Blog Archives

Trading Blog Friday (night), December 29, 2023

12/29/2023

UPDATES on the BROAD STOCK MARKET, GOLD, SILVER, and the U.S. DOLLAR INDEX (10:00 pm EST)

The broad stock market gave us a vigorous "Santa Claus" rally this year. This rally has propelled all three of our stock market indices (DOW, S&P 500, NASDAQ) vigorously up from the start of their current medium-term cycles (their lows on Oct. 26-27) to new yearly highs in the S&P 500 and NASDAQ and a new all-time high in the DOW (37,779 - just yesterday). All three indices were down slightly today - the last trading day of the year - perhaps foreshadowing a down-turn next week.

We note that a strong bearish divergence signal continues in this market with the DOW being the only index exceeding it's all-time high from Jan. 2022. The S&P 500 is close - almost touching its all-time high from Jan. 2022 (4,819), but the NASDAQ has to climb a bit more to reach its Nov. 2021 all-time high of 16,212. This means a correction down could be imminent, especially as we are inside a minor general reversal zone through next Thursday. We also note that all three indices have been rising continuously from their Oct. 27 medium-term cycle starting points with no significant corrections along the way. A sharp sub-cycle correction is now overdue, and the mid-point of the cycle (where we are now) is the ideal place for one to happen.

We now wait for a corrective dip that could give us a good spot to buy for more rallying into the new year. Because we are near the medium-term cycle center, a corrective drop now could be quite sharp, but as long as it stays above the October lows, it should be a good buying opportunity because the cycle's trend is bullish until it breaks below those lows (32,327, 4104, and 12,544 in the DOW, S&P 500 and NASDAQ, respectively). A correction now will certainly break below the 15-day moving average, and maybe even below the 45-day moving average. Let's wait for it as we remain on the sidelines of this market.

After a new weekly high yesterday, gold is down a bit today. Silver did not make a new weekly high this week so we have a bearish divergence signal between the two metals. Silver looks a little more bearish at the moment as it tests the 15-day and 45-day moving averages, with gold still above those averages. A rollover in prices may be starting, but gold still has time to make another leap up and challenge that all-time high it made 4 weeks ago ($2123) before falling to the final corrective bottom of the current medium-term cycle (due sometime between mid-January and late February. We will likely remain on the sidelines of both metals until they form their current medium-term cycle bottoms. We are now on the sidelines of both gold and silver.

The U.S. Dollar Index made an isolated low yesterday and is bouncing off of support near 101. We enter a reversal zone specifically for currencies next week (Jan. 1 - 9). If the dollar drops lower into that time frame, it could set the stage for a strong rally back up. But if instead the greenback rises into the reversal zone, we could see an even deeper plunge. Whichever way it goes, the precious metals will likely move in the opposite direction.

Trading Blog Thursday, December 28, 2023

12/28/2023

IMPORTANT UPDATE ON CRUDE OIL (9:30 pm EST)

In Tuesday's blog on crude oil, I was happy to see a strong surge in prices as I wrote:

"...prices shot up to $76.16 today to test the 45-day moving average. We went long in crude on Dec. 14 with the idea that the low on Dec. 13 ($67.98) was the start of a new medium-term cycle (and possibly the start of a new 4-year cycle from the low of $65.24 on May 4). It's been "so far, so good" for this trade, but we still have to see prices close above the 45-day moving average to confirm the new cycle. Today was the first test. Let's see if it can break higher this week."

Well, so far prices have remained below that 45-day moving average, and with today's sharp price drop they are also now back below the 15-day moving average. We recognize that crude oil prices can be especially volatile during times of geopolitical instability - especially in the Middle East - so sharp price swings can be expected. This is why we use cycle studies and technical analysis as our main guidance for trading decisions. Geopolitical events can certainly influence markets, but those influences usually still remain within the broader parameters defined by cycles and technical studies.

