Clearly stocks have pushed above the 200 week moving average.
Gold also shows promise and has broken out of it's consolidation. I believe we could finally get that run to 1800.
Today is day 14 of the new daily, intermediate, yearly and 4 year cycle. We are now in the advancing stage and should have several weeks of upside remaining.
Clearly stocks have pushed above the 200 week moving average.
The S&P is also showing some separation from the IC trendline.
We are on day 14. The market should move higher for at least 30-35 days. By then, stocks should be at the 200 day moving average and we should lighten up positions or sell all together and wait for the next daily cycle.
Gold also shows promise and has broken out of it's consolidation. I believe we could finally get that run to 1800.
Word of caution on gold. We have extreme bullish optimism now. Unlike stocks, gold is nearing the end of it's cycle. This is why I don't see much potential beyond 1800.
I began talking about buying the softs 10 days ago. In real time, bottoms never look like bottoms. In real time..... at that moment, it just looks like it is going lower. Back in August, did cocoa look like a bottom? No, it looked a lot like cocoa looks today. Some of the traders I am working with have bought into the softs but most have not. I am still getting a lot of interest in pressing stock, metals and energy trades but virtually none for the softs. Cocoa even has a double bottom yet nobody is asking me about buying cocoa.
Sentiment readings on cocoa have reached extreme oversold levels.
Seasonally speaking, March and April are good times to own Cocoa.
Moore's recommends buying cotton in March and in April.
Cotton is another soft that shows tremendous potential. The cotton industry already has large exports on the books. It just had a swing low Monday. Like cocoa, cotton looks to me to be bottoming now. The chart is not as compelling as the cocoa chart but there are other qualities I like
Cotton sentiment is at extreme levels here at 19. This is even more extreme than cocoa. Extreme bearish sentiment levels fuel strong rallies. With so few sellers left, there is not much left in the tank for the bears.
Seasonally speaking, cotton usually has good returns in March and April.
Sugar is another soft commodity that looks to have made a double bottom. This looks sweet!
Of the three, I would prefer to see the optix on sugar a bit lower.
The bottom line here is that we don't need to chase assets that have already popped off their lows. The edge we have in this method of trading is that we can be bullish when everybody else is bearish. This is not as sexy to trade as stocks, gold or oil but this group has limited downside and a lot of upside potential. When it comes to trading, patience is what will pay in the long run.
The stock market has reached the Intermediate Cycle Trend Line that I mentioned in my last post. There are only two scenarios I can see here:
1) Price gets rejected off the trend line and we re-visit the low or
2) Price blows through the IC line and the stock market rips higher.
This is why I did not want to just take us out of position once we approached the trend line. I wanted us to be in a position to have a strong hand should price continues higher.
The NASDAQ index has already crossed back above the IC trend line this morning and closed strongly above.
Looking at the weekly chart, if price remains strong tomorrow, it will give what is called a bullish engulfing pattern. You can read more about that at Investopedia. Clearly the bulls have seized control of this market. It just shows that if you have enough trillions in money, you can make most any problem disappear. It is possible that the 200 week moving average will act as resistance here. If that happens, it will help the first scenario.
So it is beginning to look like this is going to be a V shaped recovery which is really what our country and the stock market really need. If scenario 1 is going to happen, it needs to happen tomorrow. If that does happen we will be stopped out quickly and we can re-load near the bottom. If price breaks through the IC Trend Line, we will now need to chase to begin a position or to add. Chasing from here is not really a bad scenario. Friday will only be day 4 of this new daily, weekly, yearly and 4 year cycle.
I am pretty certain at this point that the stock market has put in a daily, intermediate, yearly and 4 year cycle low this week. For trading purposes, we need to see stocks break above the intermediate cycle trend line before we have our final confirmation that a new intermediate cycle has begun. I don't think we will get this break above the IC trend line the first time. I think there is actually a 50% chance we could see stocks re-visit the lows.
