Today "phase one" of the new U.S./China trade deal was officially signed. The full text of the trade deal was released late in the afternoon. While Wall Street rallied enthusiastically early in the day, it lost it's enthusiasm in the afternoon with the NASDAQ losing nearly all of its earlier gains (the DOW lost about half of its early gains). It's very possible equity markets were not impressed with this new deal (especially the delay in lifting many tariffs on China) and/or we are seeing a "sell on the news" effect with the market having already factored in the new deal with its recent rally. For these reasons (and the fact that we are near the end - Thursday - of a strong reversal zone), I decided to enter a short position in the NASDAQ earlier today. It looks like the NASDAQ could roll over now, but if it pushes higher into Friday (past our reversal zone), we will likely have to cover this short trade as the market could be "breaking out" instead of reversing. We will watch this carefully and are prepared to be nimble in our trading.
Crude oil made a new low today at $57.36 (Feb. contract chart). A sub-cycle low in crude is due by the end of this week, and prices are now in a good range for that low. There is a good chance today's low was it, or it could push a bit lower into tomorrow (the last day of our reversal zone). It looks like a good time to go long in crude. Let's enter a long position in crude now for tomorrow's market open. We will set a temporary stop loss for this trade on a close below $56. If prices push lower tomorrow and hold that level, we will move the stop loss up to that new low. If prices rally, we will set the low at $57.36. Note that crude oil prices and the broad stock market generally (but not always) move in the same direction. Our long position in crude may therefore be a good hedge against our current short position in the broad stock market. In other words, if crude AND the NASDAQ both rally, the loss in our short NASDAQ position will be offset by the gains in crude. Of course, ideally we want to see the NASDAQ down and crude up (very possible), but should they move in tandem (up or down), they will at least hedge each other.
Gold and silver markets are very tricky right now. We've been waiting for a low to buy, but prices haven't quite made it to our target areas. Another concern is the fact that COT (Commitment of Traders) charts for both metals continue to be strongly bearish. For these reasons we will remain on the sidelines of the precious metals for now.