With this in mind, there is still good reason to view that Dec. 13 low of $67.98 as the start of a new medium-term cycle in crude. This is because it happened inside two strong reversal zones, one specifically for crude, and another very strong general reversal zone for all markets, and the timing was right for the end of the cycle. It's possible this market could be forming a "double-bottom" to that $67.98 low near the center of our current weak reversal zone ((Dec. 26 - Jan. 4 with several "pivot points" along the way, i.e. next Monday, Tuesday, and especially next Wednesday.-Thursday). If that's the case, we expect prices to stay above or very close to $68. If they start to fall and close below $67.98, we may have to revise our cycle labeling.

Today's prices closed at a "break-even" point in our long trade (which we entered on Dec. 14). Risk adverse traders can set a stop loss for this trade on a close below $70. More risk tolerant traders could lower that to a close below $67.98. We are holding our long position in crude oil for now with these stop loss parameters.

Trading Blog Tuesday, December 26, 2023

12/26/2023

MARKETS UPDATE (6:00 pm EST)

It's starting to look like last Wednesday's drop in equity markets from a new high was just a one day corrective dip as the DOW, S&P 500, and NASDAQ continue to rally up from that low. The isolated high on Wednesday was inside a strong reversal zone and also near a strong "pivot point" for stocks, but it seems like this bullish market and the strength of our "Santa Claus" rally could override those reversal points. In bullish markets, medium-term cycles sometimes rise unchecked into the center of the cycle, and that could be happening here. If this rally continues into New Year's Day, that would be the 10th week of the current medium-term cycles in all three indices, which is near the cycle center. In that situation, a top and sharp correction down should follow.

This week we enter a weak reversal zone Dec. 26 - Jan.4, and next Monday, Tuesday, and especially Wednesday and Thursday, we have strong potential "pivot points" for this market. A top and correction down could happen any time within these windows (i.e. from today through next Thursday). We will continue to watch for a significant correction as a possible spot to buy. For now, we remain on the sidelines of the broad stock market.

Gold and silver both made significant sub-cycle lows on Dec. 13, and prices have been rising from there. It is still not clear if gold and/or silver are going to exceed their Dec. 4 highs ($2123 in gold and $25.79 in silver). Right now, prices seem reluctant to rally and could be rolling over. Today through Wednesday is a potential "pivot point" for both metals which supports the idea of a down turn now. But the trend in both metals is leaning towards bullish, and there is plenty of time for both of them to challenge or exceed those Dec. 4 highs. As I've said in past blogs, we won't chase this rally (if it happens), but will instead wait for the final bottoms to the current medium-term cycles (due around mid-January. through February) for a potential buy spot. There is a possibility of an especially sharp reversal in gold anytime now that could take prices back down to the $1900 area ($1860 - $1920). If that happens, we will be looking to buy. For now, we are on the sidelines of both metals.

The US. Dollar Index broke below support at 102, but it may find some more support at 101, and after that, a potentially strong support line at 100. These corrections may be pushing precious metal prices upwards, but if the greenback snaps back up from one of these support lines, it could push gold and silver prices lower.

We got a late "Christmas present" today with a strong rally in crude oil prices. After a two day corrective dip last week (getting down to $72.44 - Feb. contract chart on Thursday), prices shot up to $76.16 today to test the 45-day moving average. We went long in crude on Dec. 14 with the idea that the low on Dec. 13 ($67.98) was the start of a new medium-term cycle (and possibly the start of a new 4-year cycle). It's been "so far, so good" for this trade, but we still have to see prices close above the 45-day moving average to confirm the new cycle. Today was the first test. Let's see if it can break higher this week. We are holding our long position in crude oil.

Trading Blog Sunday, December 24, 2023

12/24/2023

WISHING A
MERRY CHRISTMAS
TO ALL READERS OF THE BLOG!

