If you are considering trading or trading metals I would take a cautious approach. I suspect the rally in metals could be halted for a few weeks by some resistance at the intermediate cycle trend line and the 200 day moving average which are converging now near the 1855-1860 area. This looks to be an obvious place for a contract dump to occur. The Commodity Channel Index is ready to produce a sell signal and conditions are at overbought levels.
It appears a reversal in the dollar may be underway. Stocks are beginning a downtrend after a strong rally, the S&P formed a swing high and closed below the 10 DMA today, and currencies like the euro and Aussie dollar fell today. The dollar has been hitting extreme oversold levels for a few days now, it is just a matter of time.
We got about as close as we could in the Aussie dollar to our price target at 0.783 overnight as price traded up to .78175 at about 3:35 AM ET before dropping sharply until 6:50 AM in the morning. If the dollar is reversing it is doubtful that price will make it to our original target. We suggested our brokerage clients exit today near .774, to lock in as much profit as possible.
If we are in fact having a reversal in the dollar, it will provide many opportunities as the stock market and many of these commodities cool off briefly from this strong rally seen in some markets. Overall commodities are in a bull market, so the trend will continue up, but in the meantime this dollar rally should provide opportunities to cash in on a few shorts and buy in to other commodities at a lower price before the bull market continues. Depending on price action in the dollar we should have many opportunities in the next few weeks.
It could still be weeks before we recommend a gold or silver trade, but the precious metals are beginning to look interesting. Since last summer's high, gold has been in a brutal downward trend which has formed the handle of what appears to be a massive cup and handle pattern. It could also be considered a massive bull flag. Either way, we could be near the low.
Near term, gold has reached a resistance level near the 50 day moving average right as the 5 day RSI is reaching overbought levels. This is not the ideal setup for a trade you want to be buying into now, which is why we are not recommending buying in yet. We are also on day 22 of the daily cycle for gold which means it is about time for a DCL. Once the next DCL is complete that will be the ideal time for entry.
Silver, gold, and other hard assets stand to benefit from the broader rise in inflationary pressures likely to accompany Washington's spending spree. It's all being facilitated by debt issuance and the Federal Reserve's printing press, which it uses to buy the government bonds that no one else will. Given the extreme nature of the inflationary policies now being pursued in Washington, we still believe you shouldn't expect the 2020 highs in gold and silver to be any kind of ceiling.
I know many of you are wondering why we haven't been trading the past few weeks and I have explained to a few of you why but I figure it would be easier to explain on the website. To put it simply, the markets have been too volatile to catch a trending move in either direction.
Stocks - Where to begin, you will seldom catch us recommending to short the stock market indexes. Look at a stock chart going back 20 years and you will notice that it always goes up. To make it easier I posted a weekly chart of the S&P for the past 20 years below. Stocks have volatile events here and there but the cycles always resume and they continue higher It is much easier and less stressful to trade within the prevailing trend than against it. With all the talk about treasury yields and the threat of increasing interest rates, it seems as though stocks are either in a short term downtrend or consolidating in a large trading range, moving up 2% one day and down 2% the next day. Until it becomes clear that the market has picked a direction, catching a trending move will come down to being lucky rather than solid fundamentals. I like to trade when solid fundamentals give the best chance to make money.
Metals - Like stocks, you won't see us recommend a short metals trade unless we are clearly in a clear blood bath phase. Metals have been inconsistent since the beginning of the year. Clearly we have inflation in the commodities market with virtually every commodity overinflated for months. House and car prices have soared over %10 since last February, yet gold and silver which are the safe haven commodities for inflation somehow consolidate or drop? Clearly the metals markets are highly manipulated. Precious metals demand all over the world is increasing for solar panels and micro chips for cars, yet production is limited to the mines we currently have. Gold and silver prices should be well above all time high's. Metals are one of the most manipulated market in the world and have been for decades, but this year gold and silver markets have become virtually untradeable. The one bright side is platinum as it is an industrial metal making it reflect real supply and demand more than bullion bank price manipulation.
