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Trading Blog Friday, December 30, 2016

12/30/2016

MARKETS UPDATE (3:00 pm EST)

The broad stock market has moved down a bit this week, but not enough to suggest that we are near a corrective bottom. The current reversal zone for equities extends into most of next week so there is still time for this market to either rally to new highs or drop lower and closer to our targets of 19,200 in the DOW or 2,170 in the S&P 500. New highs may give us a shorting opportunity next week, but if we move closer to those targets we will likely be looking to buy. Still on the sidelines here.

Gold and silver both rallied this week and made new weekly highs yesterday (they are both down today), but they did this into the dead center of a strong reversal zone for precious metals (which continues through most of next week) so we need to be cautious about going long. We did not get our ideal set-up this week of just one of these metals making a new low (intermarket bullish divergence), but it could still happen next week in the current reversal zone. If instead prices continue to rally stongly next week, I will consider selling short from a top, but any price dips now could be buying opportunities, especially if we see bullish divergence where either gold or silver (but not both) make a new low by next Friday. On the sidelines of gold and silver for now.

Crude oil prices rose a bit this week but did not get above the Dec.11 high of $55.44 (Feb. contract chart). This market is similar to the broad stock market now and can either rally next week to make a new high (above $55.44) or fall to complete a cycle or subcycle bottom within this current reversal zone (which ends next Friday). Next week's price moves could present us with a top to sell short or a bottom to buy. We remain on the sidelines for now,

Trading Blog Monday, December 26, 2016

12/26/2016

MARKETS UPDATE (5:30 pm EST)

We are now starting another week that will lead into a major holiday weekend (New Year's Day on Sunday). Currently we are also in the center of a significant reversal zone that is relevant to all the markets we follow (equities, precious metals, crude oil and the U.S. dollar), but is especially relevant to equities. This reversal zone will extend into the first half of next week. Because of the extended holiday period (which is usually lightly traded), I don't think we will see any dramatic market moves until next week, but we can't rule this out entirely as we are in the center of a strong reversal zone.

If the broad stock market does fall this week, we will now look for support around 19,200 in the DOW and 2,170 in the S&P 500. These could be good spots to go long. I suspect, however, that equities will push higher this week and perhaps into early next week. If they do (and especially if we get intermarket bearish divergence where one of these indices makes a new weekly high, but not the other) we will consider selling short for a short-term (but possibly sharp) correction down. The current medium-term cycles of the DOW, S&P 500 and NASDAQ are still young, and our longer-term strategy now is bullish; that is, we are looking to buy the bottom of any short-term moderate correction. Still on the sidelines of this market.

The cycle pattern of gold and silver is still a little unclear, but both metals are likely making a significant bottom in this reversal zone. Last week silver made a new weekly low while gold did not for a case of intermarket bullish divergence. An ideal set-up now would be for gold to make a new low while silver does not. That could be a strong buy signal if it happens this week or early next week. We will watch for this. Currently on the sidelines of both gold and silver.

Crude oil's cycle is also a bit unclear at the moment. If crude is going to make a significant top in this reversal zone, it needs to exceed its Dec.11th high of $55.44 (February contract chart) before the end of next week. If that happens, we could have a good spot to sell short. But if crude prices are reluctant to rally this week, they may instead fall to make a cycle or subcycle bottom in the current reversal zone, which could be a good place to buy. If crude started a new medium-term cycle on Nov. 14 and its trend remains bullish then any corrections now should not go below $44. On the sidelines of crude for now.

Trading Blog Friday, December 23, 2016

12/23/2016

BRIEF MARKETS UPDATE (3:30 pm EST)

The DOW made a new all time high on Wednesday while the S&P 500 did not for some more intermarket bearish divergence in our current reversal zone. Despite this bearish signal, equity markets seem reluctant to fall (which is not surprising as this is the week before Christmas), and I think they could push higher into next week. We will stay on the sidelines of the broad stock market for now.

Gold and silver are now falling into this reversal zone, but these metals look like they could go lower still. The U.S. Dollar Index made a new high at 103.1 on Tuesday, which was a little early in our reversal zone so its possible this index could push a bit higher into next week before taking a significant correction. If the dollar edges higher, it could push precious metal prices lower. On the sidelines of gold and silver.

Crude oil doesn't seem to be making a significant top or bottom (yet) in this reversal zone, and its cycle pattern is still ambiguous. We will stay on the sidelines here and see how prices move into next week.

I will most likely post another blog over the weekend with a little more detail in the current analysis of these markets.

UPDATE 12/25/16: Will post next update on Monday 12/26/16.

