MARKETS UPDATE and CRUDE OIL TRADE ALERT (2:30 pm EST)
The broad stock market shot out of the gates yesterday with a strong rally, but today it seems to have lost its bullish enthusiasm. We are now out of last week's reversal zone so if equities edge back down below last Friday's lows (23,360 in the DOW and 2,532 in the S&P 500) we will likely see more selling off for a final cycle bottom in our next reversal zone (Feb. 26 - March 6)and and a good spot to buy. The alternative view is that last Friday's lows were the final cycle bottoms and that we are now starting a new medium-term cycle in both indices. As I mentioned in Sunday's blog, we will need to see the DOW closing above 25,200 and 25,500 to confirm a new cycle has started. Still on the sidelines of the broad stock market.
So far it appears our timing was good for our gold and silver purchases last Thursday. Both metals have rallied from there, and it looks like last week's lows were significant sub-cycle bottoms ($1307 in gold and $16.20 in silver). One concern I have is that there could be some high volatility in precious metal prices this week. If prices turn south we won't worry too much unless both gold and silver break below last week's lows. In fact, we can now base our stop loss for these long positions on that happening. The next reversal zone for the precious metals is Feb. 27 - March 8. We're hoping that will be a high and a place to take profits, but if we're stopped out of our longs, it may turn out to be another place to buy. Holding my long position in gold and silver.
As we expected, the U.S. Dollar Index has turned down from a strong resistance band at 90 - 91. As I've stated in recent blogs, the overall picture of the U.S. dollar chart looks quite grim with directional momentum being almost 100% bearish at the moment. As I wrote on Jan. 26:
"One can observe on a long-term chart of the U.S. Dollar Index that after breaking below 90, there is some weak support at 88 and then 86. If 86 is breached, there is really no support all the way down to 80 where there is again a major support line. Could the dollar fall close to 80? Yes, it could. We are now in the middle of a longer-term 5.5 year cycle in the dollar that is due to bottom sometime in 2020 (possibly 2019), and the projected target for that bottom is around 81 - 82."
The greenback might be able to avoid (or at least postpone) a breakdown by breaking and closing above 91. While this is possible, it doesn't seem likely at the moment. The recent dive in the broad stock market has likely made the Federal Reserve much less enthusiastic about raising interest rates. There are even analysts suggesting that should equity markets tank further, the Fed could lower rates and perhaps even bring in another round of QE (quantitative easing) or something similar. Of course, this is all speculation, but none of these things are good for the value of the U.S. dollar. For us, the upside to the dollar breaking down is the boost it will give to gold and silver prices. For now, the dollar's weakness is helping our long position in the precious metals.
Last Thursday I attempted to enter a long position in crude oil but then got "cold feet" and withdrew the position after looking over some charts with short-term bearish signals. That turned out to be a good decision as prices dropped steeply the next day. Now, however, crude seems to stabilizing just above Friday's low of $58 (March contract chart). This is at the lower end of a price target range ($57.44 - $61.78) for a currently due sub-cycle correction. Friday's $58 low was in a reversal zone for crude that ended yesterday so that could easily be the sub-cycle bottom. What we can do here is enter a long position in crude with a very close stop loss on a break below $58. Because the current price is about $59, our loss would be very minimal if we are stopped out. Going long in crude today with a stop loss on a break below $58.
The broad stock market shot out of the gates yesterday with a strong rally, but today it seems to have lost its bullish enthusiasm. We are now out of last week's reversal zone so if equities edge back down below last Friday's lows (23,360 in the DOW and 2,532 in the S&P 500) we will likely see more selling off for a final cycle bottom in our next reversal zone (Feb. 26 - March 6)and and a good spot to buy. The alternative view is that last Friday's lows were the final cycle bottoms and that we are now starting a new medium-term cycle in both indices. As I mentioned in Sunday's blog, we will need to see the DOW closing above 25,200 and 25,500 to confirm a new cycle has started. Still on the sidelines of the broad stock market.
So far it appears our timing was good for our gold and silver purchases last Thursday. Both metals have rallied from there, and it looks like last week's lows were significant sub-cycle bottoms ($1307 in gold and $16.20 in silver). One concern I have is that there could be some high volatility in precious metal prices this week. If prices turn south we won't worry too much unless both gold and silver break below last week's lows. In fact, we can now base our stop loss for these long positions on that happening. The next reversal zone for the precious metals is Feb. 27 - March 8. We're hoping that will be a high and a place to take profits, but if we're stopped out of our longs, it may turn out to be another place to buy. Holding my long position in gold and silver.
As we expected, the U.S. Dollar Index has turned down from a strong resistance band at 90 - 91. As I've stated in recent blogs, the overall picture of the U.S. dollar chart looks quite grim with directional momentum being almost 100% bearish at the moment. As I wrote on Jan. 26:
"One can observe on a long-term chart of the U.S. Dollar Index that after breaking below 90, there is some weak support at 88 and then 86. If 86 is breached, there is really no support all the way down to 80 where there is again a major support line. Could the dollar fall close to 80? Yes, it could. We are now in the middle of a longer-term 5.5 year cycle in the dollar that is due to bottom sometime in 2020 (possibly 2019), and the projected target for that bottom is around 81 - 82."
The greenback might be able to avoid (or at least postpone) a breakdown by breaking and closing above 91. While this is possible, it doesn't seem likely at the moment. The recent dive in the broad stock market has likely made the Federal Reserve much less enthusiastic about raising interest rates. There are even analysts suggesting that should equity markets tank further, the Fed could lower rates and perhaps even bring in another round of QE (quantitative easing) or something similar. Of course, this is all speculation, but none of these things are good for the value of the U.S. dollar. For us, the upside to the dollar breaking down is the boost it will give to gold and silver prices. For now, the dollar's weakness is helping our long position in the precious metals.
Last Thursday I attempted to enter a long position in crude oil but then got "cold feet" and withdrew the position after looking over some charts with short-term bearish signals. That turned out to be a good decision as prices dropped steeply the next day. Now, however, crude seems to stabilizing just above Friday's low of $58 (March contract chart). This is at the lower end of a price target range ($57.44 - $61.78) for a currently due sub-cycle correction. Friday's $58 low was in a reversal zone for crude that ended yesterday so that could easily be the sub-cycle bottom. What we can do here is enter a long position in crude with a very close stop loss on a break below $58. Because the current price is about $59, our loss would be very minimal if we are stopped out. Going long in crude today with a stop loss on a break below $58.
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