Energies - I had higher hopes for the energies market at the beginning of March but prolonged COVID lockdowns in Europe and mixed messaging from oil suppliers like OPEC have really mucked up trading this sector. OPEC met today to discuss how to handle the expected demand increase into summer. Many reports were saying before the meeting today that there would be no production increases until they see a demand increase which would likely push up price. What actually happened was OPEC decided to increase production gradually into July each month. This is neutral for crude and until we here more about Europe lifting COVID restrictions, I am not sure we will get much movement in the energies sector. Just today, France extended their lockdown by 4 more weeks. Oil will likely continue to trade near $60 a barrel.
Grains - Yesterday was an exciting day for grains as the grain stocks planting intentions report were released. Corn and soybean reports were bullish and they took soybean meal along for the ride. The report did not mention soybean meal, yet it sent the meal price soaring. Grains have been untradeable since the beginning of February, they have been consolidating in a short range for such a long period of time unable to gain momentum in either direction. Though grains have received bullish news, they are really to overbought and too highly valued for me to feel comfortable recommending a buy unless something significant happens and market news it to bullish for me to suggest shorting. I think grains may continue to consolidate at the current price level, they traded back down into the consolidation zone by close today following yesterdays positive report news.
Softs - This brings us to softs, really the best thing to trade at this point in time, likely because most aren't domestically grown making it less susceptible to our frustrating market conditions here in the US. COVID lockdowns have had an effect on supply and demand in this market but this market is still getting trending moves making it tradable. At this point in time this is the market I am watching the most for trade opportunities.
We are looking for trading opportunities but not just any trading opportunities. We want to be sure we are trading with solid fundamentals, without that we are better off going to a casino and throwing our money down on the black jack table. Sometimes it is better to sit on your cash and sometimes it is better to trade. Until we spot a good opportunity in this volatile market, this is the time to sit on your cash. Opportunities will present themselves in time, we cannot force them.
Tomorrow the commodities markets will close early for Good Friday Holiday. Most markets will close tonight, all markets will be close by 10:15 AM tomorrow morning for the weekend. I hope everyone has a great Easter weekend.
It is no secret that the trading this year has been difficult. I really thought after a covid and election year it would get easier but it has only gotten harder. I think this is because of the strength of the dollar since the first of the year.
IF.... I said if the dollar cycle is allowed to roll over into a left translated cycle and drop below the IC trend line, I believe the trading will become MUCH easier for the next 6 months. Hang in there. That applies to virtually everything we trade, including the stock indexes.
First it was the Dow. Then the S&P and Russell. Last week it was the Nikkei. I think it is about time for the Nasdaq to catch up.
The 10 dma turned higher days ago on all the Dow, S&P and Russell. The 10 dma turned up yesterday on the Nikkei. All of the other indexes are well above the 50 DMA. Once the NASDAQ can break through the 50 it will catch up in a hurry.
The ES, NKD, Dow and Russell are all well above the 50 DMA. In fact, only the S&P ever closed below it. The NQ has been very difficult to trade, with tech stocks being so highly valued during this pandemic, which is why we recommended trading stocks in the Russell. We still like the Russell but the Nasdaq should become much easier to trade as it catches up to the other indexes.
,A trader asked me to explain why we were recommending Russell trades now instead of NASDAQ. While we believe as most of our traders, that the most potential lies in NQ for the next few month, little matters if you cannot hold on to your position.
I have attempted to show the price action of the RTY vs the NQ since the September low. Each of those big wiggles in the NQ can knock you out of a profitable trade. Notice how much smoother the RTY is. The RTY would be the easier position to hold on to.
The other advantage is that the margin required for a RTY is $7,150 vs $17,600 for the NQ. Also, since last years sell off, the RTY has considerably out performed the NASDAQ.
It has become clear to me that most of the traders I work with should stick with the Russell from here on out because I do not see this volatility getting any better in the NASDAQ.
Stocks have been dipping the past 2 days. We are in a point now that we should expect a half cycle low, so this dip is not unexpected so we tightened stops accordingly. