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Trading Blog Friday, December 29, 2017

12/29/2017

BRIEF MARKETS UPDATE (2:30 pm EST)

Not much has changed since my last post.

None of the three broad stock market indices (DOW, S&P 500, NASDAQ) are making new highs this week so we don't have a bearish divergence signal to short sell this market yet. We are just past the center of a strong reversal zone that ends early next week. Could this market turn down now? Yes, but I would still like to see intermarket bearish divergence (one or two- but not all three- indices making new highs) before committing to a short position. Let's see if that happens early next week. Still on the sidelines.

Gold and silver prices are rallying strongly and supporting the idea of a new medium-term cycle beginning on Dec. 12. We are, however, right in the center of a strong reversal zone specifically for these metals so I'm still reluctant to go long as a turning point could be imminent at the top of this steep rally. If the longer-term bullish picture of this market is correct, we will have plenty of time to get in on it at a less risky entry point. On the sidelines of gold and silver for now.

Not surprisingly, the U.S. Dollar Index is down, but it is now at a strong support line around 92. This week's reversal zone's can still influence this market, and a reversal up in the dollar could turn gold and silver prices back down for at least a short-term correction (and a better entry point to go long).

Trading Blog Tuesday (evening), December 26, 2017

12/26/2017

MARKETS UPDATE (10:00 pm EST)

It is the day after Christmas and equity markets were down just a bit. This week is a major reversal zone for the broad stock market (centered around Thursday and could extend into Jan. 2), and it is late in the medium-term cycle of the DOW, S&P 500 and NASDAQ so the market could fall steeply now and make a cycle bottom this week. I think it is more likely, however, to see equities edge higher this week and form a top in this reversal zone. If that happens with intermarket bearish divergence (i.e. one or two- but not all three- market indices making new highs) then we will consider selling short for a correction to the final cycle bottom that would likely end sometime in January/February. Trump's signing of the tax reform bill on Friday has relieved the fear on Wall Street that the president was going to delay that signing into the new year. For this reason it wouldn't be surprising to see equities rally this week. But if they do fall we will be on the lookout for a bottom and a good spot to buy (the end of a cycle and start of a new one). On the sidelines of the broad stock market.

I would like to start my gold and silver analysis by saying that the longer-term picture for both metals is looking quite bullish. One reason for this is that the long-term chart of gold is showing the near completion of a giant inverted "head and shoulders" chart pattern that started forming in 2013. This is a very bullish formation that once complete can lead to a very powerful rally. Silver's chart is also looking quite bullish (also with a giant 'head and shoulders" bottom) and looks like it could be poised for a major rally from a huge base pattern soon. Supporting all of this is the fact that the COT (Commitment of Traders) charts for both metals are recently showing "dumb money" bailing out of gold and silver and "smart money" going long.

Shorter term, we have recently been waiting for the bottom of a medium-term cycle to buy. In my Dec.18 blog I wrote:

"Gold and silver may have completed their medium-term cycle bottoms [Dec. 12]...(gold at $1237 and silver at $15.64)...Gold needs to start closing above $1270 and silver above $16.40 to make the case for [these] new cycles ..."

Today gold closed at $1282 and silver at $16.54 so it's looking like new cycles began on Dec. 12. We should be looking to go long, but this week through Jan. 3 is a strong reversal zone for the precious metals, and prices are rising into it. Even if we started new bullish cycles on Dec. 12, we could still see a short-term correction back down. (That correction would stay above those Dec. 12 lows if these are new cycles, but it could go below those lows if we're still forming older cycle bottoms). I am not comfortable buying at the top of this rally in such a strong reversal zone so I am staying on the sidelines for now. There is currently a resistance line for gold around $1285 and another stronger one at $1300 - $1310 so it is possible we could see the current rally deflected at either of these points this week. There is resistance for silver around $16.75. Any pullbacks in the prices of these metals will be regarded as opportunities to go long.

The U.S. Dollar Index made a new low yesterday near the end of a reversal zone specifically for currencies (it ended today) so we could see a reversal up now. That could help push precious metal prices down to a better entry point to buy. Such a rally, however, would probably be short-lived as the overall chart for the dollar looks bearish. Note also that this entire week's reversal zone could also affect the dollar and a rally could start from any new low this week.

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

"Crude prices have been rising, but they still haven't breached the $58.94 high of Nov. 24. If crude exceeds that high it gives more weight to the idea of a new cycle starting Dec. 7."

Well, crude prices soared today and closed at $59.73 (Feb. contract chart). It's starting to look like a new medium-term cycle began on Dec. 7 (at $55.88). This week's reversal zone(s) could also affect crude prices, and crude is rising into it. If this is a new cycle then any correction now should not be serious and should stay above $55.88. Let's stay on the sidelines of this market for now.

