The wheat trade finally made it's move. The original minimal target of $5.25 was surpassed and actually reached $5.428 near the 200 dma. We could have made more if not stopped out at $5.30 due to Friday's WASDE report volatility.
But is wheat finished? I think wheat is finished for now. Wheat has extreme overbought RSI readings and it is against some major resistance. It is time for wheat to re-set.
If the 3 day RSI becomes oversold, we will begin looking for a swing low to re-enter. This would be at the bottom of a B wave which could actually be the right shoulder of a Head and Shoulders pattern maybe in the $5.20 area. This would be another nice spot for a wheat trade.
We are getting questions now about wheat. We are establishing stops on the wheat now at $5.00. After extreme oversold conditions such as what we just had, rallies run an average of 26 days producing 60 cents and a 19.71% average return.
As I am writing this, wheat is on day 7 off the low, has gone up 40 cents and is up 8.34%.
I understand most of you are breathing a sigh of relief today, especially after we turned the stops off last week. I suggest for now we put on some loose stops, say at $5.05. There is a WASDE (World Agricultural Supply Demand Estimate) report coming out Friday that will probably create volatility. We can tighten the stops up more Friday morning. Remember, an 8.34% return is way below the lowest return the past 3 years. 40 cents is still 11 cents away from the smallest rally. 7 days would be the shortest duration for such a rally by 3 days. There is no reason why prices should not continue higher into Friday's report.
We recommend keeping the stops at 5.05 for now and will look at increasing them later tomorrow or Friday morning. Heck, we could just exit some or all the positions ahead of the report.
When I speak of cycles, I am talking about the period from bottom to bottom of stock price movements. Take a few minutes to study the chart below so that you will understand. The daily stock cycles the past year have ranged from 35 to 42 days. Friday was day 30. Unless the Fed can abort this stock cycle (which they have done) we should expect a daily cycle low in the next 2 weeks. The current intermediate cycle just completed week 13.
What happens over the next couple of weeks will have a large bearing on how well we do the next two months. Intermediate cycles last 20 to 25 weeks. The previous intermediate cycle was 33 weeks long which is a very long IC. Long cycles are generally followed by short cycles. That would mean we should anticipate the next IC could be short. Does not mean it has to but it increases the odds greatly.
So if there is a short cycle and if falls in line with a 14-15 week intermediate cycle, here is what needs to happen:
1. We need the daily cycle to left translate. This has happened. The current daily cycle has peaked on day 16. To have a right translated daily cycle, stocks needed to top at least on day 18 which is beyond the half way point of a 35 day cycle. This cycle looks to have topped already, signaling that an IC decline is underway
2. The declining phase of an intermediate cycle usually, not always has at least one failed daily cycle.
3. Given we are on day 30 of the daily cycle, these events would need to occur over the next 8-12 trading days which would be around July 8-13. That will be a scary drop but would be my preferred way for this to play out. It would end this miserable sideways market quickly and would give us an ICL to buy.
That was the scenario where a shortened intermediate cycle occurs with only two daily cycles. There is still a second option where we get 3 daily cycles in the intermediate cycle. This would mean that the intermediate cycle should bottom in about 105 to 120 days from the previous intermediate cycle low which would be late August or early September.
Under a longer intermediate cycle, we would still attempt a long trade at the DCL, but would use tighter stops and have our expectations greatly reduced than we did at the previous two DCL's. We would get an ICL in late August or early September that we would certainly buy, but who knows how well the stock market will respond into the election.
I suspended all the wheat stops this morning. There were a lot of $4.90 stops sitting there and with the market about to open this morning near $4.92, I fear there is a good possibility that there could be a big order to push wheat down to sweep the stops. This happens all the time any more. I will get the stops put back on once this passes, but unless you let me know otherwise you do NOT have a wheat stop.
Here is why I am comfortable with no stops:
1. Maybe only 5 cents from here from triggering a CCI Buy signal. I would hate to lose our position now this close to a buy signal.
2: RSI readings oversold
3 and 4. Weekly readings oversold. and price at the 200 week moving average which should be support. Price rebounds from these levels virtually every time.