I will be tightening up everybody's stops on all index positions as the S&P approaches the IC trend line near 2600. This will just be a stop in case I am wrong and we blow through to new highs, but in case price cannot penetrate the IC trend line the first time I want us to at least keep some eating out money. Of course we can't eat out, but any way.
Once price approaches the lows again we should be prepared again to re-enter our longs and maybe re-position a few things and get ready for price to finally confirm that we are in a new daily and intermediate cycle.
I know I thought we would get an opportunity to buy stocks last week. Fortunately we did not take a bite. I do think there are positive signs happening that could indicate we are going to bottom this week.
The NQ Index that we trade is actually the futures contract for the NDK which is the NASDAQ 100 index. This is slightly different than the NASDAQ index. It is just the 100 largest companies that comprise the NASDAQ. Price has reached the 200 week moving average tonight.
The S&P index gapped lower tonight. I realize this is counter to common thinking but this is a good sign that a bottom is near. It is the ultimate exhaustion in a price move. It creates what traders call Island Reversals and Abandoned Baby price formations. You can look up what that means at Investopedia.
Before taking a long position in stocks we need to see the 10 day moving average flatten out and then a close above the 10 dma.
I am not yet ready to make any metals trades or energy at the present moment, but I like most anything ag related.
I think the extreme bearish stage of this market collapse is nearly through and I wanted to share some ideas of things I am watching.
I am about ready to pull the trigger on a stock index trade. While here in the US we are yet to experience peak COVID-19 cases yet, new cases are now in decline in some of the worlds hottest spots such as China and Italy. The peak in the bond market is signaling that stocks have bottomed. I think we need to be thinking of how to enter the market with a long position of some sort, even if it is only with a micro-mini contract.
I am going to take a position in one of these indexes, but I am not expecting this move to be pretty. I think we should still expect a lot of volatility. We have just been through several weeks of extreme volatility and if that about did you in then don't feel you should take this trade. I am going to list some ideas that I think should give an easier ride a bit later.
Here are some ideas on where I would like to see the stock indexes go tonight. I may put in an offer to buy one of these at these levels. Remember there are the micro emini contracts which are 20% the size of the normal emini.
I am not ready to recommend buying any precious metals now, but I may try a Palladium contract here. I am placing an order to buy a Palladium at 1400 tonight with a stop at 1350 should it get hit risking 50 points. Each PA point is worth $100.
The move in PA since early December was just ridiculous.....almost parabolic. PA trends well but its cycles end with a thud. It tends to give a steep drop lasting only 2-3 days before resuming higher. It usually becomes oversold on the 3 and 5 day RSI.
Ohhh, did I mention the margin required for a PA contract is now $28,600? It was only around $12,000 6 months ago.
I did buy soybeans tonight. Seasonally speaking, this is not the time of year you want to be buying soybeans, but the cycles and seasonals are kind of out the window at theis point. This trade is more based on what appears to be a completion of a price pattern going back to last fall. The green and the blue box are identical in size. I think we could see beans rally 50 cents over the next few weeks. Stop at 8.20.
I like long positions in Hogs and Cattle. The target area is in the green.
I also like long positions in sugar, cotton and cocoa here. Cocoa has already given a hammer type of candle today.
Look at the updated futures specs document I sent out earlier to learn more about how these trade and what the margins are.
There is a reason why I said "this is not a recommendation" Friday on WhatsApp when I brought up the idea of buying crude oil. We have no confirmation yet in the form of a swing low. We need to be very careful here and avoid thinking "It can't get any lower". Let me say from experience.....it can always get lower.
At the posting Friday, we were getting very close to the $42.20 multi-year support level. This would ordinarily be a great time to go long, but near the close, oil dropped a little below that level essentially breaking support and closing at $41.57. This has me concerned we could see further downside.
The break is even clearer on the weekly chart. The next level of support from here is rather minor at 39.19. a drop below there could take us lower than you could envision.
