Blog Archives

Trading Blog Tuesday, December 29, 2015

12/29/2015

BRIEF MARKETS UPDATE (2:45 pm EST)

After a brief corrective dip yesterday, it appears that the broad stock market is resuming its "holiday" rally which may continue into the end of the week (New Year's Day). My analysis from last week (Dec. 3) still applies. If this rally continues, we will want to watch for any breach of 17,900 - 18,000 in the DOW and 2100 -2120 in the S&P 500 which could mean the rally will persist into mid-January. On the other hand, an approach to those levels without breaking them by Friday might be a good signal to sell short. We will watch this situation carefully for any trading opportunity. Still on the sidelines.

Gold and especially silver prices dropped yesterday and are down a bit today but are still holding above their December lows. Ideally, the medium-term cycle bottoms for these two metals are already in with those lows and we will see more rallying into mid-January. If prices start to break below those lows, however, it is possible for us to see the cycle bottoms in mid-January. We will watch price movements carefully this week and next. The U.S. Dollar Index surged up today but then backed off from resistance in the 98.5 area. As I mentioned in last week's blog, the dollar has an enormous amount of resistance to overcome all the way up to 100. This is supporting our bullish view of the precious metals at the moment. Still holding my long position in gold and silver.

Trading Blog Thursday, December 24, 2015

12/24/2015

CRUDE OIL CORRECTION (5:30 pm EST)

In yesterday's crude oil analysis I was using contract charts that had expired on Monday so I didn't see the price rise on Tuesday and Wednesday. I apologize for this oversight, but it doesn't alter our current sideline position. Crude may be taking its cues from the broad stock market right now, and like that market, any rally now may not get very far before turning back down. For both markets it all depends on when the current medium-term cycles reach their final bottom as both the broad stock market and crude oil cycles are due to bottom any time over the next several weeks. As I mentioned in yesterday's blog, the DOW, S&P 500 and NASDAQ cycles may have already bottomed this month, but if not, they are going lower into the new year. Crude's low on Monday at $35.35 (February contract) could be the final low in its current cycle, but in terms of timing and other technical factors it would be much better for that bottom to happen in mid-January which is a strong reversal zone for this market. If crude makes a new bottom in mid-January we will look to buy, but if prices rally into that time frame we will look to sell short. Still on the sidelines of crude oil.

Trading Blog Wednesday, December 23, 2015

12/23/2015

MARKETS UPDATE (5:00 pm EDT)

Despite the negative impact of the Fed's first rate hike on equity markets last week, it looks like we may be getting a "Santa Claus" rally after all, albeit a late one. The broad stock market has been rising sharply from last Friday's lows, and the Christmas holiday is just one day away. We also have New Year's Eve and New Year's Day on Thursday and Friday of next week. Can this holiday rally continue into January 1st? It is possible, but we are now entering a minor reversal zone which will continue into next week so it is also possible for the market to turn down again. Directional momentum in the broad stock market is still mixed bullish and bearish so the short-term trend continues to be ambiguous. Cycle analysis gives us two possibilities right now:

1) The first possibility is that we have already begun new medium-term cycles with the Dec.14 lows of the S&P 500 and NASDAQ (1993 and 4871, respectively) and the Dec.18 low in the DOW (at 17,124). If this is the case, the broad stock market is bullish and all three indices could easily make new highs into 2016.

2) The second possibility is that we haven't finished the old cycle yet and the bottom is due within the next several weeks at lows beneath the lows mentioned above. In this situation we could see these indices make new monthly lows before making new yearly highs. Those lows could come next week or ideally in mid-January (the next strong reversal zone). A good target for those lows would be around 16,700 for the DOW and around 1970 (possibly lower) for the S&P 500.

This second possibility basically views the current rally as a "sucker rally". A clear break above the 18,000 level in the DOW and 2120 in the S&P 500 would negate this idea. I should point out, however, that in the current chart of the S&P 500 there is now the near completion of a large "head and shoulders" top formation (a very bearish sign) and that this formation is also neatly configured under the peak of a huge "dome top" which is another strong bearish signal (until the market breaks above the dome). The line of this dome is currently around 2100 so any clear break above there will start to make this picture more bullish. Based on all of this analysis, I am remaining on the sidelines of the broad stock market for now with a careful eye on the 2100 -2120 level in the S&P 500 and the 17,900 - 18,000 level in the DOW and also on the rest of this month (Christmas through new Year's Eve) and mid-January as potential turning points for the market.