I just don't see a lot of downside here but do think there is a very real risk of being knocked out at the open. You are out of your wheat stops unless you tell me otherwise.
Gold closed today at 1785, nearly breaking the R4 level and just 15 points shy of what will be some difficult resistance at 1800.
What makes the 1800 R5 resistance level so significant first of all is that it is a nice big round number. Don't laugh.....traders like to run assets to round numbers. The main thing that makes 1800 significant is that it marks significant resistance dating back to October 2011. It is the final barrier from where the price of gold is today and the all time high of $1923.
So I have a plan that I think will be the safe way to trade gold at this important juncture. I am suggesting we exit all of our metals positions once gold reaches 1799. I can place stops on the gold but I would need to be ready to manually exit silver and platinum once those gold stops get triggered.
The 1800 level will probably make it easy for the banks to defend because there will be a lot of willing sellers (like us) who will probably be stopping out once the price of gold reaches that level. I could see price drop back down to the 1750 level which will be near the 10 DMA. We could try going long at that time and ride it back up.
If I am wrong and the price of gold blows through 1800, then we could get back in and ride it the rest of the way to 1923. With our leverage, I just think this will be the prudent way to trade. Lets capture our profits and see what happens. I will be exiting ALL metals positions, not just gold.
If you do NOT like the plan please let me know. If I don't hear from you I am taking you out.
By Steve Wade
Most of the traders I am working with are doing pretty good but it is all over the board. Some have more than doubled their accounts. A few have floundered but still trying. All traders got the same advice from me. I trade 100% of everything I recommend, but I will trade things that I don’t recommend also.
So, who should get the credit for your success? Who should get the blame for the bad trades? Is it me? Who is accountable?
I have been associated with several market advisory services through the years. One thing that most market advisers have in common are enormous ego’s. They are constantly selling themselves in their advertisements to prospects, and in the communications with their clients. They need to prove over and over that they are smarter than all the other market advisers. This sets the bar very high and disappointment is sure to follow at some point because the market eventually proves everybody wrong.
Human nature, being what it is, is predictable. That is what makes cycle trading possible. Humans are not so different today than we were 5000 years ago in terms of how our emotions work. Humans are good at taking credit, not only for their own good works but sometimes for the works of others. Likewise, we are also good at avoiding responsibility for mistakes. It is why we have terms like “scapegoats” or “throwing somebody under the bus.”
Having a market adviser is like buying a put. If the client does well, he/she can brag to their spouse or their friends about how smart they are for how much money they are making. The gains in that regard are only limited by how large the client’s ego is which is probably unlimited. If the client does poorly however, he/she can throw all the blame onto the market adviser. “That stupid such and such….” I mean, how else are you going to tell your spouse that you lost a lot of money?
Some day I will get the nerve to talk about my greatest trading loss ever. I followed advice from a trading “guru” and it was horrible advice. My trading loss was enormous and scary. It was far and away worse than any bad trade loss that any of you that work with me have suffered. In fact, it was larger than all of my clients combined losses. I had to face my wife and tell her what I had done. It causes me a lot of pain today to think about that time. I am sure I blamed the adviser at first because I was angry, but as I went back and thought about why I took the trade, I realized that I did a lot of things wrong. I took a much larger position size than I should have and I did not exercise any risk management to the trade to speak of. When I look back on that time I was not trading. I was betting. The money came out of my account, not the advisor’s account, so who was ultimately accountable? Me.
I would not be in the position I am in today as a broker without a very understanding and forgiving wife, and a good friend encouraging me to do this. The lessons I learned because I accepted responsibility for my poor trade have helped me grow into this role. Accepting the responsibility has forced me to learn. Accepting the responsibility has ultimately allowed me to make money trading. The disaster has actually become one of the best things that could have happened to me.
Accepting responsibility for your bad trades will allow you to grow also. Once you accept responsibility for your bad trades, you will deserve to accept the credit for your good trades. All the credit. It should be me patting you on the back.
I said in the last post that there were likely two options for trading the metals market. The option that I preferred was to see some sort of drop that could be a sentiment clearing event. The second option was for gold to push through the 1750 area which has served as resistance for weeks. Gold closed just above the resistance area Friday.
