Those who have been reading this blog over the last few months will know that I have been waiting for a medium-term cycle bottom in crude oil to buy. It was looking like that bottom was in at the end of a reversal zone on Jan. 17. I thus went long on the 19th with a tight stop loss close beneath my buy price. The next day crude dropped abruptly and stopped us out of our trade with a small loss but then surged back up above our original buy price over the following two days. We were caught in a classical "whipsaw" market reversal which is typical of volatile markets. In hindsight I can see that I should have set a wider stop loss for that trade in view of the high volatility in all markets now. (Of course hindsight is always 20/20.) Crude oil's bottom on Jan. 20 at $27.56 was technically one day out of our market reversal zone, but that is probably close enough. The next major reversal zone for crude is not until March, and the end of the current medium-term cycle is due. That low on Jan. 20 was probably it. Prices today backed down significantly and entered the $29 range. It looks like we may have another opportunity to go long here for a possible rally to $34 or higher. We can now set our stop loss on a close below the Jan. 20 low or around $27.50 (March contract). Because of crude's low price and high market volatility now, small moves in crude can result in large losses (or gains) so some conservative traders may wish to avoid this trade or fund it sparingly. I plan on entering a long position in crude in early trading tomorrow morning if prices remain between $28 and $30.
Stay tuned for the trade confirmation early tomorrow (Tuesday) .
We took profits in our gold long positions last Wednesday because we were getting mixed bullish and bearish signals on the short-term direction these metals were taking. That situation hasn't changed much, and it still is not clear whether or not gold wants to rally higher or pause and take a significant correction now. Directional trend in the precious metals is more bearish than bullish right now (especially in silver) so even if they rally now, that rally may not get far before turning down again (the target for gold is $1127 - $1147). It is still not clear whether or not silver has started a new cycle yet so both metals could still turn down now with silver making its cycle low in the first or second week of February. This could present us with a buying opportunity, but if these metals rally into that time frame, we will look to sell short instead. Right now the new gold cycle looks bearish which means that we could see new cycle lows ($1145 or lower) over the next two or three months. If gold starts to break above $1150 and silver above $15 then we may have to abandon that bearish view and start trading with bullish strategies.
On the sidelines of both gold and silver for now.
Wall Street's excitement last week over ECB president Mario Draghi talking up the idea of more QE stimulus for the eurozone's weak economy may be fading as the broad stock market dropped significantly today. Please refer to my last two blogs (Jan. 20, Jan. 24) for important analysis of the current situation in the broad stock market. We may look to go long this week for a short-term rally into early February. That may be as early as tomorrow if the market drops some more and can stay above 15,640 in the DOW and 1833 in the S&P 500. Still on the sidelines of the broad stock market.