Trading Blog Thursday, December 21, 2017

12/21/2017

MARKETS UPDATE (3:00 pm EST)

As we approach the Christmas holiday (this Monday), we are not seeing a strong "Santa Claus" rally, but equity markets aren't falling strongly either. Wall Street may be a little nervous before President Trump actually signs the tax reform bill that was approved by Congress yesterday as there is a possibility he will delay the signing into the new year to avoid the implementation of immediate drastic spending cuts in early 2018 (those cuts could be delayed into 2019 if the bill is not passed this month). We will wait and see if a holiday rally can pick up next week as we move towards New Year's Day. Rally or not, we are still watching for a case of intermarket bearish divergence where one or two- but not all three- stock market indices (DOW, S&P 500, NASDAQ) make new highs. If this happens next week, it will be in a strong reversal zone and it will be a good signal to sell this market short again. On the sidelines of the broad stock market for now.

It's still not clear whether or not gold and silver started new medium-term cycles on Dec. 12. If they did, this market could be turning very bullish. The strong rally in prices since last week supports this idea. The only problem is that these metals are rising into a reversal zone this week and a very strong one next week. This means this market could still turn down and plunge below those Dec. 12 lows and make the final bottom to an older medium-term cycle. The alternative to this would be for gold and silver to "break out" to the upside in this reversal zone. This sometimes happens in reversal zones, but it's not common (which is why we call these periods "reversals"). The bottom line here is we are looking to go long in the precious metals soon once we can determine the start of a new medium -term cycle in both metals. Still on the sidelines of gold and silver.

The U.S. Dollar Index has been edging down this week, and it is making a new weekly low today right at the center of a reversal zone specifically for currencies (all this week). We could thus see this index turn up now. If it does, it would likely push gold and silver prices down.

Like the precious metals, crude oil may have started a new medium-term cycle in early December (Dec. 7), but it could also turn down in the current reversal zone and complete the final bottom of an older cycle below that Dec. 7 low ($55.88 - Feb. contract chart). Crude prices have been rising, but they still haven't breached the $58.94 high of Nov. 24. If crude exceeds that high it gives more weight to the idea of a new cycle starting Dec. 7. As long as prices are rising in this reversal zone, though, it is too risky to go long. We will remain on the sidelines of crude oil for now.

Trading Blog Monday, December 18, 2017

12/18/2017

MARKETS UPDATE (6:40 pm EST)

On Friday we covered our short positions in the broad stock market and I wrote:

"We enter another reversal zone next week and still another stronger reversal zone Christmas week so we should still be on the lookout for a top in this market as the medium-term cycle is coming to an end and a correction is now due. We may get another bearish divergence signal next week, but at this point I would prefer to see a top near the Christmas and New Year's holiday as that would be a better reversal point for a correction."

Well, we won't be getting that bearish divergence signal this week as all three market indices (DOW, S&P 500, and NASDAQ) rallied strongly today and all made new highs. The "Santa Claus" rally could be cranking up. It's a bit late to be chasing this rally, and because this week is a reversal zone (a weak one - the strong one is next week), I don't feel comfortable going long. Let's stay on the sidelines for now and wait to see if we get a bearish divergence signal next week. This market is severely overbought, and the medium-term cycle structure tells us that a top and steep correction are due very soon in the DOW and S&P 500.

Gold and silver may have completed their medium-term cycle bottoms last Tuesday (gold at $1237 and silver at $15.64), but that was not in a reversal zone and there was no bullish divergence signal which keeps open the possibility of prices moving lower this week or next week (which is a very strong reversal zone specifically for the precious metals). Still, prices have been rallying sharply from last week's lows so we have to consider the possibility of new medium-term cycles starting then (which could be very bullish). Gold needs to start closing above $1270 and silver above $16.40 to make the case for new cycles starting last Tuesday. Even if we have new cycles, we have to be careful about going long because, as with the broad stock market, this week is a reversal zone for gold and silver and next week is an even stronger one so rallies may not get far before turning down again. We will remain on the sidelines of gold and silver for now.

On Dec. 11, I wrote on crude oil:

"Crude oil's medium-term cycle bottom is also overdue now. Last week's low at $55.82 (Jan. contract chart) on Thursday was barely within a reversal zone for crude and was not really low enough for a normal correction, but since we are late in this cycle it is possible that was it. If that was the end of the cycle (and the start of a new one) then crude could be bullish now and easily exceed its Nov. 27 high of $58.99. I am not convinced that last week's low was the cycle bottom, however, and it's still possible for crude to turn down and move towards a more "normal" corrective bottom below $55, perhaps into the next reversal zone in the last two weeks of December."

Well, that low at $55.82 is holding, but prices have not yet exceeded $58.99 so this market's direction is still undecided. It is still possible for prices to move below $55 over the next two weeks to form a final cycle bottom by the end of the month. If this happens, it could be a good buy spot as directional momentum in crude is currently almost 100% bullish. On the sidelines of crude for now.