Trading Blog Monday, December 19, 2016

12/19/2016

MARKETS UPDATE (4:30 pm EST)

Nothing has changed concerning my Friday blog on the broad stock market. We are about to enter a strong reversal zone for equities (and other markets) which will run from Dec. 20 through Jan.3. The center point for this reversal will be around Dec. 26-27 which is the most likely spot for a turning point (although it could be earlier or later in the reversal zone). The Christmas holiday is this Sunday, and markets often rally into holiday week-ends so we may not see any significant downturn before then. Rallying may even persist into the New Year holiday on January 1st. At the time of this writing (2:30 pm EST), the highs from last week in the DOW, S&P 500 and NASDAQ are not being exceeded so we could still see these indices fall into this new reversal zone. As I stated in Friday's blog, if the DOW can get closer to 19,000 and the S&P near the 2,140 area, we will look to buy. Considering the imminent holidays, however, I suspect this market will go higher this week. If it does, we may look for a spot to sell short, especially if one or two of the three indices make(s) a new high (but not all three) for a case of bearish intermarket divergence in a reversal zone (good sell signal). The current cycle structure shows that a new high in this upcoming reversal zone could be followed by a very sharp correction (possibly as much as a 1000 points in the DOW) so a short position will be worth considering here. For now, we will stay on the sidelines and see how this market moves into the end of the week.

This upcoming reversal zone is also relevant to gold and silver. As with the broad stock market, we will watch how prices move into the end of this week or early next week. If prices move lower, we may look for a spot to buy, but a sharp rally this week may set up a good shorting opportunity. The cycle patterns in gold and silver are a little ambiguous at the moment; nevertheless, overall analysis shows that we should be watching for a significant bottom to buy that could be coming up within the next several weeks. As the current cycle pattern establishes itself, we will be more confident in identifying that bottom. We will remain on the sidelines for now. Unfortunately, gold and silver (and other markets) could be quite volatile over the next three or four weeks so we need to be very careful in our trading into early January.

With help from the Fed's first interest rate hike since Dec. 2015 last week, the U.S. Dollar Index broke through resistance at 102 and is now hovering just above the 103 level. If the dollar edges higher into this week's (or early next week's) reversal zone, it could be setting itself up for a sharp correction down. Such a correction could kick start a major rally in the precious metals. We will watch this carefully. A long-term cycle top in the dollar could be forming now or in early January. If the Fed follows through with its aggressive plan of three more interest rate hikes in 2017, however, the dollar could instead rally well into next summer or perhaps even longer. Geopolitics and the policies of the new Donald Trump presidency will also be major factors influencing the direction of the U.S. dollar in 2017.

As with the precious metals, crude oil's current cycle is still not clear. It looks like crude started a new medium-term cycle on Nov. 14, but it is still possible crude is completing an older cycle that is due to bottom anytime over the next three or four weeks. That bottom could come this week or early next if prices fall into this new reversal zone. A good target for that bottom would be in the $47 area (January contract chart). If prices instead rally into the end of this week/early next week then we might have a good shorting opportunity. Any break above last week's high of $54.51 supports the idea of a new cycle starting Nov. 14. On the sidelines of crude for now.

Trading Blog Sunday (late night), December 18, 2016

12/18/2016

BRIEF UPDATE (11:30 pm EST)

In Friday's blog I said that I would update the markets this week-end. I apologize as I have not had the time to do that. I will post another blog on Monday afternoon with more market analysis. We are currently on the sidelines of all markets.

ERROR CORRECTION: In Friday's blog I stated:

"If the highs from earlier in the week hold, we could see some sort of correction into next week's reversal zone (which actually lasts from Dec. 20 through January 23)."

That reversal zone actually runs from Dec. 20 through Jan. 3.

Trading Blog Friday, December 16, 2016

12/16/2016

BROAD STOCK MARKET UPDATE (3:30 pm EST)

As expected, the Federal Reserve announced its first interest rate hike this year on Wednesday following a two day meeting of the FOMC. The Fed's so called "dot plot" also showed that the central bank has penciled in three more rate hikes for 2017, an increase from only two shown in its prior forecast. This slightly hawkish change was tempered, however, by Janet Yellen's cautious rhetoric regarding Donald Trump's policies and how they might effect the country's economy, saying that she "wouldn't want to speculate" on these policies at this time as they are still unclear.