The drop below $42.20 would be called an undercut low. The price dropped below previous lows which I am sure was noticed by a lot of traders. This could spook traders to sell their positions and trigger stops putting further pressure on prices. This could be a warning and we need to be very careful. This could be the beginning of a blood bath.
Cycle wise, the daily oil cycle lasts 30-50 days. Friday marked day 23. A 5-7 day blood bath would get oil to the early part of the timing band for a daily cycle low. A blood bath phase is a sentiment cleansing event and marks the end of many intermediate cycles. Once this is over, it will probably be very difficult for you to go long oil but that is the moment when you really have to buy. You normally get 7-10% returns in the first week following a blood bath and if you are not prepared to buy, you will miss the easiest money.
The intermediate oil cycle runs 25 to 33 weeks and this Friday marked the end of week 30. We should be expecting an ICL any time, perhaps this week or the next. Once we reach the next daily cycle low, we can feel pretty confident that the ICL is also in and I will be recommending long positions in energy.
There is also the yearly oil cycle we should pay attention to. Yearly oil cycles last 6 to 14 months. The last yearly cycle low was 14 months ago. Because oil fell below the $42.20 level which marked the previous yearly cycle low, we now have what is called a failed yearly cycle.
When you have a failed daily cycle, it means you are soon to have a new intermediate cycle. When you have a failed intermediate cycle, it means you are soon to have a new yearly cycle. When you get a failed yearly cycle, it means you are about to get a multi year cycle low. The multi year cycle usually lasts 34-50 months. March is month 49 and it is likely the multi year cycle low will occur this month.
Crude oil sentiment levels reached 12 at the last multi-cycle low. Sentiment levels now are still at 23 which is extreme for a normal ICL. Just as prices can always go lower, so can sentiment levels...... at least to zero anyway.
Once we get a confirmation that a bottom is in...... once we get that daily cycle low, I will recommend buying oil, but not until then. I am not recommending shorting oil either. Just hold tight and expect that we should be near a bottom in a week.
I last posted January 22. Things in the market really have not changed since then, except for the stock market of course. The nature of the market changed the night Qasem Soleimani was blown to smithereens, and ever since the market has been processing what coronavirus means. What has surprised me more than anything is that every trader in this small group of traders I manage has stuck with it. Nobody has quit. This difficult period will pass.....hopefully soon and our patience will eventually be rewarded.
So the tools I have used don't work in this environment. In the mean time, it is best that we keep our leverage down and wait. As we wait, we should keep our eyes focused on the big picture. What follows is a series of weekly charts I look at beginning with the stock market. Here is what the S&P 500 weekly chart looks like. A 10% correction only brings price down to the 3000 area. This would also be near where the 200 day moving average is today. A true regression to the mean event would bring the price back down to the 200 week moving average near 2700.
Crude oil and energy in general is one of the most oversold assets out there. Ordinarily this would be a slam dunk to buy at this level as normal seasonal activity would necessitate high energy use, but with the coronavirus over our head we could still see lower energy consumption. I read yesterday that Chinese energy demand could drop 20% due to closed manufacturing facilities. I own oil here myself, but stops need to be maintained at 49.50. A move lower could take oil back down to $42.36.
Ordinarily we would also be shorting bonds now. For a short bond trade to work, we need the stock market to continue higher. If stocks do drop we would probably see treasuries soar.
I think we should take a moment to look at some Ags. There will not be a corn chart because it is directionless at the moment. Starting with soybeans, my wife noticed are near the bottom side of the channel.
Seasonally speaking, we would normally be shorting wheat. I am a bit surprised wheat has held up this well given how weak corn and beans seem to be.
Hogs look interesting here to buy. There is still a lot of Chinese risk in the market however.
Feeder cattle are getting close to a buy. Live cattle are a bit further away though.
I bought some coffee this morning.
I have not shorted Sugar yet but it looks sweet here.
