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Trading Blog Wednesday, November 30, 2022

11/30/2022

MARKETS UPDATE and COMMENT on the FED (8:30 pm EST)

Today the Federal Reserve hinted that it may slow down its pace of raising interest rates at it's final FOMC meeting in mid-December. This bit of "dovish" news from a Fed that has recently appeared to be rabidly hawkish seems to have given equity markets a boost today. After falling Monday and Tuesday, the broad stock market and all three of our major indices shot back up this afternoon. The DOW and S&P 500 were able to make new weekly highs; however, the NASDAQ did not. This sets up a bearish divergence signal, which makes me think this market could forget about this news in a day or two and resume its corrective decline. But if today's cheerful optimism sticks (it IS the holiday season), we might see our expected correction bypassed and a "Santa Claus rally" beginning. We enter another strong general reversal zone on Thursday (Dec. 1- 9). It's too early to tell if we will see a major low or high (or maybe both) in this time frame. My preference would be to see a significant low to buy, but if a "Santa Claus rally" is starting now, we may be looking at a high to sell short. We are staying on the sidelines of this volatile market for now.

Dovish rhetoric from the Fed usually depresses the U.S. dollar, and indeed, the U.S. Dollar Index fell sharply today after a two day rally. A lower dollar usually corresponds to a rise in the precious metals, and both gold and silver prices did shoot up today. Silver is making a new high for November in the evening market, while gold is not, so here too we have a case of intermarket bearish divergence as we approach the center of a reversal zone specifically for the precious metals (Nov. 28 - Dec. 8). We did not buy the recent corrective dips in these metals as they did not go low enough. Several short-term technical signals are still bearish in this market. Perhaps a more significant correction will follow a high in this reversal zone. We are still on the sidelines of gold and silver.

Crude oil made a new low on Monday ($73.60 - Jan. contract chart) that went below the Sept. 24 low of $74.26. Breaching that low was a bearish sign, and even though there has been some strong rallying since Monday, other bearish technical signals are persisting in this market, and this rally could turn back down soon. Monday's low was in the center of a reversal zone specifically for crude, but we are entering another strong GENERAL reversal zone on Thursday, and that could also influence crude and become the time frame for a significant top and reversal back down. This market is too unclear to call right now, so we will remain on the sidelines.

Trading Blog Monday (evening), November 28, 2022

11/28/2022

MARKETS UPDATE (8:30 pm EST)

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

"We thus have a bearish divergence signal setting up as we move into the center of a general reversal zone (Nov. 16 - 25) that ends this week or early next week (unless both the S&P 500 and the NASDAQ can make new weekly highs). There is a potential here for a significant corrective drop following the holiday."

Well, on Friday the DOW not only made a new weekly high, but it also exceeded its Aug. 16 high. The S&P 500 also made a new weekly high, but it remains well below its high from Aug. 16. The NASDAQ was unable to even make a new weekly high and it is also well below its Aug. 16 high. We thus have several cases of intermarket bearish divergence setting up right now, so it is not surprising to see this market dropping today. We are still watching for a significant sub-cycle correction. If we get one now, we may look to buy for a possible strong short-term rally (maybe a Santa Claus rally into the Christmas holiday). We don't want any correction now to go TOO low, however, as that might indicate the markets are turning bearish and selling off into the new year. That's possible as protests over strict COVID policies in China and persistent hawkish rhetoric from the Federal Reserve may put a damper on any holiday cheer over the next several weeks. Let's stay on the sidelines of this market for now.