Gold and silver prices seem to be stable and holding above their December lows. Those lows still look like the medium-term cycle bottoms so I am holding my long position in both metals for now. If prices can stay buoyant through next week, we could see more rallying with a top around mid-January. The direction of precious metals could be affected by what happens to the U.S. dollar over the next several weeks. Last week the dollar attempted a "comeback" after its breakdown earlier in the month. The U.S. Dollar Index jumped sharply to the 99 level but has since backed off. The dollar has an enormous amount of resistance to overcome before it can break out and clear that 100 mark. This downward pressure on the dollar now should (at least in the short-term) favor higher gold and silver prices.

Crude oil prices continue to edge lower this week but seem to be leveling off near $34. The end of this current medium-term cycle in crude is due any time over the next six weeks, but in terms of timing, the ideal bottom would be in mid-January. We will watch for a bottom to buy then, possibly below $30. On the sidelines of crude oil for now.

I would like to take this opportunity to wish all the blog readers a

MERRY CHRISTMAS AND A HAPPY AND PROSPEROUS NEW YEAR !

Trading Blog Sunday (late night), December 20, 2015

12/21/2015

BRIEF MARKETS UPDATE (11:30 pm EST)

The broad stock market is very tricky to call right now due to increased volatility created by the Fed's rate hike last week as well as the fact that this week ends with a major holiday (Chistmas on Friday). Last Friday, equity markets continued to show their displeasure with the first rate hike in nine years as the DOW dropped 367 points (following a 253 point loss on Thursday). The DOW broke below its Monday low while the S&P 500 and NASDAQ stayed above their lows from Monday. This is a case of intermarket bullish divergence unless these latter two indices break their lows. The end of this coming week through Thursday of the following week is a weak reversal zone for equity markets, so we could see a cycle bottom forming in this time in the DOW, especially if the S&P 500 and NASDAQ can stay above their lows from last Monday (1993 in the S&P 500 and 4871 in the NASDAQ Composite Index). If all three indices make new lows next week then we could see equities continue to fall into mid-January and a final cycle bottom then. Still on the sidelines of the broad stock market.

Last week silver made a new six year low while gold stayed above its multi-year low from Dec.2 which is another case of intermarket bullish divergence. There are still many short-term technical signals suggesting that these metals are forming a medium-term cycle bottom now so we are still holding our long positions in both gold and silver. As I mentioned in my last blog, we don't want to see gold move below its Dec.2 low ($1046) as that would mean prices could move lower into mid-January. If that low holds next week, we could see a rally towards $1100 in gold and $15 in silver. Holding my long position in gold and silver for now.

Trading Blog Thursday, December 17, 2015

12/17/2015

MARKETS UPDATE - THE DAY AFTER THE RATE HIKE (6:30 pm EST)

Well, it looks like the broad stock market doesn't like the idea of an interest rate hike after all - maybe. The DOW's 253 point drop today erases yesterday's gains, but directional momentum is still mixed bullish and bearish in the DOW (as well as in the S&P 500 and NASDAQ) so the markets short-term direction is still not clear. A "Santa Claus rally" into the end of the month is still not out of the question, especially if Monday's lows (17,138 in the DOW and 1993 in the S&P 500) were the start of a new medium-term cycle. If this market continues to fall, however, and breaks those lows, we could get a real washout into the holidays that could even extend into mid-January. The broad stock market may continue to oscillate a few more days before deciding on a direction so it is probably best to remain on the sidelines for now.

It looks like gold and silver also waited a day before expressing their displeasure with the rate hike (and its positive effect on the dollar). Gold dropped to $1048 intraday but significantly did not break below its Dec. 2 low of $1046. Silver also dropped close to but not below its new monthly (and yearly) low from Monday. We therefore still have a case of intermarket bullish divergence in effect (gold's low on Dec.2 and silver's low on Dec.14). We will place a tight stop loss now for our long positions on a break and close below both these lows. If this happens, we may have to wait until mid-January for the medium-term cycle bottom in both metals. Still holding my long position in gold and silver.

