MARKETS UPDATE (2:30 pm EDST)
This is turning out to be a very difficult week in market analysis. We are seeing a lot of indecisiveness and mixed technical signals. Furthermore, we now have several overlapping reversal zones which can potentially give us multiple reversals in a short period of time (i.e high volatility). On the positive side, we are very close to major turning points in the cycles of several markets so any indecisive trends should be resolved soon.
Earlier this week, news of new trade talks with China from the Trump administration triggered a healthy rally in equities, but as I write this the broad stock market is taking a dive after another news report that Trump still wants to impose severe tariffs on Chinese goods. In such a volatile trading environment we need to focus our attention on current cycle patterns, technical signals and timing. We are nearing the end of the current reversal zone in equities (it ends on Monday) and this market is rising. The S&P 500 and NASDAQ both made new all-time highs in August (although they are both a bit below those highs at the moment), but the DOW still has not exceeded its all-time high of 26,617 made in January this year. This is a strong bearish divergence signal (until the DOW exceeds that high) and it is happening in a reversal zone which suggests this market will turn down now for a significant correction. That is why we have a short position in the DOW. Today's announcement of new tariffs on China is supporting this position as "trade war" jitters return to Wall Street. Nevertheless, we need to be careful here. If momentum from this week's rally carries into next week and pushes equity prices higher past Monday, we could bypass a correction and see new highs into early October. In that situation we will have to cover our short position and wait to sell short again in our next reversal zone Sept. 28- Oct. 8. Although it seems like we are chasing a top (we are), it is a top worth pursuing as it is getting late in this market's medium-term cycle and the final bottom of a long-term cycle is also due soon. This means a correction from the final top should be quite substantial. I am holding my short position in the DOW for now.
Our bullish positions in gold and silver are also coming into question now as this week's rally off Tuesday's lows has not been strong and appears to be weakening today. If Tuesday's low in silver ($13.95) is breached, it's possible we could see new lows in both metals into our next reversal zone specifically for precious metals coming up next week (Sept. 18 - 27). Even if that happens, we can be fairly confident that those new lows will be the final lows of the medium-term (and possibly longer term) cycle, and we will want to be long. We still have a slight profit in our gold long position, but today silver prices are near our entry point from Tuesday. I may consider unloading my long silver position (and possibly gold too) this week-end. Stay tuned. If we do bail out (with little or no loss), we will be looking to buy again over the next two or three weeks at the final cycle bottoms. Holding my long positions in gold and silver for now.
In Monday's blog on crude oil I wrote:
"We are in the center of a reversal zone for crude so we may see a temporary low this week followed by a weak counter rally with a top that could give us another opportunity to sell short. We will watch for that."
Well, we did get a rally, but it was a strong one triggered by a report of low U.S. oil reserves and fears of hurricane Florence. Prices soared to $70.89 (Nov. contract chart) on Wednesday making a double top to the recent high of $70.98 on Sept. 4. Prices have now fallen back a bit, but the hurricane winds are still churning, and today's news stories concerning U.S. sanctions on Iran gives us two "wild card" factors influencing oil prices right now. Normally, it would make sense to sell short from this recent double top at $71, but the wild card volatility factor here allows for the possibility of another surge to new highs (and the cycle structure could also accommodate this). I will analyze this situation more over the week-end. Staying on the sidelines of crude for now.
This is turning out to be a very difficult week in market analysis. We are seeing a lot of indecisiveness and mixed technical signals. Furthermore, we now have several overlapping reversal zones which can potentially give us multiple reversals in a short period of time (i.e high volatility). On the positive side, we are very close to major turning points in the cycles of several markets so any indecisive trends should be resolved soon.
Earlier this week, news of new trade talks with China from the Trump administration triggered a healthy rally in equities, but as I write this the broad stock market is taking a dive after another news report that Trump still wants to impose severe tariffs on Chinese goods. In such a volatile trading environment we need to focus our attention on current cycle patterns, technical signals and timing. We are nearing the end of the current reversal zone in equities (it ends on Monday) and this market is rising. The S&P 500 and NASDAQ both made new all-time highs in August (although they are both a bit below those highs at the moment), but the DOW still has not exceeded its all-time high of 26,617 made in January this year. This is a strong bearish divergence signal (until the DOW exceeds that high) and it is happening in a reversal zone which suggests this market will turn down now for a significant correction. That is why we have a short position in the DOW. Today's announcement of new tariffs on China is supporting this position as "trade war" jitters return to Wall Street. Nevertheless, we need to be careful here. If momentum from this week's rally carries into next week and pushes equity prices higher past Monday, we could bypass a correction and see new highs into early October. In that situation we will have to cover our short position and wait to sell short again in our next reversal zone Sept. 28- Oct. 8. Although it seems like we are chasing a top (we are), it is a top worth pursuing as it is getting late in this market's medium-term cycle and the final bottom of a long-term cycle is also due soon. This means a correction from the final top should be quite substantial. I am holding my short position in the DOW for now.
Our bullish positions in gold and silver are also coming into question now as this week's rally off Tuesday's lows has not been strong and appears to be weakening today. If Tuesday's low in silver ($13.95) is breached, it's possible we could see new lows in both metals into our next reversal zone specifically for precious metals coming up next week (Sept. 18 - 27). Even if that happens, we can be fairly confident that those new lows will be the final lows of the medium-term (and possibly longer term) cycle, and we will want to be long. We still have a slight profit in our gold long position, but today silver prices are near our entry point from Tuesday. I may consider unloading my long silver position (and possibly gold too) this week-end. Stay tuned. If we do bail out (with little or no loss), we will be looking to buy again over the next two or three weeks at the final cycle bottoms. Holding my long positions in gold and silver for now.
In Monday's blog on crude oil I wrote:
"We are in the center of a reversal zone for crude so we may see a temporary low this week followed by a weak counter rally with a top that could give us another opportunity to sell short. We will watch for that."
Well, we did get a rally, but it was a strong one triggered by a report of low U.S. oil reserves and fears of hurricane Florence. Prices soared to $70.89 (Nov. contract chart) on Wednesday making a double top to the recent high of $70.98 on Sept. 4. Prices have now fallen back a bit, but the hurricane winds are still churning, and today's news stories concerning U.S. sanctions on Iran gives us two "wild card" factors influencing oil prices right now. Normally, it would make sense to sell short from this recent double top at $71, but the wild card volatility factor here allows for the possibility of another surge to new highs (and the cycle structure could also accommodate this). I will analyze this situation more over the week-end. Staying on the sidelines of crude for now.
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