Trading Blog Thursday (night), December 21, 2023

12/21/2023

MARKETS UPDATE (9:30 pm EST)

The broad stock market took a "breather" from its "Santa Claus" rally yesterday with a steep corrective dip off new weekly highs in all three of our indices (DOW, S&P 500, NASDAQ). Because we are technically out of our strong general reversal zone tomorrow, yesterday's highs may have been a significant top, and we might see more down-sliding into next week. On the other hand, the market seems to be recovering today as we move towards this holiday week-end, so we could see a rally continue into tomorrow or even into early next week. But can it push higher through next week into New Year's Day? Maybe, but a significant sub-cycle correction is now due (overdue), and we have a strong intermarket bearish divergence signal as long as the S&P 500 and/or NASDAQ remain below their all-time highs (see previous blog). A significant correction down to at least the 15-day moving averages of our three indices could happen any day now (if it didn't start already from yesterday's highs), and this might give us a deeper "dip" into next week. We are still looking to go long, ideally around 35,500 - 36,000 in the DOW. We are staying on the sidelines of this market for now.

Gold and silver prices seem to be stabilizing just above their 15-day moving averages, but are they getting ready to roll over or are they forming a baseline for another rally? Silver is making new weekly highs while gold hasn't yet exceeded its high from last week (bearish divergence), and this is the last day of a reversal zone specifically for these metals. A correction down could be imminent. If we don't get one now, prices could push higher into next week. As I stated in Monday's blog, we don't want to chase any rallies in these metals right now, but we may be interested in going long if they make significant corrective lows. Let's stay on the sidelines of both metals for now.

The U.S. Dollar Index is testing support around 102 today. If that breaks, the dollar could push lower, and that could trigger at least a temporary rally in the precious metals. We will continue to monitor this.

Crude oil prices are now testing a strong resistance line at $75 (February contract chart). They backed down a bit today but remained above the 15-day moving average (now around $72 and falling). We are holding a long position here and will not get concerned as long as the price remains above that average. For now, we are staying long in crude oil.

Trading Blog Tuesday (late night), December 19, 2023

12/19/2023

BROAD STOCK MARKET and CRUDE OIL UPDATES (11:00 pm EST)

This year's "Santa Claus" rally continues to push higher as all three of our stock market indices (DOW, S&P 500, and NASDAQ) made new weekly highs today. We note, however, that while the DOW is making new all-time highs, the S&P 500 and NASDAQ are still below their all-time highs (4819 from Jan. 2022 in the S&P 500, and 16,212 in the NASDAQ from Nov. 2021). This gives us a strong intermarket bearish divergence signal until these latter two indices break those highs. (The S&P 500 is close, but the NASDAQ has a little more distance to climb.) This strong bearish divergence and the fact that these highs are happening inside our strong general reversal zone (Dec.12 - 21) suggests that a turn-down could be imminent.

Yet it is the "holiday season" and the Federal Reserve has recently given equity markets the gift of dovish rhetoric which might sustain a rally at least into New Year's Day (i.e. two more weeks). A more plausible scenario, though, could be a short-term corrective "dip" around now that would relieve the pressure of an overbought market and then set the stage for more rallying into January. There is a very weak reversal point coming up next week which theoretically could correspond to a corrective low (if we get one). Ideally, we would like to see a corrective drop to a sub-cycle low around 35,500 in the DOW, but the correction may not get that far and only test the 15-day moving average (now around 36,500 and rising).

We'll have to wait and see how this plays out over the next week or two. A significant "dip" may give us an opportunity to buy, That may come before New Year's Day. But if the rally continues into the first week of January, we may have to wait a bit longer for a significant corrective drop. We remain on the sidelines for now.

Last Wednesday (Dec. 13), crude oil seemed to make a significant bottom on the last day of our reversal zone specifically for crude and on the second day of a new strong general reversal zone. We entered a long position in crude on Thursday, and prices have been moving up from there. So far, it looks like a good trade, especially since prices have broken and closed above the 15-day moving average (now around $72 and falling), but we can't be certain a new medium-term cycle has started (from that Dec. 13 low at $67.71 - Jan. contract price) until prices at least close above the 45-day moving average ($77.25 and falling) and even better, above $80. There's a chance that last week's low was also the final bottom of a longer-term 4-year cycle. If that's the case, crude prices could be very bullish now and ready to rally strongly. Let's hold our long position for now with a stop loss based on a close below $69 or $67, depending on your risk tolerance (we bought near $71).

