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Trading Blog Friday, December 27, 2013

12/27/2013

MARKETS UPDATE ( 8:00 pm EST)

The broad stock market gave us a traditional "Santa Claus" rally into the this week's Christmas holiday, and it may continue into next week's New Year's celebration as well (although a sell-off is possible before Jan.1st to accommodate tax strategies). As I have mentioned in recent blogs, I am looking for this market to top out soon and take a significant correction. There are many technical, cycle and timing signals that point to a likely reversal in the broad stock market by the second week of January. If this happens, I will look for momentum changes to confirm the reversal and then possibly sell the market short. On the sidelines for now.

Crude oil has also been rising this week and today prices broke through and closed just above the $100 level. If prices continue to rise into the second week of January (and stay below $105), we may see an ideal set-up to short sell this market. Current directional momentum in crude is still mixed bullish and bearish, so the appearance of any new bearish technical signals now could indicate an imminent correction. We will watch for this over the next two weeks. Still out of this market.

Gold and silver prices have been rising this week. This is in line with a reversal zone for gold that was centered on the 21st of December, however, another strong zone for a reversal is centered around Jan. 4, so this rally may not get very far before prices turn down again. Directional momentum in the entire precious metals sector is still strongly bearish so prices could still move down next week and make a new low. Ideally, I would like to see gold enter the $1150 - $1180 area before covering short positions and going long. Still holding short positions in both gold and silver.

Trading Blog Sunday (night), December 22, 2013

12/22/2013

MARKETS UPDATE (10:45 pm EST)

After last Wednesday's 300 point DOW rally in response to the Fed's announcement of a "mini" taper in QE to begin in January, the broad stock market slowed its upward acceleration and leveled off a bit into Friday. Interestingly, directional momentum also switched back to 100% bullish in the DOW, S&P 500, and NASDAQ charts showing just how volatile these markets are right now. With the resumption of this bullish momentum we may now get a seasonal "Santa Claus" rally into the new year. Even though there are strong technical, cycle and timing signals pointing to a strong reversal right now, this week and the following week have big holidays, so that reversal may be pushed into the first and possibly second week of January. There is certainly enough optimisim in the markets at the moment to sustain a rally into that time frame. My strategy now will be to watch for a peak to form sometime before January 8th and possibly sell short then on bearish momentum signals. Note that a sell-off is possible right at the end of the year as investors may be motivated by tax strategies. Still out of this market.

Crude oil is another market that may now be setting up a good opportunity for short selling. The timing and seasonal factors described above for the broad stock market applies as well to crude, and so I will be looking for a peak in oil prices into the start of the new year. If prices break above $100 we may see them rise towards $102-$105. Any break over $105 would be a bullish signal that would negate any short selling strategies. Directional momentum in the crude charts is still mixed bullish and bearish. On the sidelines of this market.

As we move into the end of the month, gold and silver prices may be approaching significant bottoms in their cycles that will present a very good opportunity to go long. Our trading strategy here is a little tricky as we are holding short positions in both metals. Technical signals in the precious metals markets are still strongly bearish so gold and silver prices could easily move lower this week and possibly the following week as well. If we see gold move into the $1150 -$1180 range I will consider covering all short positions and going long. Currently short in both gold and silver.

December 18th, 2013

12/21/2013

MARKETS UPDATE (11:45 pm EST)

The Federal Reserve announced today (Wednesday) that it would start to reduce its economic stimulus bond-buying program (QE) from 85 billion a month to 75 billion a month starting in January. Outgoing Fed Chairman Ben Bernanke also stated in a press conference following the Fed announcement that if the economy improves at the pace the Fed expects, he could foresee QE coming to an end by late next year. So it looks like tapering is now officially here and QE is going to be taken away in small increments to avoid severe reactions in the markets. The Fed's announcement was a surprise to many investors who were expecting a postponement of tapering into March, but the markets seemed unperturbed by an early "mini" taper as the DOW soared up nearly 300 points. It is possible that big taper fears were already factored into the market with last week's steep drop and the "mini" taper was a relief, but today's strong rally more likely came from the Fed making it clear that, despite the taper, short-term interest rates could be kept near zero, perhaps for several more years. The specter of rising interest rates has been a major investor fear associated with tapering, so this suggestion of holding the rates low most likely excited investors into buying.

Despite today's surge in the broad stock market, technical analysis and several cycle and timing factors indicate the potential for high volatility in all major markets from now through the first week of January, and we don't want to place too much importance on a single day's rally. If the DOW continues to rally into the end of the week, it could be setting up for a major downturn. A strong bearish momentum signal appeared in the NASDAQ chart today (similar bearish signals appeared in the DOW and S&P 500 last week) so all three major stock indices are now mixed bullish and bearish. Still on the sidelines of this market.

Precious metals moved down a bit today. Tapering is generally considered unfavorable to gold and silver prices so today's announcement of early tapering could start pushing the metals lower into a good spot to cover our short positions and go long. I am going to wait and see how prices move into the end of this week. Still holding short positions in gold and silver.

Crude oil moved with the broad stock market today (i.e. rallied) as expected. If prices continue to rally strongly into Friday, we may see a good setup for a short sell in crude. On the sidelines of this market.

Trading Blog Monday, December 16, 2013

12/16/2013

MARKETS UPDATE (6:35 pm EST)

This week could be a turning point for many markets. There are several strong technical, cycle and timing factors that point towards the end of this week (possibly extending into the following week) for significant reversals in all major markets. When reversal signals are strong there is often an event that triggers the reversal, and this week's Federal Reserve meeting could be that event. To taper QE or not to taper QE: that is the question, and more specifically, when to taper and by how much. The Fed should be giving answers to these questions by Thursday, and markets may react strongly. We want to now watch how the markets react into the end of the week before making any trading decisions.

The broad stock market is up strongly today, but it is entitled to a bounce after last week's steep fall. Momentum is still mixed bullish and bearish in the DOW and S&P 500 so this market could still move lower if taper fears are stirred up. We will wait until the end of the week to gauge our trading strategy here. A drop towards the 15,500 area in the DOW by Friday could present a good entry point to go long. On the other hand, if the market rises into the end of the week, it could be setting up for a more serious plunge into the new year. On the sidelines for now.

Gold and silver were also up a bit today, but momentum and other technical indicators continue to look very bearish in the precious metals sector so I am still holding my short positions in both these metals. As with the broad stock market, we want to pay attention to the end of the week and how gold prices react to the Fed meeting. Any sharp plunge in prices now could present an ideal buy spot for the precious metals (maybe even the long-term cycle bottom that we've been waiting for). That bottom could come as soon as Friday if prices fall steeply this week. We will have to wait and see how the Fed meeting is going to affect this market.

As I stated in my last blog, the technical picture for crude oil is a little unclear right now so I am still standing on the sidelines of this market. I suspect oil prices will follow the broad stock market this week and will be susceptible to plunging on taper fears. If prices fall below the recent Nov. 27 low of $91.77, it would signal the market turning bearish again. Still on the sidelines of this market.

Trading Blog Friday, December 13, 2013

12/13/2013

MARKETS UPDATE (2:45 pm EST)

Fears of QE tapering have definitely been on the minds of investors this week as we approach the Federal Reserve meeting scheduled to take place next Tuesday and Wednesday. Also, this week's surprising cooperation between Democrats and Republicans to quickly approve a budget in the U.S. Congress has exacerbated those fears as it looks like we will not be having another government shutdown that might have delayed tapering. The DOW has been falling and has now broken below that strong support level at 15,800. Some bearish directional momentum signals have appeared this week in the DOW and S&P 500 and these markets are now mixed bullish and bearish. This has increased the likelihood of a deeper correction into the holidays. If apprehension about the Fed meeting continues to push the market down, it is possible we could see a rebound soon after the meeting depending on what the Fed does (small taper or no taper). We will watch the broad stock market carefully for a possible bottom to buy into at the end of next week or into the following week. Still on the sidelines for now.

It looks like taper fears also touched the precious metals market yesterday causing a sharp drop in prices. This is not surprising as tapering is actually good for the long-term health of the economy and strengthens the dollar (which surged up yesterday), and these things discourage investment in gold. As with the broad stock market, we want to watch carefully the direction of gold and silver into the end of next week. A new low forming then could be a signal to cover our short positions and go long. If instead we see another surge up into the holidays (that stays below $1300 in gold and $21-22 in silver) it would likely be followed by a correction towards a new bottom sometime early next year. Still holding short positions in gold and silver.

The charts for crude oil are still showing ambiguous technical signals. Prices are falling with the broad stock market, and one thing to watch for here is any break below the Nov. 27 bottom at $91.77. This would likely indicate the new cycle is turning bearish again. For now, mixed bullish and bearish momentum in this market is keeping us on the sidelines. Still out of this market.

Trading Blog Wednesday, December 11, 2013

12/11/2013

MARKETS UPDATE (7:15 pm EST)

The broad stock market is falling again this week towards that 15,800 support level in the DOW. If this level holds we could see more rallying into the holidays before any serious correction. If it breaks, the DOW could take a much deeper correction into the end of the year and may give us a good entry point to go long.  Markets are likely nervous this week in anticipation of next week's Federal Reserve meeting when it is expected that the Fed will decide on when to begin tapering back its bond purchasing program (QE). Some analysts feel it will be delayed until early next year, but there is also some talk of a "mini-taper" to begin this month to try and slowly wean the investing community away from QE. The issue of QE tapering has now become a major "wild card" factor affecting all major markets and we need to watch it carefully. Still on the sidelines of the broad stock market.

As I mentioned in Monday's blog, gold and silver prices may fluctuate up and down over the next few weeks, but as long as gold stays under $1300 and silver stays under $21, our short positions are likely not in danger. Overall momentum remains strongly bearish in both metals as well as in the major precious metal mining company indices (HUI and XAU).   Reaction to QE tapering policy could also affect this market over the next several weeks. If prices turn down into the holidays, we could see a long-term cycle bottom form in precious metals that would present the "golden" opportunity we have been waiting for to go long. On the other hand, if the current rally continues into next week, we may see a holiday top form and then a decline to the final cycle bottoms sometime early next year. We will have to wait and see how this plays out. Currently holding short positions in gold and silver.

It is looking like crude oil did start a new cycle with that low of 91.77 on Nov. 27, but the overall direction of this cycle is still not clear. Momentum signals are presently mixed bullish and bearish. The price needs to break above $100 now or there is a danger of the cycle becoming bearish again.  Still out of this market until directional momentum is clear.

Trading Blog Monday, December 9, 2013

12/9/2013

MARKETS UPDATE (3:15 pm EST)

I have been without my regular home internet connection since Saturday, and this apparently will not be restored until late Tuesday night so I am going to post a brief update here. (Yes, I do have mobile access, but most of my research and analysis tools are based in my home computer).

In terms of cycles, technical analysis and timing factors it is looking like the last two weeks of December and the first week of January could coincide with major turning points and direction reversals in all markets. The broad stock market appears to be especially vulnerable to a major reversal in this time frame. This could put a damper on any "Santa Claus" rally now. Even though momentum is still bullish in this market, I feel that the possible short-term gains of any rally into this time period are not worth the risk of being caught in a downturn. I am therefore going to wait for a deeper correction before assuming long positions in the broad stock market. (If the market starts moving lower this week and next, it is possible for the end of this month to coincide with a corrective bottom, which would be a good entry point to go long. Otherwise, we will likely see a crest into this holiday period followed by a correction into January.) It is looking like the Federal Reserve may attempt to start QE tapering before the year is over (or at least they may give a definitive date for it to begin early next year). Any serious talk of tapering now could be the trigger for a stock market correction. Still out of this market.

Momentum in gold and silver continues to be strongly bearish. We may see short-term fluctuations in metal prices (up and down) as we move into the holidays. Any rallies now into the last week of December that hold upper resistance will likely reverse to send prices down to the final cycle bottoms we have been anticipating. As with the broad stock market, if prices fall into the end of the year, those cycle bottoms may come early and we will look to buy then. Still holding short positions in gold and silver.

Trading Blog Friday, December 6, 2013

12/6/2013

MARKETS UPDATE (3:45 pm EST)

The upbeat employment data preview that we got from ADP on Wednesday acurately foreshadowed today's Labor Department figures which were also more positive than expected. The U.S. economy added 203,000 jobs and the unemployment rate fell from 7.3% to 7.0%. This positive economic news now has financial analysts concerned that the Fed will start tapering back QE very soon. The DOW, however, seems to be thumbing its nose at taper fears today as it surged up almost 200 points. It could be that the fear of tapering has already been factored into the market with this week's steep drop reinforced by Wednesday's ADP data, but perhaps investors are getting used to the taper idea and just don't care now. Another possibility is that investors feel the Fed is bluffing with its threats of tapering and will not actually go through with it. (If this is the case, we might see markets rally strongly until tapering is actually carried out and then a plunge with major panic selling as investors realize the Fed is serious).