Apparently, Ms. Yellen is not as enthusiastic about Trump as Wall Street has been over the last five weeks since the election. But this strong rally in the broad stock market may be slowing down now and could be pausing to take a break and perhaps a corrective dip before resuming and rising higher into 2017. We are now out of a reversal zone for this market that ended on Wednesday, but we will enter another (stronger) one next week (starting on Tuesday). The highs in this week's market indices were made on Wednesday (DOW), and Tuesday (S&P 500 and NASDAQ) so they are within the last reversal zone. In Monday's blog l wrote:

"... if the Fed's statement mentions any plans for future hikes that look too hawkish (i.e. bigger hikes sooner than expected), equities could take a dive. Ideally, we would like to see a top by Wednesday and then a modest correction into the end of this month; however, this market is looking very bullish and could push higher over the next two weeks before correcting. Right now we will look to buy any correction that gets to the 19,000 area in the DOW and the 2,170 area in the S&P 500. We could get to those levels by the end of this week, but if these markets push higher past Wednesday, we may have to wait a bit longer for a corrective bottom to buy."

Well, the Fed did add an extra rate hike for next year (three instead of two), but I don't think that slightly hawkish decision is enough to put a major dent in this "Trumphoria" rally, especially as we are now in the middle of the holiday season which often favors a bullish market. If the highs from earlier in the week hold, we could see some sort of correction into next week's reversal zone (which actually lasts from Dec. 20 through January 3). If that happens and the DOW gets closer to 19,000 and the S&P closer to 2,170, we will look to buy. On the other hand, if this rally pushes higher into next week, it may set up a short-term shorting opportunity from a top. In that case we would likely have to wait several more weeks for a bottom to buy. Still on the sidelines of the broad stock market.

Not surprisingly, gold and silver prices plunged this week in response to the interest rate hike (which boosted the U.S. dollar) so it looks like both metals are completing older cycles and will go lower. I will comment more on this and other markets this week-end.

Trading Blog Monday, December 12, 2016

12/12/2016

MARKETS UPDATE (11:30 pm EST)

Today the DOW and S&P 500 both made new weekly highs, but the NASDAQ did not. We thus have some more intermarket bearish divergence, and we are still in a reversal zone (it ends Wednesday). These markets could start correcting now, but they might wait for Wednesday's statement from the Federal Reserve (which follows this week's two day FOMC meeting). Most analysts are expecting the Fed to finally announce the second short-term interest rate hike since the financial crisis of 2008 - 2009 (the first hike was in December 2015), but the schedule for subsequent hikes (and the amount of those hikes) is not so clear. The broad stock market may already be factoring in a December hike, but if the Fed's statement mentions any plans for future hikes that look too hawkish (i.e. bigger hikes sooner than expected), equities could take a dive. Ideally, we would like to see a top by Wednesday and then a modest correction into the end of this month; however, this market is looking very bullish and could push higher over the next two weeks before correcting. Right now we will look to buy any correction that gets to the 19,000 area in the DOW and the 2,170 area in the S&P 500. We could get to those levels by the end of this week, but if these markets push higher past Wednesday, we may have to wait a bit longer for a corrective bottom to buy. Still on the sidelines of the broad stock market.

Gold made a new weekly low today while silver did not so we are starting the week with some bullish intermarket divergence between the precious metals. Nevertheless, directional momentum in both gold and silver is nearly 100% bearish at the moment, and we have the likely announcement of an interest rate hike from the Fed this Wednesday which could boost the U.S. dollar and put downward pressure on these metals. I think there is a good chance that these prices will move lower with gold possibly reaching the $1,070 area by the end of the month. If that happens, it may be a very good spot to buy. On the sidelines of both gold and silver for now.

Crude oil prices gapped up and surged to $54.51 (January contract chart) today before closing around $52.60. The cycle pattern in this market is still a little ambiguous, but it is starting to look like a new medium-term cycle started on Nov. 14. If that is the case, we may look to go long soon as prices could rise to the $65 level if the cycle's trend is bullish. Staying on the sidelines of crude oil for now.

Trading Blog Friday, December 9, 2016

12/9/2016

GOLD TRADE ALERT (1:30 pm EST)

In Monday's blog on gold and silver I wrote:

"...gold and silver could be ready to turn very bullish, but it all depends on whether or not they started new medium-term cycles in November. They may have, but it is still not certain. If they are completing older cycles, prices could go considerably lower this month. If we do see rallying this week, we want to see gold close above $1,200. If it doesn't, we may have to abandon our bullish expectations."

Well, gold did not rally much this week; in fact, it made a new low on Monday ($1,159) and is closing the week near that low (around $1,160). It is starting to look like this could be an older cycle that's going to go lower. Silver did rally a bit but it may have topped out on Wednesday at $17.23. That was a new weekly high for silver while gold did not exceed its high from last week (intermarket bearish divergence). There are several other short-term technical signals now that also suggest these metals are turning down. For all of these reasons, I am going sell my long position in gold today and take a small loss (about 2%). This market may already be anticipating a rate hike from the Fed next week which would likely boost the U.S. dollar and put downward pressure on precious metals. If that happens, we could see gold and silver make their final cycle bottoms near the end of the month. Selling my long position in gold today and still out of silver.