Not surprisingly, the U.S. dollar benefited from the Fed's rate hike, but its rally is already showing signs of weakness. The chart of the U.S. Dollar Index shows that after its recent breakdown the dollar has a lot of resistance to overcome between 98.5 and 100. Can momentum from the rate hike propel the dollar through this resistance? Maybe, but this area would also be a good spot for the dollar to turn back down, if not now then maybe at the end of this month or in mid-January. Directional momentum in the dollar is currently mixed bullish and bearish.

Trading Blog Wednesday, December 16, 2015

12/16/2015

MARKETS UPDATE and COMMENTS ON THE RATE HIKE (8:00 pm EST)

To the surprise of very few, the Federal Reserve today announced the first federal funds rate hike in nine years. The rate was raised from near zero to a modest 0.25% - 0.50%. The Fed's statement revealed that the FOMC sees the economy improving even though the inflation rate is still below their 2% objective. The FOMC also expressed the optimistic view of the economy continuing to improve with an expectation of inflation rising to 2% over the "medium term". The determination of the timing and size of future rate hikes will depend on "the economic outlook as informed by incoming data", according to the Fed, but they also stated: "The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run." In other words, interest rates should remain relatively low for "some time".

Predictably, today's broad stock market was like a roller coaster ride. The DOW jumped up 159 points on opening, lost all of it by mid-day, surged back up into the 2:00 Fed statement, sank briefly after its release but then recovered dramatically and closed the day with a 224 point gain! Whew! The day's final gain suggests that we may have a classic case of "buy on the news" here and that the markets have already put their fear of a rate hike behind them. Nevertheless, we should let the dust settle a bit after today's wild ride before making any trading decisions. Investors could have a change of heart as the reality of rising interest rates sinks in. If the markets do turn back down over the next several days, we could still see a cycle bottom to buy at the end of December or possibly in mid-January with the DOW moving back below 17,138 and the S&P 500 below 1993. Otherwise, it looks like those Monday lows could be the start of a new medium-term cycle, and the markets will be at least short-term bullish. Still on the sidelines here.

Gold and silver prices were also quite volatile today. Both metals had been falling since last week, presumably in anticipation of the interest rate hike, but today prices rose steeply up into the time of the Fed's press release at 2 PM. After the hike announcement both metals fell (gold very steeply) but then recovered by the end of the day to close with significant gains (gold at $1072 and silver at $14.17). I was betting that the Fed's announcement wouldn't severely damage gold or silver, and (so far) that seems to be the case. The next few days will tell us if gold and silver prices can hold up. If they can, I am still anticipating a rally to at least $1100 in gold and towards $15 in silver. Still holding my long positions in both gold and silver.

Trading Blog Tuesday (evening), December 15, 2015

12/15/2015

MARKETS UPDATE and COMMENTS ON TOMORROW'S FED MEETING (8:00 pm EST)

The FOMC met today and will meet again tomorrow. At 2:00 pm EST tomorrow the Fed will announce its decision of either raising short-term interest rates or delaying a rate hike into 2016. Even though traders and investors recognize that a rate hike is inevitable, and even though the Fed has been warning us that a hike is imminent, markets could still react strongly to the reality of that first hike. After all, it has been nine years since the last one. The market's fear, however, is more psychological than practical since any first hike will be very small, and the Fed will take care to introduce rising rates gradually back into the system. Federal Reserve Chairwoman Janet Yellen is expected to give a press conference shortly after the 2:00 announcement, perhaps to calm the markets if there is a strong reaction to a hike. We may get a lot of market volatility over the next several days.

That volatility may already be starting in the broad stock market. The DOW and S&P 500 both dropped sharply and made new monthly lows yesterday before snapping back up and closing in the upper part of the day's trading range. Today the markets were up strongly. Could yesterday's lows already be the cycle bottom that we are looking to buy? Yes, but we have to be careful here because the markets are very jittery. Last week's market fall may have already factored in the rate hike fear, and the DOW and S&P 500 may be ready to rally now, but we can't be certain until tomorrow's Fed statement. Ideal targets for the cycle bottoms we are looking for would be around 16,700 in the DOW and around 1960 in the S&P 500. Yesterday's lows did not reach those levels so it is still possible the markets will move lower before rallying from a cycle bottom. We could see some wild price swings over the next few days so perhaps the best strategy now is to stay on the sidelines until we see how the markets react to the Fed's announcement tomorrow. Ideally, we want to buy at a cycle bottom near the targets just mentioned, but it is possible the bottoms are already in with yesterday's lows. Either way, the ideal bottom is due by the end of this week (unless the Fed's statement causes a panic sell-off and the markets tank; in that case, we could see the cycle bottom in mid-January). Remaining on the sidelines of the broad stock market for now.