Gold is not out of the woods yet. Gold has broken above the multi week resistance of 1750. There are many more resistance levels to pass through however before gold is out of the woods. If you are wanting to bite now, I suggest something small. No more than one position, and maybe a micro at that. Allow the position size to increase as we pass through every other resistance level.
Silver also may be breaking out as well.
Even in the stock market, the gold miners ETF GDX is showing signs of breaking out.
I am going to begin a starter position (again) this evening for myself. If you would prefer to wait to see if gold passes through R2, R3, or even R5 I can understand. You need to understand however that it gets riskier and harder to manage the risk the longer you wait. This is why I suggest at least a starter position with micro contracts.
I am still uncomfortable with stocks. Stocks usually surge out of half cycle lows if they are going to right translate. Stocks look weak out of this HCL to me.
Not all the indexes look this ominous. The Nikkei actually looks good but this is really how I would prefer to see the S&P. I think the S&P is a better barometer for how the general stock market is doing.
So for now, I am going to be sitting on the sidelines as far as the stock market goes. Not that I don't appreciate your trading, but with the leverage we are using we really need to be right. The next DCL is just a couple weeks away. I think we need to wait for the DCL before we try a stock index trade.
Gary Savage from the Smart Money Tracker just posted a video explaining cycle translations and how he uses this to set an expectation for stocks.
There are times in trading that you put your foot on the gas and there are times you need to coast or tap on the brakes. I am in coasting mode right now and I just don't see a lot to do.
The stock market is over bought. There is not a tremendous amount of upside left. With the leverage we use, I think it is best to trade when you have an edge, and right now I just don't see one. All I see is frustration.
The NASDAQ has just made a run of historic proportions. After a historic drop due to Covid-19, the NASDAQ is back to new all time highs just 2 months following the drop. Price is very stretched above the 200 day moving average. The last time we had prices this stretched, prices did not just drop.... they crashed.
I think this most recent drop was probably just a drop into a half cycle low. Prices could actually fill the gap that was left back in March in the next week but prices will be due for a DCL in early July. The next daily cycle would bottom sometime in September which will probably be the next Intermediate Cycle Low.
So it is my opinion that the easy money is gone from the stock market. I am content taking the risk off stocks and looking elsewhere for the time being.
Until gold figures out which way it wants to move, it will just be a losing proposition to keep trying. I would prefer to see some sort of big drop to cleanse the bullish sentiment out of the market, so it may just take a LOT of time grinding sideways to cleanse the sentiment.
As long as price is range bound, I see only two ways to trade gold (or any of the metals). 1. to buy at the bottom of the range and hold, or 2. Await a breakout above the 1750 level. If either of these happen I would say we will be good.
The reward for those who can outlast this sideways grind in the metals will be enormous. Once this large consolidation completes, we should be at the all time highs in a matter of weeks. It will be a very fast move and I still believe Silver will be the vehicle we will want to ride. Gold is just stuck in an enormous rounded bottom type of pattern. We need to have cash ready in our accounts for this move and getting continually stopped can destroy our trading capital before we finally get the chance.
Cycles analysis is not a good timing indicator for picking tops, but they are helpful in helping us determine when to step on the gas or to tap on the brakes. We managed to hold the last of the NQ positions we were in until finally getting stopped out Monday. I am not going to lie.... it hurt watching the NQ move above 10000 without us but I knew the cycles were nearing a time to move into a half cycle low. I had a few traders that gambled with adding some new positions but with very tight stops thankfully.
Where we go from here is not very clear. I was expecting this to be an HCL but could this be something far more dangerous? If a cycle peaks before the half cycle low, it left translates. Most cycles in a bull market peak towards the end of their cycle and are right translated, but it is possible that this cycle just left translated. We cannot know this for sure at the moment so we have to be cautious.
So for now, I am proceeding with caution on the stock trades. I may not recommend a stock trade at all. Cash is a position, and if this turns out that stocks are moving into an ICL already, I think we should get excited about the opportunity to ride a new daily cycle out of an ICL. That won't be for probably another 3 weeks however.