If we do get a "Santa Claus rally", we will watch to see if the S&P 500 and especially the NASDAQ can exceed their Aug. 16 highs (the NASDAQ has a long way to go). Interestingly, the DOW is not that far from its all-time high made in January (36,953) while the S&P 500 and especially the NASDAQ are quite far below their all-time highs (4,819 in Jan. for the S&P 500, and 16,212 in Nov. 2021 for the NASDAQ). Even if the S&P 500 and NASDAQ can exceed their August highs, we will likely still see bearish divergence if the DOW can challenge its all-time high and the other two (or one) cannot. In other words, a major short-selling opportunity could be coming up for longer-term traders as we are still holding to the idea that a long-term cycle in equities peaked in January for the DOW and S&P 500 and in November 2021 for the NASDAQ, and a long-term corrective decline has already started. The only thing that could challenge that scenario would be a break by ALL THREE indices above those all-time highs.

Both gold and silver made lows last Monday and rallied for the rest of the week from there, but today both metal prices dropped sharply and erased most of that gain. We are moving into the center of a very wide reversal zone for the precious metals (Nov. 22 - Dec. 8) with possible "pivot points" on Nov. 25, Dec. 1, and Dec. 7-8. Last week's highs were near Nov. 25, so prices could be moving lower now into Thursday (Dec. 1) or even next week (Dec. 7-8). A sub-cycle low is due in silver this week and in gold anytime this week or next (if these lows didn't happen last week). We should be watching for a good spot to buy in both metals, as long as prices don't fall too low. Silver looks especially bullish at the moment. If silver drops below last week's low ($20.59) and closer to $20 and gold stays above its low from last week ($1732.59), we may get a good buy spot with a bullish divergence signal between the metals. We will watch for that. We remain on the sidelines of both metals for now.

Today crude oil prices broke below the Sept. 28 low of $74.96 (Jan. contract chart) but then closed the day above at $77.24. We are at the dead center of a reversal zone specifically for crude (Nov.22 - Dec. 1) so some sort of bottom could be forming here. A typical sub-cycle low is due this week (actually it was due last week so it is overdue). The fact that the Sept. 28 low was breached is a bearish warning and makes me a little uncomfortable about going long. Nevertheless, we are in a reversal zone through the end of this week, and prices are getting close to the Biden Administration's price range to buy ($67 - $72 - see my previous post on crude). Let's see if a bottom can form this week in that range (or lower). We remain on the sidelines of crude for now.

November 23, 2022

11/22/2022

Happy Thanksgiving 2022

Trading Blog Tuesday (evening), November 22, 2022

11/22/2022

MARKETS UPDATE (9:00 pm EST)

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

"...this current rally may be peaking now in a very strong reversal zone, so a correction down could be imminent. Because this market still looks bullish, I am going to take the strategy of waiting for a sub-cycle corrective low to buy for more rallying into December. Good targets for a corrective low could be around 30,700 in the DOW and 3,700 in the S&P 500."

Well, the DOW and S&P did fall a bit on Wednesday and Thursday, but then both started to rally again. That was not a significant sub-cycle correction, but we may be seeing a set-up for one now. Rallies often happen into holiday week-ends, and this week we head into Thanksgiving in the U.S. on Thursday followed by "Black Friday" (not an official holiday, but many people take it off). The markets are rallying, but only the DOW made a new weekly high today. The S&P 500 is lagging behind just a bit, but the NASDAQ is well below its high from last week. We thus have a bearish divergence signal setting up as we move into the center of a general reversal zone (Nov. 16 - 25) that ends this week or early next week (unless both the S&P 500 and the NASDAQ can make new weekly highs). There is a potential here for a significant corrective drop following the holiday. We wlll watch for that and a possible spot to go long for potentially more rallying into December (perhaps a Santa Claus rally?). Let's remain on the sidelines for now.

Gold made a high at $1786.53 last Tuesday in the center of a general reversal zone, and prices have fallen moderately from there to a low of $1732.59 yesterday (Monday). Is the correction over? It might be, but we note that we are now entering a very wide reversal zone specifically for the precious metals from Nov. 22 through Dec. 9 with possible "pivot points" on Nov. 25., Dec. 1, and Dec. 7. Even if we see some rallying from yesterday's low, prices will be rising into this reversal zone and could form a high and reverse back down quickly. On the other hand, if prices continue to fall, we could see a significant corrective bottom to buy in this same time frame. We will remain on the sidelines of gold for now.