Trading Blog Monday, December 18, 2023

12/18/2023

UPDATES on GOLD, SILVER and the U.S. DOLLAR INDEX (6:00 pm EST)

Gold and silver are a bit tricky to trade right now. Gold broke dramatically to a new all-time high ($2123) two weeks ago, and this confirmed the idea that gold began a new longer-term (at least 8-year) cycle with its low of $1616 on Sept. 28, 2022. Because this long-term cycle is young, gold prices should now be bullish into late 2024 and could eventually get into the $2500 - $2900 range.

For now, however. we will focus on the current medium-term cycle in gold (which began on Oct. 6) as we note that prices corrected back down from that Dec. 4 all-time high of $2123 and made a low last Wednesday at $1974. Prices snapped back up from that low on Thursday, but they seem to have faltered a bit Friday and today. Last Wednesday's low could be a significant sub-cycle bottom (it happened early inside two reversal zones). If so, we could see prices rally to challenge the Dec. 4 all-time high ($2123). If that happens, we will stay on the sidelines and wait for the current medium-term cycle to peak (possibly between $2100 - $2150) and then look to buy when the cycle makes its final bottom (due around mid-Jan. through Feb.). If instead of rallying, gold prices fall now and stabilize close to $1900. we would consider going long, especially if that low happens this week or early next week. The bottom line is that we want to buy any deep corrections in gold that approach $1900 or even fall a little below (say to $1860 - but not below $1812).

Silver's current medium-term cycle is similar to gold's. It began on Oct. 3, and it may have made a significant sub-cycle low ($22.52) last week, but we wanted to see that low closer to $22 or even a bit below before buying. It may drop lower this week, and if it does, we will consider going long for a rally back up to $25 - $26. After that rally, silver will likely take a deep correction down, at least to the $21 level and at least into the middle of next year. As long as prices stay above $14.50, we could see another rally from this deep bottom back up to challenge the $30 high from 2021 (but that would happen late next year, and I am getting way ahead of myself here).

For now, let's remain on the sidelines of both gold and silver.

Today is the last day of a reversal zone specifically for currencies, and the U.S. Dollar Index may be finding a support line around 102. If the greenback can stage a rally from here, it could put downward pressure on the precious metals. If this index breaks lower, however, it could help push these metals higher. We will watch this over the next few days.

Trading Blog Wednesday (night), December 13, 2023

12/13/2023

CRUDE OIL TRADE ALERT, MARKETS UPDATE, and COMMENT ON THE FED MEETING (9:00 pm EST)

As expected, the Federal Reserve concluded its monthly meeting on Wednesday with no change to its key interest rate. Chairman Jerome Powell said in his press conference after the meeting that Fed officials are likely done raising interest rates because inflation has cooled substantially. To quote Mr. Powell: "Inflation keeps coming down, the labor market keeps getting back into balance and, it’s so far, so good." (Note that "so far, so good" suggests that any change for the worst in inflation and the labor market could bring back more rate hikes. Just saying.) Furthermore, Fed officials signaled today that they expect to make 3 (three) quarter-point cuts next year, although it's still not clear when they will start. Many investors are hoping to see cuts as early as March, but most economists are expecting the first cuts to be later - probably around June.

The broad stock market enthusiastically cheered this dovish rhetoric from the Fed as a flat market shot straight up after the Fed's statement was released at 2 PM and continued to rise steeply during Powell's press conference. So it looks like the "Santa Claus" rally may be "full speed ahead" for the final stretch into New Year's day. Well, maybe. But we need to consider several other things here.

This market has been rising steeply for six weeks without a significant correction, so it is entitled to a "breather", and the timing is right (and ripe) for a sub-cycle correction in the current medium-term cycle. Furthermore, we are now inside a strong general reversal zone (Dec.12 - 21). And lastly, the DOW soared to a new ALL-TIME high today while both the S&P 500 and NASDAQ remain below their all-time highs (the S&P 500 is close, but the NASDAQ is well below its Nov. 2021 high). This gives us a strong intermarket bearish divergence signal (inside a strong reversal zone in an overripe and "toppy" market). Hence the strong case for an imminent reversal and correction. On the other hand, it's the "Santa Clause" season (bullish), the Fed just gave this market a strong signal to rally, and as we have seen in the past, "reversal" zones pointing down can sometimes correspond to upside "break-outs" instead of reversals (not common, but it can happen, especially in strong bullish markets, which we seem to be in now).