One of the biggest beneficiaries out of the demise of stocks has been bonds. I had a couple people asking me about shorting stocks which I don't do. I said that buying bonds would be the closest thing to shorting stocks I could do and that turned out to be accurate. Bonds had a huge day today as you could imagine they would after such a horrible day in the stock market, but this has also caused them to reach oversold on the 3 and 5 day RSI. Price is pushed up against the 50 DMA which is likely a resistance area. We could see a small pull back. A small one. I have raised the stops on the bonds to 176.
That said, you don't just exit a winning trade 5 days into what I believe is a new intermediate cycle. The easy money may be gone but there are a lot of reasons to hang onto the bonds for now. For one, the Commodity Channel Index gave a rare buy signal just 3 days ago.
The weekly chart has yet to even begin turning up the stochastic indicator at all.
So for now I am satisfied holding onto a winning position that still has a lot of potential for substantial gains as we move closer to the time of year when bonds perform best. This is a better position to me than moving into cash.
I don't have much to say about metals. Here we are stuck holding through more grind. I really thought it would be different this time. I know we are feeling like there will be a big reward at the end of all this. The bounce in the dollar probably did not help stocks or the metals. Oversold CCI on the dollar usually means a trend change, so I believe we need to pay attention to this.
I mentioned Thursday I thought silver was going to break out of this massive bull flag pattern.
This is what it looks like today.
I am beginning to sense the urge from some traders to sabotage good positions we have in our stocks and metals portfolio. The fight or flea instincts in us is strong. So is recency bias. What makes humans different from other creatures is that we have the ability to overcome these tendencies through practice and self-discipline. Most traders don't realize they are making bad decisions at the moment, but they tend to make them over and over and over. This is why cycles work. They reflect human flaws in our trading. This is what creates patterns. My role here is to try to keep you in winning positions to maximise the potential of a cycle while you are battling your instincts.
Occasionally, these cycles become disrupted, but the disruption itself is part of a pattern that repeats. I posted this chart on Whatsapp yesterday of a disruption called the short squeeze which happens over and over and over.
The short squeeze is simply the function of a market when price begins moving against short traders. At first, the big boys decide that they have pushed price as low as they can and decide that they could take their gains and invest them elsewhere that has more profit potential. This is not like the stock market where you just exit your position. You don't sell to get out. If you are short you have to buy your way out so they buy. This triggers the next wave of buying which is stops getting triggered. Just like we do with our long trades, many short traders use protective stops and when those hit it triggers more buying. The next wave of buying happens when astute traders realize there is buying happening and they decide they want to be long, so they start buying. Then you have your trapped short traders who are being hammered by margin calls who are running out of money and they are willing to buy at any price to get out of their short trades. They felt the squeeze.
Then there is us.....the dumb money traders who sat on the sidelines when the buying was good and start thinking..." Maybe I will buy me some silver". At this point, who do you think is willing to sell this group of traders their silver? The shrewd traders who bought at the bottom. They will be more than willing to sell us all their shares at the top and we will be enthusiastic when we buy them. If we feel comfortable when we buy it is already too late.
The measuring target for the bull flag is around the $20.50 mark. This move will be very close to the 2016 high. This move is powerful enough to get there in another 4-6 weeks.
This move will NOT be a straight line. I think we could see even more volatility than we have seen. This is done by the market makers who see an easy way to steel the positions of frightened traders. I will be pushing stops above the entry price of most in our group very soon, but I will be recommending lose stops for a while. Once the stop moves above 19 I may begin tightening somewhat. If you have multiple positions I can make some positions tighter while keeping some positions looser. Exiting will be an individual decision for the most part but if we hit $20 I will have the stops very tight.
One other pattern most of us are beginning to recognize is that the bullion bankers are determined to keep the price of gold in check. WE should be expecting a hit maybe Sunday night or around 9:00 Monday morning. If/When this happens we do not need to be doing anything except sitting on our hands. It is not a change in trend. It is not an end of the rally. If you do anything at all you should be thinking of this as a dip to buy.
Have a great weekend!
The Speculation page is used for educational purposes and to talk about current trades we are in. The Pit is where we post new trade recommendations. This is also a blog page where you can ask questions, post your thoughts or ask for help. Be sure to use an anonymous name as you may not want your neighbor knowing what you are up to.