Monday (late night), November 1, 2021

11/1/2021

UPDATE ON CRUDE OIL (11:30 pm EDST)

Crude oil's current medium-term cycle started with its low of $61.11 on Aug. 23 (Dec. contract chart). This cycle has been VERY bullish as the price has already rallied to $85 in just 9 weeks. As is characteristic of bullish cycles, the first sub-cycle correction on Sept. 30 was a very brief and shallow dip to $72.82 after which the strong rally continued.
A second sub-cycle correction most likely happened last Thursday as prices dropped to $80.58. We haven't been buying these dips as they are unusually shallow and above normal targets for corrective drops. This truncation of normal corrections indicates an extremely bullish market.

It is always difficult to chase a strong rally, and I am not enthusiastic about doing it now. There is, however, a strong potential for crude prices to go much higher as it appears we are in the early phase of several longer-term cycles in this market. Crude prices are currently oscillating inside a steep uptrend channel presently defined by a low around $82 and a high around $88. Prices have already rallied back to near $85 from last Thursday's low. If they get to $88 - $90 and stall, we may watch for another drop to the channel bottom and consider buying there. If prices can break above the channel top, we could see crude get as high as $110 - $130 in 2022. We are staying out of crude for now.