Well, it's obvious that my long-winded analysis here is pointing to one conclusion, and that is: we can't tell which direction this market is going to go right now (LOL). We can take comfort, however, from the fact that we are on the sidelines and not vulnerable to any unexpected moves. Our strategy now is still to look for a significant sub-cycle correction down to buy (as long as it doesn't go too low). Right now that could just be a 3 - 8 day corrective decline to fall between the 15-day and 45-day moving averages (that would be around 35,000 - 35,500 in the DOW). If instead this market continues to push higher past next week, we may have to wait a bit longer for a correction. We remain on the sidelines of the broad stock market for now.

A dovish Fed is usually not good for the U.S. Dollar Index, and today was no exception. The greenback dropped steeply to a new weekly low (102.78). We note, however, that we are near the center of a reversal zone specifically for currencies (Dec. 06 - 18). We got an isolated high last Thursday and Friday inside this reversal, so this corrective drop is not unexpected. But this reversal zone lasts through next Monday, and it overlaps with our strong general reversal zone Dec. 12 - 21. This means we could see an isolated bottom this week or next and a reversal back up. There is a strong support line near 102 that could become the base for another rally. If this happens, it could put downward pressure on precious metal prices.

Not surprisingly, as the U.S. dollar plummeted, gold and silver prices shot up, but not before making new weekly lows. Those lows happened in the first day of our reversal zone specifically for precious metals (Dec. 13 - 21) and the second day of our general reversal zone (Dec. 12 -21). This means today's lows could be the sub-cycle bottom we've been anticipating; however, it is very early in this reversal zone, and prices didn't quite reach our targets of at least $1950 in gold and close to $22 in silver. Let's stay on the sidelines of these metals for now.

As I mentioned in my blog on crude oil yesterday, we could be seeing the formation of the bottom of a medium-term cycle (and possibly a longer-term 4 year cycle as well) right now. Today was the last day of a reversal zone specifically for crude and the second day of our general reversal zone. Crude tested a trend line near $67 and bounced off of it to close near the top of today's range. This looks like it could be a good place to buy. We can set a close stop loss for this trade on a close below $67. I am going to put an order to go long in crude oil for tomorrow's market open.

Trading Blog Tuesday, December 12, 2023

12/12/2023

IMPORTANT UPDATE ON CRUDE OIL (6:30 pm EST)

In yesterday's blog on crude oil I wrote:

"...crude oil may have ended an old medium-term cycle (and started a new one) with its deep low of $68.80 last Thursday as that was near the center of a reversal zone specifically for crude (Dec. 5- 13). But that reversal zone continues into Wednesday, and it is also overlapping with our strong general reversal zone for all markets (Dec. 12 - 21). This means that the old medium-term cycle may not be over yet, and prices could still fall lower."

Indeed, prices broke below that $68.80 (Jan. 2024 contract chart) low today, so the medium-term cycle bottom is still forming as we near the end of the reversal zone for crude tomorrow and enter a strong general reversal zone today (Dec. 12- 21). We may be looking for a good spot to buy this week or ideally next week at a price above $65, and preferably above a downward sloping trend-line that is now around $67.

Although not likely, it's still possible the current medium-term cycle began with the Oct. 6 low of $78.93. If that's the case, the final medium-term cycle bottom would not be due for at least another 4 weeks at lower prices. For now, we will assume an older medium-term cycle bottom and possibly a 4 year cycle bottom is forming inside our current reversal zones. We are on the sidelines as we wait for an ideal spot to buy.

The longer-term picture for crude oil is still bullish (although if prices start to break below $60, we may have to change that view). The "near-zero" low in crude prices in April 2020 was the deep bottom that marked the start of several longer-term cycles in crude (36 year cycle, 18 year cycle, 9 year cycle). The smallest "long-term" cycle we now observe is a 4 year cycle (previously thought to be a 3 year cycle).