Trading Blog Friday, December 15, 2017

12/15/2017

BROAD STOCK MARKET TRADE ALERT (3:00 pm EST)

It appears that I was a little too optimistic about yesterday's drop in the broad stock market and was underestimating the power of "irrational exuberance", "Trumphoria", and the holiday spirit to still give us a Santa Claus rally into the end of the year (maybe). All three market indices (DOW, S&P 500, and NASDAQ) are rallying strongly today, and the NASDAQ finally broke above 6,914 to make a new all-time high. Thus our bearish divergence signal has been negated and we should be stopped out of our short position in the broad stock market. We enter another reversal zone next week and still another stronger reversal zone Christmas week so we should still be on the lookout for a top in this market as the medium-term cycle is coming to an end and a correction is now due. We may get another bearish divergence signal next week, but at this point I would prefer to see a top near the Christmas and New Year's holiday as that would be a better reversal point for a correction. We were stopped out (unloaded or covered) our short position today and are back on the sidelines of the broad stock market for now.

Trading Blog Thursday, December 14, 2017

12/14/2017

COMMENT ON ECB MEETING and BROAD STOCK MARKET UPDATE (5:00 pm EST)

A minority of hawkish European Central Bank policymakers at today's ECB meeting objected to the bank's current easy-money policy, but they were outnumbered by those who voted to continue QE (quantitative easing) bond buying at least into September 2018 and to keep interest rates rock-bottom well beyond that. This dovish decision from the ECB pushed the euro down and boosted the U.S. dollar a bit. We will have to wait and see if this is just a short-term knee-jerk reaction to the news. If the dollar starts rallying again, it could force gold and silver prices lower. Still on the sidelines of precious metals.

More "easy money" for Europe's sagging economy did not inspire much buying on Wall Street. All three indices (DOW, S&P 500, and NASDAQ) fell steeply today, and although the NASDAQ attempted a weak rally early in the day, it was still not able to break above its 6,914 high from Nov. 28. Thus our intermarket bearish divergence signal is still valid. Does this mean that this market has topped out and is now rolling over for a correction down to the medium-term cycle bottom? It could very well be doing that as we move into the last two weeks of December which has two reversal zones for the broad stock market (a weak one next week and a stronger one the following week). This would be a good time to see a final cycle bottom. Let's continue to hold our short position here.

Trading Blog Wednesday, December 13, 2017

12/13/2017

BRIEF COMMENT ON THIS WEEK'S FEDERAL RESERVE MEETING (5:30 pm EST)

After today's FOMC meeting, the Fed announced an interest rate hike of 0.25% (the rate will go from 1.25% to 1.50%) which was mostly expected by analysts. The FOMC's statement also seemed to indicate that the Fed will be "staying the course" of gradual rate hikes in 2018 (three are expected next year). The DOW rallied a bit before the FOMC announcement at 2:00 pm EST but closed the day significantly off its high. The NASDAQ also rallied intraday but lost most of its gain at closing. Significantly, the NASDAQ was still not able to make a new weekly high (above 6,915) so our bearish divergence signal is still in place. Its hard to say if markets will push higher tomorrow as the Fed's statement was not excessively dovish or hawkish. Janet Yellen's final speech (she will step down as Fed Chairwoman early next year) was also tempered although she did express a general optimism about the U.S. economy. Tomorrow's ECB meeting could also affect equity markets as some analysts think Mario Draghi could deliver a "hawkish surprise" to European markets by pulling back on QE (quantitative easing) policy. All of these factors could make markets volatile for the rest of this week, but we will stick to our cycle analysis and the idea of a top in this market soon. We are also ready to cover our short position in the broad stock market should the NASDAQ exceed its 6,915 high. Still holding my short position here.

Trading Blog Tuesday, December 12, 2017

12/12/2017

BRIEF MARKETS UPDATE (4:30 pm EST)

The DOW and S&P 500 made new highs today, but the NASDAQ did not so we now have an intermarket bearish divergence signal. This will be negated if the NASDAQ makes a new high (which would trigger our stop loss on our short position), but right now it looks like the markets could be rolling over as all three indices closed significantly down from the day's highs. Holding my short position in the broad stock market.

Gold and silver both made new weekly lows today so we will not have an intermarket bullish divergence signal this week in this market. Nevertheless, prices are approaching our target lows ($1,220 for gold and $15.50 for silver) so we should still be watching for signs of a bottom and reversal. The U.S. Dollar Index is pushing higher today and seems to be gaining some momentum. This could push gold and silver prices lower so we will keep a close eye on the dollar. Still on the sidelines of gold and silver.

Crude oil prices dropped sharply today which is supporting the idea that we may see a "normal" cycle bottom below $55 over the next week or two (see yesterday's blog). On the sidelines of crude.