The DOW broke below the strong support zone at 15,850-15,900 on Wednesday and Thursday but is now closing the week above it. This is bullish behavior, but I am going to wait until next week before considering going long as today's volatility may be a short-term reaction to the employment figures. Still on the sidelines of the broad stock market.

It is interesting that, unlike the broad stock market, gold and silver prices did not react enthusiastically to the positive Labor Department data today (with its suggestion of imminent tapering). This makes sense because QE tapering would strengthen the U.S. dollar, curb inflation and would represent the government taking fiscal responsibility. All of these things are not favorable to gold prices right now. All momentum signals in the precious metals remain strongly bearish so I am maintaining my short positions in both gold and silver.

Crude oil manifested a dramatic bullish surge this week, but the rally appears to be leveling off just under $98. The cycle picture is still not clear with this market and momentum is now mixed bullish and bearish. Remaining on the sidelines for now.

Trading Blog Wednesday, December 4, 2013

12/4/2013

MARKETS UPDATE (3:45 pm EST)

As we move towards the end of this week, all markets seem to be on edge as they anticipate the release of the Labor Department's jobs report on Friday. The mood is especially tense now because investors fear that any improvement in the labor market will encourage the Fed to start tapering QE sooner than later. As market followers have seen recently, any talk of QE tapering can send equities down quickly (although these reactions may now be more short-term as investors could be feeling the Fed is bluffing with taper threats). The next meeting of the Federal Reserve is scheduled for Dec. 17-18, so we may have to wait until then for any official statements on QE policy. Today the ADP job figures were released and were unusually strong. Because the ADP data is usually in line with the Labor Department's figures, investors at the moment are especially nervous that Friday's report could lead to an imminent QE taper.

The broad stock market this week is taking the correction we were anticipating and the DOW is now testing an important support area at 15,850-15,900. Technically the ideal time for a bottom to this correction would be on Friday, and since the jobs report comes out then, I would like to wait and see how the market is going to react to the figures and whether or not this support area will hold. Still on the sidelines of this market.

Speculation on the Fed's QE policy also affects the precious metals markets. The tapering of QE is generally thought to be unfavorable for gold (as it indicates an improving economy and diminishes the incentive to buy gold as a hedge against inflation and a falling dollar), and worries about the imminent easing of QE is one reason that gold and silver prices have been falling recently. As we approach Friday's jobs report, nervous speculation about the Fed's policy could easily create some volatility in this market (there are technical signals at the end of this week pointing to this as well). Today's jump in gold and silver prices is not an unexpected reaction to the steep drop over the last two days. There is now resistance for gold at $1250 and for silver at $20. Directional momentum is still nearly 100% for both metals as well as for the major gold and silver stock indices and ETFs. This indicates that a major upside reversal is highly unlikely at the moment. Holding short positions in both gold and silver.

Crude oil prices are rising dramatically this week which leads me to suspect that we are starting a brand new cycle in crude from that bottom last week at just below $92. Further evidence for this is the fact that directional momentum has now turned from 100% bearish to mixed 50% bearish and 50% bullish (a strong bullish signal appeared just yesterday in crude oil charts). If this is a new cycle starting (not confirmed yet) then this market could become strongly bullish. Still on the sidelines here until the cycle picture is more definitive.

The U.S. Dollar Index has been range-bound over the last two weeks between 80.5 and 81.0. There is strong support at 80.5 and this is a level we should watch now, especially in relation to gold prices, as a significant break below there could trigger an upsurge in gold prices. A more likely scenario at this time, however, would be a rise in the dollar and a break through the 81 level which would send gold and silver prices lower.

Trading Blog Monday, December 2, 2013

12/2/2013

SILVER TRADE ALERT (2:45 pm EST)

It looks like silver is starting to break down and is not going to give us a better entry point to sell short. A significant shift in directional momentum is being signaled in today's silver charts as the price is dropping, and momentum is now 100% bearish (as it is for gold). I am therefore going to now place short positions in silver. Now holding short positions in both gold and silver.

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