Trading Blog Thursday, December 8, 2016

12/8/2016

BRIEF COMMENT ON THE BROAD STOCK MARKET (2:30 pm EST)

The remarkable post-election rally we have been seeing in the broad stock market over the last several weeks makes it apparent that the fears that Wall Street had about Donald Trump before the election have been thrown to the wind. Before the election, investors were uncertain (or just did not know) about his policies, but now Wall Street seems to be reading them as strongly pro-business. An exception to this, however, may be the technology sector as the NASDAQ charts have not been as strongly bullish as those of the DOW and S&P 500. How long will this "Trumphoria" last? It's hard to say, but the medium-term cycles in these indices look bullish now which is why we have been looking to go long on any corrective dips. The problem is we haven't been getting any corrections. Next week's Federal Reserve meeting and the specter of an interest rate hike may change that, especially as it is happening within the current reversal zone for equities. An interest rate hike could put a brief damper on this rally and give us a good entry point to buy. We also should keep in mind that equity markets often manifest a "Santa Claus" rally during the holidays so we can probably expect Trumphoria to last at least into the start of the new year. Still on the sidelines of the broad stock market.

Trading Blog Monday, December 5, 2016

12/5/2016

MARKETS UPDATE (6:30 pm EST)

The DOW made a new high today while the S&P 500 and NASDAQ did not. Thus we have some more intermarket bearish divergence in the broad stock market. Technically, we are out of last week's reversal zone, but we are entering another one in the second half of this week. If these indices push higher into Friday we could see a downturn then; however, the DOW could turn here, and all three indices could still make bottoms by the end of the week. Our major strategy now is to look for a corrective bottom to buy. That may come this week, or it may be later in the month if this market rallies into Friday (the center of our next reversal zone). If we do see a rally into Friday, we may sell short for a brief but sharp correction into the end of the month. We will stay on the sidelines for now as we watch how these indices move into the end of the week.

We have two reversal zones relevant to gold and silver in December. One is centered on Dec. 9th (this Friday) and one on Dec. 23rd. Each reversal zone lasts about a week so these two are practically back to back. As a result, we may see a lot of volatility in precious metals this month. Today gold prices made a new weekly low at $1,159 but then closed above $1,171. Silver did not make a new weekly low so we continue to see intermarket bullish divergence in these metals. Gold and silver could rally now, but if they don't, we could see prices go lower into the end of the week. If this happens and silver can stay above $16.17, we may look to buy (silver). If silver breaks below there, we may have to abandon our long position in gold. As I've mentioned in recent blogs, gold and silver could be ready to turn very bullish, but it all depends on whether or not they started new medium-term cycles in November. They may have, but it is still not certain. If they are completing older cycles, prices could go considerably lower this month. If we do see rallying this week, we want to see gold close above $1,200. If it doesn't, we may have to abandon our bullish expectations. We should note here that the Fed will be making their decision about interest rates next week and many analysts are expecting an overdue rate hike. If that happens, it would likely give a boost to the U.S. dollar and push gold and silver prices down, but another delayed hike could tank the dollar and boost precious metal prices. Holding my long position in gold for now.

As with the precious metals, the cycle structure in crude oil is also unclear and ambiguous right now. There is a possibility that crude started a new medium-term cycle on November 14 with a low of $42.95 (Jan. contract chart). If that is the case and prices can clear $53 then crude could possibly go as high as $65. On the other hand, if crude is still completing an older cycle then we could soon see a reversal down and a fall back to $43 or lower for a final cycle bottom later this month. Today prices shot up to $52.42 intraday but closed considerably lower ($51.08). A reversal could start now, but prices could also edge a bit higher into a new reversal zone later this week and then turn down. If we get a rally into Friday that stays under $53, it may be a good spot to sell short. Otherwise, we will wait to buy a bottom near the end of the month. If crude prices break and close above $53, we will try and buy any subsequent short-term corrections. On the sidelines of crude oil for now.

The strong rally in the U.S. Dollar Index since early October is getting a bit long in the tooth, and last week the dollar started backing down from a strong reistance line around $102. Today the index broke briefly below 100 but settled just above there (100.14). There is support at 100, and we could now see the dollar rest or consolidate in the 100 - 102 range for a spell before making a strong directional move. As I discussed above, that move may be determined by the Federal Reserve meeting next week. A rate hike by the Fed could ignite a rally in the dollar and push it through that $102 resistance whereas another hike delay could send the greenback tumbling down. There is a strong reversal zone centered around Dec. 24 that is especially relevant to currencies so even if the dollar is given a boost by a Fed hike, that rally might be short-lived as it makes a new top around Christmas and then reverses to make a possible long-term cycle correction. We will watch this index carefully after next week's Fed meeting.

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