Trading Blog Monday (night), December 11, 2017

12/11/2017

MARKETS UPDATE (10:00 pm EST)

All three broad stock market indices (DOW, S&P 500, NASDAQ) rallied today and approached their recent highs from earlier this month (DOW and S&P 500 from Dec. 4) and late last month (NASDAQ from Nov. 28). We are also now back up to our entry point for the short position we entered in this market on Dec. 4. The corrective decline from last Monday through Thursday was too short and small to be the end of the current medium-term cycle in the DOW and S&P 500 (but maybe not the NASDAQ) so we are still watching for a deeper correction to a final cycle bottom which is due any time over the next six weeks. We will need to watch these indices carefully over the next few days. If all three indices make new all-time highs (i.e. DOW above 24,534, S&P 500 above 2,666, and the NASDAQ above 6,915), then we will cover (unload) our short position and wait out a possible "Santa Claus" rally into the last week of December when we will likely sell short again. We are very close to these highs now so if this happens our loss will be minimal. On the other hand, if just two of these indices (or one) make new highs (not all three) then we will have another intermarket bearish divergence signal and a good chance for this market to continue down into a final medium-term cycle bottom near the Christmas and New Year's holidays. That bearish signal would be especially strong if it happens in the second half of this week or next week. Holding my short position in the broad stock market for now.

Gold and silver prices fell today, but both metals remain above their lows from last Thursday ($1244 in gold and $15.65 in silver). These metals are clearly falling to the final bottoms of their older medium-term cycles (i.e. they did not start new cycles on Oct. 6 as we had previously speculated). The final bottoms to these cycles are now due (in the case of silver, the bottom is overdue) so we should be watching for a low to buy any time now. That low may have been last week, but right now it looks like prices could fall lower (directional momentum in both gold and silver is 100% bearish). The second half of this week could be a pivot point for these metals. If gold or silver (not both) makes a new weekly low this week then we will have a bullish divergence signal and probably a good spot to buy. A good target price for a bottom in gold would be around $1220 and for silver around $15.50. Out of both gold and silver for now, but waiting to buy the bottom of the current medium-term cycle which is due (overdue).

Crude oil's medium-term cycle bottom is also overdue now. Last week's low at $55.82 (Jan. contract chart) on Thursday was barely within a reversal zone for crude and was not really low enough for a normal correction, but since we are late in this cycle it is possible that was it. If that was the end of the cycle (and the start of a new one) then crude could be bullish now and easily exceed its Nov. 27 high of $58.99. I am not convinced that last week's low was the cycle bottom, however, and it's still possible for crude to turn down and move towards a more "normal" corrective bottom below $55, perhaps into the next reversal zone in the last two weeks of December. Let's stay on the sidelines of crude for now until the cycle becomes more clear.

Trading Blog Thursday, December 7, 2017

12/7/2017

GOLD TRADE ALERT and BROAD STOCK MARKET UPDATE (2:00 pm EST)

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

"Traders who are alarmed by the bearish factors just mentioned may wish to sell their gold long positions now with little loss, but I am going to maintain my long position in gold with an automatic stop loss to be triggered on a move below $1255."

Well, gold prices plunged today and broke below $1255 in early morning trading so any traders who didn't sell their long positions yesterday should be stopped out of their longs now. This is tuning out to be a very difficult market to trade. We are right at the end of the current reversal zone for precious metals (technically, it ended yesterday) so it's still possible for both metals to bottom and turn up from here; however, both gold and silver have now broken below their Oct. 6 lows which negates our intermarket bullish divergence signal. If gold moves lower now, prices could easily continue dropping to a final cycle bottom near $1200 around the last week of December (the next reversal zone for precious metals). The middle of next week could also be a major turning point for gold so we will watch that as well. Silver prices are fast approaching a strong support area around $15.50. If that support holds, it could turn out to be the final cycle bottom for silver. We will have to wait and see. Out of both gold and silver for now.

The ever-buoyant broad stock market is rallying again today. Will holiday cheer and "irrational exuberance" bring us a Santa Claus rally after all? It is possible, but at the time of this writing (around 2:00 pm EST) all three market indices (DOW, S&P 500 and NASDAQ) have yet to make new highs. The next reversal zone for equities comes in the last two weeks of this month, and because a corrective bottom in the medium-term cycle of this market is due soon, we could easily see Santa give Wall Street a lump of coal and watch these indices fall into a final bottom at that time. The alternative scenario would be a jovial Santa Claus rally into the end of the month and then a steep correction to the final cycle bottom (perhaps starting after the New Year holiday). If this latter scenario plays out, we will definitely want to short sell the top of that Christmas rally. For now, however, I am going to hold my short position in the broad stock market until I see stronger signs of a new rally starting.

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