Silver also took a correction from last Tuesday's high of $22.25 to yesterday's low at $20.59. As with gold, we might see that price go lower into our new reversal zone. Let's wait and see if that happens. If prices move down to $20 or lower, it may be a good place to buy for a strong rally back up. We will stay on he sidelines of silver for now.

In last Thursday's blog on crude oil, I wrote:

"This market's trend is not clear at the moment. A break above $93.74 would make it bullish but a break below $75.70 would make it bearish and susceptible to a drop as low as $65."

Crude prices plunged to $75.27 (Jan. contract chart) yesterday, but then snapped right back up to close just above $80. That could be a significant bottom, especially since we are in the center of a wide reversal zone for crude (Nov.11 - Dec. 1). Yesterday's bottom could be a "double-bottom" to the Sept. 28 low of $74.96 (we have switched to the Jan. contract chart), but we need to see a strong rally now to confirm that. We still can't rule out prices falling lower, especially if we are still in an older medium-term cycle that started on the Aug. 16 low at $84.31 (instead of a new one starting from Sept. 28). The fact that prices are challenging the Sept. 28 low is a bearish warning, and there is still plenty of time (the rest of this month) for crude to make a lower bottom within our current reversal zone.

Last Friday, the Biden White House released a statement declaring its Administration would repurchase crude oil for the SPR (Strategic Petroleum Reserve) when prices get at or below $67 - $72 per barrel. If the Administration follows through with this plan, that price range could be a good spot to buy. As mentioned above, if crude turns bearish and breaks below $74.96, we could see prices fall quickly into Biden's price range, so we should be on the lookout to buy this week or next if prices go that low. For now, we will remain on the sidelines of crude.

Trading Blog Thursday (night), November 17, 2022

11/17/2022

UPDATE on GOLD, SILVER, and CRUDE OIL (10:30 pm EST)

There's a good chance gold started a new medium-term cycle with its low of $1617 on Nov. 3. The rally from that low has been strong and steep, but we should expect some corrective dip(s) anytime now. Prices hit a high at $1786 on Tuesday, and that was a "pivot point" in the center of one of our general reversal zones (Nov. 9 - 17), so a correction could be in progress. But we enter another reversal zone next week specifically for precious metals (Nov. 21 - 30). That could turn out to be the bottom of a significant correction, but if prices can edge back up above Tuesday's high, it could also be a good time frame for a new high. Our strategy here will be to wait for a significant correction to buy as this new medium-term cycle appears bullish and, we could see a significant multi-month rally to the top of this new cycle. (Any correction that goes below $1617, however, will force us to abandon this bullish outlook.)

We should note here that even if we get a multi-month rally in gold, that rally will encounter great resistance around the $1900 level, and especially around $2000 (if it gets that far), and it shouldn't exceed the long-term 23-year cycle high of $2070 (made in Aug. 2020). If it does break above there, it would mean we have already started a new 23-year cycle, but I don't think that's going to happen. Instead, I think the long-term cycle correction would resume from the top of the rally (well below $2070) and head much lower to the final bottom of the 23-year cycle (due around 2023 - 2024 near the $1000 level). But I'm projecting too far ahead here. For now, we will stay on the sidelines of gold and wait for that corrective low to buy.

Silver probably started its current medium-term cycle with its low of $17.40 on Sept. 1. This makes it older than gold's cycle. Silver rallied up to $22.38 on Tuesday and made a significant sub-cycle top before falling steeply Wednesday and today. As with gold, silver's cycle looks bullish, so we will now look for a corrective sub-cycle bottom to buy over the next several trading days. As I mentioned above, we enter a reversal zone specifically for gold and silver next week, so that would be a good time for a bottom to form. Silver has the potential right now to rally as high as $30 (maybe even higher). We will watch carefully over the next several days for a good spot to buy. If prices drop TOO low (i.e. close to or below $17.40, we would have to give up this bullish view. We remain on the sidelines of silver for now.