We are currently holding long positions in both gold and silver so tomorrow's Fed announcement will be a bit of a "nail-biter" for us. Normally one would expect an interest rate hike to strengthen the U.S. dollar and push the price of precious metals down, but recently the dollar's wild movements have not had a strong influence on these metals. Just today the dollar surged strongly, but gold and silver remained relatively stable. There are many cycle, timing, and technical signals right now that suggest gold and silver are at or near their medium-term cycle bottoms from which a significant rally will start. Silver prices made dramatic new lows in yesterday's late night market (reaching $13.14) before snapping back up and closing today at $13.77. That was a strong bullish signal, and that low could easily be silver's cycle bottom. Gold's cycle bottom may have already happened on Dec. 2 (at $1047), but if a rate hike tomorrow pushes these metals lower, it is possible to see a lower bottom. The fall in precious metal prices since early last week may already be factoring in the fear of a rate hike so the actual announcement of one may only have a minimal impact on gold and silver (hopefully). In a potentially volatile market like we have now, it is hard to place a stop loss point without the risk of being "whipsawed" out (i.e. having a price break below the stop loss point and then quickly close back above). Traders can decide for themselves how much risk they want to take with these long positions, but generally we don't want to see gold prices close below $1047 by the end of this week. That can be used as a general stop loss criterion for both gold and silver. I will be monitoring these prices carefully as we move toward tomorrow's Fed announcement at 2 pm. Holding my gold and silver long positions for now.

Trading Blog Monday, December 14, 2015

12/14/2015

SILVER TRADE ALERT WARNING (4:00 pm EST)

Silver prices are dropping and making new lows today as gold prices, while down, are staying comfortably above their monthly lows. Our silver trade is now at a 6% loss, and although I still see a strong potential for a reversal back up this week, there is still the possibility of prices sinking lower (as silver is much more volatile than gold). I realize that all traders may not want to take such a risk. Conservative traders may wish to bail out now or at least reduce their holdings in silver to minimize potentially larger losses.

Please refer to my blog earlier in the day for the current situation in both gold and silver. I am going to attempt to "ride out" this dip a few more days as the Fed meeting on Tuesday/Wednesday could be a major turning point for the market. I should note here that if gold stays above its monthly low and starts to rally, silver should follow suit even if it first makes a deeper low. Holding my long position in silver and gold for now.

Trading Blog Monday (early AM), December 14, 2015

12/14/2015

MARKETS UPDATE (3:00 am EST)

In my blog last Wednesday I wrote:

"If prices continue lower into the end of the week and especially into early next week, we will probably look for a low to buy as this is a strong reversal zone for all markets. Any break below 17,210 in the DOW and 2019 in the S&P 500 would mean that the top of the current medium-term cycle is in and that we should be watching for a correction and cycle bottom."

On Friday the DOW plunged to 17,230 intraday and then closed the day at 17,265 with a 309 point loss. The S&P 500 closed the day at 2012 and a 39 point loss. The current reversal zone for this market ends this Wednesday (the same day the Fed concludes its two day meeting and announces its interest rate policy), and it looks like prices are definitely falling into it. This means we should now be watching for a bottom and some sort of rally to follow. I also wrote in last Wednesday's blog that:

" It is hard to predict how markets will react to the first interest rate hike. If equities fall steeply into next week they may already be factoring in a rate hike announcement, and the actual announcement on Wednesday could send the markets up (a classic case of sell on the rumor and buy on the news)."

So last week's steep fall could be reflecting a nervous market's anticipation of the first interest rate hike. If so, we might see more downside into Wednesday and a "buy on the news" reaction if the Fed does raise rates. But what if the Fed decides to delay a rate hike yet again? Because most analysts are expecting a hike, a postponement could easily trigger a massive wave of equity buying and could deliver a "Santa Claus" rally that is not uncommon at this time of year. Perhaps the Fed will play Santa Claus and delay the hike to avoid a possible sell-off during the holiday season. (Come to think of it, Janet Yellen does look a bit like Mrs.Claus).