Cocoa also looks toppy here.
Are you looking for metals charts? I am not posting any metals right now as the weekly charts really do not reveal much. I think gold is trading into a triangle formation which is a continuation pattern. Once this difficult consolidation is through we will get another strong trending move. This will probably happen in conjunction with a scary drop in the stock market.
Me figuring out what to trade today.
I really do have a dart board in my office but this is not how I trade, though it may seem this way sometimes. I really put a lot of time into what I am doing. One of my joys is that my wife likes doing this as well so it gives us something to talk about. That said, you have these times as a trader when nothing is working. It was only two weeks ago we were all feeling like geniuses but that seems like it was a long time ago. (I really do have a dart board in my office)
Times like this become mentally taxing. It becomes draining. Exasperating. I began looking at the Moore's hypothetical trades for January last night and thought to myself, why not just trade every trade that Moore's suggests. Hypothetically speaking, if you took every trade Moore's suggests for January, the average profit would be around $30,285. All of Moore's trades are hypothetical of course.
So last night.......feeling frustrated that my method was not working, I thought to myself "what if I threw out all my analysis out the window and instead just took the Moore's trade recommendations...... every one of them". $30,000 a month is $360,000 a year, right? Not so fast.
The data is not available yet for 2019 as positions are still in play, but if you took all of the Moore's hypothetical seasonal trades for 2019, you would have lost over $100,000.
The best peforming group were the meats which worked 60% of the time, and the worst performing group believe it or not were the stock market indices, only working 25% of the time.
Here is a chart which reflects these combined numbers as the year went on. Moore's trades never made money last year.
There are no tools I use that work every time. If there were such a thing, everybody would be using this method and the market makers would then be sure none of the tools would work. This information Moore's provides is good to know, but it is also good to know we need to look at the bigger picture.
For example, Moore's is suggesting that we short Natural Gas in two days.....January 24. Looking at this chart, I would have to say you are crazy to buy NG now. In fact, I did recommend buying NG. We may not get rich off the trade, but you will not get rich selling NG by shorting it as Moore's data suggests. This is just common sense.
But, Moore's does recommend shorting sugar on January 26. Here, the chart matches well for a potential short that I will probably recommend.
So as frustrating as our trading has seemed this past week, you have to stick with it. Frustration and exasperation is just part of trading. It is not all euphoria. I say it all the time, and sometimes we forget, but trading is hard. Nothing easy about it.
One last thing I want to say about Moore's. I really like Moore's. I find their information invaluable, just as I find the information I get from Likes Money Cycle Trading and Sentiment Trader invaluable. Moore's does haved a good track record over the long haul. 2018 was one of their worst but most years Moore's will help our trading.
Gold looks poised to break out of the flag it has traded in the past two weeks and begin the next leg higher. There is some minor resistance dating back to September 4 that gold needs to break above, but all the other important metrics point to a daily cycle low happening on January 14. The 10 day average did turn down and today gold closed above it for the first time since January 13. We are now on the 4th day of a new daily cycle which will likely last through the end of next month.
If you had any inclinations at all to add to your positions, you should be making your plan now. Once the price moves above that resistance area, the price can get away from you very fast. This next chart goes back in time to the all time gold high ln 2011. This chart has two areas of resistance which I have labeled. The first area is where we are today. As I have stated, once gold passes through 1572, we will be off to the races. There really is no resistance until price reaches the second resistance zone at 1800.
A 200 point move at $100 per point would be worth $20,000 per contract. We are only 4 days into the second daily cycle, so there should be a lot of energy to get through the first resistance zone. If you wish to wait until we get the breakout, I understand but quickly adding to your positions will pay handsomely. Be making your plan now so it won't be an emotional decision to make.
Those that know me know that I resist publicly recommending speculative trades. I consider myself a risk manager after all. I do not place clients into situations that increase risk. This page is purely speculative in nature. Do not use farm money for this page.