We still don't know if crude oil started a new medium-term cycle on Sept. 26 at $75.70 (Dec. contract chart) or on Aug. 16 at $84.75. If the former, the cycle is bullish; if the latter, it is bearish because prices have already gone below the start of the cycle. In both cases, a sub-cycle top formed with the Nov. 7 high at $93.74, and a corrective drop is in progress. This market's trend is not clear at the moment. A break above $93.74 would make it bullish but a break below $75.70 would make it bearish and susceptible to a drop as low as $65. We are in a wide reversal zone specifically for crude that runs from Nov. 11 - Dec. 1 with potential "pivot points" around Nov.17 (today) and Nov. 25 (the day after the Thanksgiving holiday in the U.S.). We could therefore get a significant low and/or high anytime through the rest of this month. We will remain on the sidelines of crude for now until the cycles and short-term trend are more definitive.

Trading Blog Tuesday (late night), November 14, 2022

11/14/2022

BROAD STOCK MARKET UPDATE (11:30 pm EST)

It's starting to look like the DOW and S&P 500 both started new medium-term cycles with their bottoms on Oct.13 (28,661 and 3,491, respectively). Both indices have risen sharply from those lows (especially the DOW) which is typical at the start of new cycles. Other technical indicators are also bullish now which suggests that we could see more rallying for at least several more weeks, possibly to challenge the January all-time highs. Nevertheless, this current rally may be peaking now in a very strong reversal zone, so a correction down could be imminent. Because this market still looks bullish, I am going to take the strategy of waiting for a sub-cycle corrective low to buy for more rallying into December. Good targets for a corrective low could be around 30,700 in the DOW and 3,700 in the S&P 500. If any correction goes much lower than these targets, we may have to give up our bullish view of the new cycle.

If bullish, these indices should be able to break above their Aug. 16 highs (after the corrective dip) and then continue a rally towards those Jan. highs. I don't think all three of our broad stock market indices (DOW, S&P 500, and NASDAQ) will exceed those highs because it still looks like January was the top of a very long-term (possibly 90 year) cycle that can go a lot lower than the October lows before it reaches its final corrective bottom. So even though this market may be short-term bullish (following an imminent corrective dip), we still consider the longer-term cycle bearish and will be looking to sell short the top of any rally we might get into December or early next year (as long as those all-time highs are not broken.- 36,953 in the DOW, 4,819 in the S&P 500, and 16,212 in the NASDAQ).

Trading Blog Wednesday, November 2, 2022

11/2/2022

COMMENT ON THE FED MEETING and BRIEF MARKETS UPDATE (9:00 pm EDST)

Immediately after the Fed announced another large rate hike at 2 PM this afternoon, the broad stock market rallied. The large rate hike was expected and did not discourage investors, but Jerome Powell's speech at 2:30 was a different story. Although Powell hinted that the Fed may slow down the pace of rate hikes at some point in the future, he emphasized that we have a long way to go before interest rates are sufficiently high enough to curb inflation. How high will they need to go? Powell stated that "we may move to higher levels than we thought." That hawkish rhetoric was enough to throw a wet blanket on the brief rally. Equity markets plummeted following Powell's speech and closed the day with a heavy loss. The DOW was down 504 points, the S&P 500 lost 96 points, and the NASDAQ closed 366 points lower.

Could this be a major turning point in the market? Yes, it could. But we know that investors sometimes shrug off the Fed's comments within days, and it is very early in our new reversal zone (Nov. 2 - 10), so there is plenty of time for this market to push a little higher before turning down. If it does that into early next week, we may see a good spot to sell short. On the other hand, if Powell's comments trigger a major sell-off over the next several days, we might be looking to buy a bottom. We will remain on the sidelines for now and wait to see how the market moves into next week's "pivot point" at November 7.