A more bearish scenario could unfold if, despite all the warnings of a rate hike, the markets "freak out" on the first hike announcement and continue to fall. Although it is not common, in some instances a market reversal zone can coincide with a breakdown (or breakout) instead of a reversal so this scenario is not impossible. If it does happen, we will look towards the end of the month or the middle of January for a final bottom to the current equity market cycle. For now, we will anticipate a reversal and will look for a spot to go long next week. Currently on the sidelines of the broad stock market.

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

"This week (and early next week) is a reversal zone for gold and silver so it is still possible to see one or both metals make a deeper cycle bottom before rallying significantly. In fact, having gold or silver (but not both) make a new low would be an ideal case of bullish intermarket divergence."

On Friday silver did make a new monthly (and yearly) low but gold did not. We thus have a case of bullish divergence until gold breaks below $1046. The Fed's interest rate decision could also have an effect on precious metal prices. An interest rate hike would likely strengthen the U.S.dollar, and this could push gold and silver prices down. We should note, however, that precious metal prices have been fairly stable recently despite extremely strong moves in the dollar and that the chart of the U.S. Dollar Index is looking very bearish following the dollar's breakdown over the last two weeks. Right now it looks like gold's medium-term cycle low was $1046 on Dec. 2. Silver's cycle low could have been on Friday (at $13.79), but there is still time for it to move lower (gold could move lower too) this week as the reversal zone ends this Thursday. One strongly bullish factor for gold right now is the Commitments of Traders (COT) report for this metal. Without going into a technical explanation of this report, just let me say that this indicator of short-term directional trend is rarely wrong, and its chart readings for gold over the last week have been extremely bullish. This factor (along with cycle analysis) has encouraged me to hold my long position in both gold and silver which I hope we can continue to do up to the Fed's announcement on Wednesday. If gold can rally towards $1100 by Wednesday, I will consider selling these long positions and taking profits. Holding a long position in both gold and silver for now.

Trading Blog Wednesday (night), December 9, 2015

12/9/2015

-MARKETS UPDATE (11:30 pm EST)

The broad stock market has been a bit volatile over the last three days with short price swings up and down although overall movement has been down. Markets are obviously nervous as we approach next week's Fed meeting and possibly the first interest rate increase in nine years. Both the DOW and S&P 500 made new weekly lows today. If prices continue lower into the end of the week and especially into early next week, we will probably look for a low to buy as this is a strong reversal zone for all markets. Any break below 17,210 in the DOW and 2019 in the S&P 500 would mean that the top of the current medium-term cycle is in and that we should be watching for a correction and cycle bottom. Until that happens, however, these markets could still rally and make new cycle highs or double tops at or above 17,978 in the DOW and 2116 in the S&P 500. If this happens by early next week, we will look to sell short for a final correction into the cycle bottoms of both indices (as well as the NASDAQ). It is hard to predict how markets will react to the first interest rate hike. If equities fall steeply into next week they may already be factoring in a rate hike announcement, and the actual announcement on Wednesday could send the markets up (a classic case of sell on the rumor and buy on the news). On the other hand, if we see a rally into next week, a rate hike could be the catalyst that triggers a sell-off. Either way, it looks like next week could be an important pivot point for the broad stock market that could correspond to a new cycle high or a cycle bottom. We will trade accordingly.
On the sidelines for now.

After a strong rally last Friday, precious metal prices backed down a bit this week with gold now holding just above $1070 and silver above $14. The Dec. 2 low in gold at $1046 and in silver at $13.84 still look like cycle bottoms, but we need to see more rallying to confirm this. Our minimal short-term target for gold was (is) $1100, and I was (am) hoping to see silver near $15. One thing that concerns me at the moment is that today's steep drop in the U.S. Dollar Index did not seem to have much of an effect on gold and silver prices. One would normally expect such a dollar plunge to drive a rally in the precious metals. This may be signaling some weakness in the metals, or perhaps there will be a delayed response to the dollar as we saw last week (when the dollar plunged on Thursday but gold surged on Friday). This week (and early next week) is a reversal zone for gold and silver so it is still possible to see one or both metals make a deeper cycle bottom before rallying significantly. In fact, having gold or silver (but not both) make a new low would be an ideal case of bullish intermarket divergence. We will watch these prices carefully over the next several days. Holding my long position in both gold and silver for now.

<<Previous

Archives

LEGAL and DISCLAIMER