All cycles are usually bullish in their early phase. We are only three years into the new 36 year cycle, and it is also early in the 18 year and even 9 year cycle, which is why we view the long-term trend in crude as bullish. We are, however, nearing the end of the first 4 year cycle (from that April 2020 bottom), and that would explain the current fall in crude prices towards the final 4 year bottom. That bottom should be a good spot to buy as long as prices don't go too low (i.e. below $60).

If crude oil's trend remains bullish, we expect prices to rise back and exceed $90 next year.

Trading Blog Monday (late night), December 11, 2023

12/11/2023

MARKETS UPDATE and COMMENT ON THIS WEEK'S FOMC MEETING (11:00 pm EST)

We have an interesting situation coming up this week. The Federal Reserve meeting on Tuesday and Wednesday is the last FOMC meeting for this year. Investors and analysts seem to have mixed views in their perception of the Fed's current monetary policy. They are debating on whether the Fed's tone going into the new year will be dovish or more hawkish. This week we also have a situation in our market cycles where significant highs (broad stock market, U.S. Dollar Index) and significant lows (gold, silver, crude oil) are being made inside significant reversal zones (very strong general reversal zone Dec. 12 - 21, gold and silver reversal Dec. 13- 21, crude oil reversal Dec. 5 - 13, and U.S. Dollar reversal Dec. 6 - 18). What all of this suggests is that the Fed's statement at the conclusion of this week's meeting Wednesday afternoon and the subsequent press conference by Fed Chairman Jerome Powell could have a substantial impact on any or all of these markets that are ripe for a sharp downturn or upturn.

The broad stock market is perhaps the most vulnerable to Fed rhetoric right now as a steep rally has been in progress since late October without any substantial corrective dips. A sub-cycle top and correction down is due (overdue) as we enter a strong general reversal zone tomorrow (Dec. 12 -21). A significant top could be imminent inside this time frame. All three of our market indices (DOW, S&P 500, NASDAQ) made new weekly highs today, so we will not see any bearish divergence signals between them this week (although we could get that next week). This market is looking very bullish right now, and we can't rule out a "break-out" pattern instead of a reversal inside this new "reversal" zone. But the bearish factors just mentioned may rule the day and at least put a temporary damper on the current "Santa Claus" rally.

Many market analysts (and investors) expect the Fed to start lowering interest rates as early as March next year (in fact, this belief may be driving the current rally in equities), but other analysts are less optimistic and feel economic and inflation data will not support an interest rate cut until at least June. If the Fed's post-meeting statement and Mr. Powell's press conference statements on Wednesday support this more hawkish view (i.e. no early rate cuts), it could bust the bubble of many investor's expectations and turn the Santa Claus rally back down for at least 3-8 days (maybe more).. Even if Wednesday's rhetoric turns out to be dovish, we may still get a brief downturn based on the principle of "buy the rumor (of a dovish Fed) and sell the news (dovish Fed statements on Wednesday). We will remain on the sidelines as we watch how this plays out. Even a small corrective dip - say between 35,000 and 35,500 in the DOW - may be a good buying opportunity as this market appears very bullish right now.

Both gold and silver prices fell steeply last week and should be approaching significant sub-cycle bottoms now. We note that we are entering a reversal zone specifically for precious metals Wednesday (Dec.13 - 21) which also overlaps with our strong general reversal zone (Dec. 12 - 21). A sub-cycle bottom would ideally be inside this time frame (this week or next). A good target for gold could be between $1900 and $1950 and for silver around $22. We will consider buying if prices get to those levels later this week or early next week. For now we remain on the sidelines of both metals.

Crude oil may have ended an old medium-term cycle (and started a new one) with its deep low of $68.80 last Thursday as that was near the center of a reversal zone specifically for crude (Dec. 5- 13). But that reversal zone continues into Wednesday, and it is also overlapping with our strong general reversal zone for all markets (Dec. 12 - 21). This means that the old medium-term cycle may not be over yet, and prices could still fall lower. I will analyze this market in more detail later, but for now we will stay on the sidelines until we can confirm the bottom and start of a new cycle with more confidence.

<<Previous

Archives

LEGAL and DISCLAIMER