Gold and silver prices lost a little ground today, which is not surprising considering a hawkish Fed usually favors the U.S. dollar (the U.S. Dollar Index is currently up on the overnight market following today's trading). If the dollar rallies tomorrow, the metals may push lower. We are on the sidelines of both gold and silver.

Crude oil prices pushed higher today (likely due to low supplies as well as the ongoing Russia/Ukraine conflict) and exceeded last week's high of $89.79 (Dec. contract chart). They are still well below the October high of $92.34, however, so we can't get bullish on this commodity just yet. We remain on the sidelines of crude.

Trading Blog Tuesday (late night), November 1, 2022

11/1/2022

MARKETS UPDATE (11:30 pm EDST)

This month's FOMC meeting concludes tomorrow at 2:00 PM (EDST), and Fed Chairman Jerome Powell is expected to give a press conference at 2:30. This meeting could be a turning point in the broad stock market as investors and traders wait to see if the Fed lightens up on its recent aggressive approach to raising interest rates and reducing bond buying (QE) or if it plans to continue its hawkish policy moving forward. October saw a strong rally in equity markets. If the Fed stays hawkish, it could discourage investors, and the market could turn down with a sharp sell-off. On the other hand, if Powell suggests the possibility of tempering his hawkish stance now or at some point in the future, we could see a continuation of the recent rally.

Coincidentally, we enter another very strong reversal zone tomorrow (Nov. 2 - 10), and that will be followed by two more fairly strong reversal zones (Nov. 9 - 17 and Nov. 16 -25). This essentially makes the entire month of November one very wide reversal zone and suggests that we could see a lot of volatility with multiple tops and bottoms in this time frame. In situations like this, it is sometimes helpful to focus on "pivot points" - i.e. the center points of these reversal zones that indicate the most likely times for a top or bottom to form. The strongest pivot point here would be Nov. 7. After that we can look to Nov. 14 and Nov. 22 for likely reversals.

The DOW and S&P 500 made new weekly highs today, but the NASDAQ did not, so we already have a bearish divergence signal in this market. Let's wait to see if the Fed's meeting tomorrow will be a bullish or bearish kick to equities. We note that even if the Fed stays hawkish and that pushes the market down, it is still early in our first reversal zone. After an initial "knee-jerk" reaction, investors could shrug off their fear and push the market even higher to another top later in the reversal zone (ideally around Nov. 7). We will stay on the sidelines as we usually do during an FOMC meeting week until we figure out how the market is going to respond to the Fed's rhetoric (short-term and longer-term). Note that we are generally bearish right now (as it appears a very long-term cycle top formed earlier this year), and we're looking for a place to sell short. But we still can't discount the possibility of another strong short-term rally that could take this market considerably higher before a long-term correction reasserts itself.

Although gold made an isolated low (Oct. 21) in last months reversal zone specifically for the precious metals, silver did not; but yesterday silver made a new weekly high while gold did not for a case of intermarket bearish divergence. These metals have not been rallying strongly enough to make me want to buy. If the Fed stays hawkish in tomorrow's press conference, this could give a boost to the U.S. dollar and put more downward pressure on gold and silver prices. The medium-term cycles for both metals are still a little ambiguous, so let's remain on the sidelines until this becomes more defined.

Crude oil prices are also lacking a clear trend at the moment. They have yet to break above the Oct. 10 high of $92.34 (Dec. contract chart). Until that happens, there's a possibility prices could drop to a new low (near or below $75) and complete the bottom of an older cycle in a reversal zone coming up for crude in mid-November (Nov. 11 - 22). Let's stay on the sidelines of crude oil for now. Longer-term, crude looks quite bullish, so if we do get a significant low this month, it could turn out to be be a good buy spot.

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