Although the cycle pattern in the chart for crude oil is suggesting a rally into next week's reversal zone (as I described in Monday's blog post), some recent short-term signals in this market are contradicting this view. Technical signals accompanying this week's rally are showing weakening momentum, but even more significant are COT (Commitment of Traders) charts for crude which are looking very bearish (with Commercial traders- who are rarely wrong- holding heavy short positions). This is a warning sign that a drop in price is imminent. Instead of a high, we could see a sub-cycle low into the next reversal zone (Feb. 26 - March 6). Because of these bearish signals (especially the COT charts), I am going to take profits tomorrow morning in my long crude position. We entered this position last week and so far have a profit of about 4%. Unless the price gaps down dramatically tomorrow morning, we should come out ahead on this trade. Selling my long position in crude at tomorrow's market open.
Of course, we were expecting a bigger profit with crude prices at least reaching $66.66, but all markets are quite volatile right now, and we have to be nimble traders in this environment. Crude may be taking its cue from the broad stock market which seems to be turning down this week. If crude does make another low into the next reversal zone and stays above $56, we may yet see it rally towards $70 and above before the year is over. If it can't get above that Jan. 25 high of $66.66, however, this market could be turning bearish.
In Monday's blog on the broad stock market I wrote:
"...we can't rule out these indices (NASDAQ, DOW, S&P 500) turning down again and seeing these latter two indices make their final cycle bottoms below those Feb. 9 lows in our next reversal zone (Feb. 26 - March 6). Another possibility is to see the DOW and S&P 500 make double bottoms close to those Feb. 9 lows in this upcoming reversal zone. That would be an ideal situation as this reversal zone is much stronger than the one from Feb. 9 and is better suited to a final medium-term cycle bottom. Such a double bottom would be an ideal spot to go long."
We may be seeing one of these two scenarios unfolding now as equity markets are (so far) falling this week. We will look to buy if we get a double bottom or new low in the DOW and/or S&P 500 next week or the following week (Feb. 26 - March 9). Still on the sidelines of the broad stock market.
Speaking of volatility, our gold and silver long positions are taking a hit this week, but so far are staying above our stop loss points ($1320 in gold and $16.20 in silver). This fall in precious metal prices is being driven by another surge up in the U.S. Dollar Index. The dollar, however, is now pushing against strong resistance in the 90 - 91 area so it could easily turn down again. Let's hope it does so we are not stopped out of our gold and silver longs. I realize that this is a frustrating trading environment, but I would just like to say here that gold and silver continue to look very bullish short-term and long-term so even if we are stopped out (with minimal or no loss), we should soon have another opportunity to buy again and ride up a very strong rally that has been incubating in both metals for some time. Holding my long position in both precious metals for now,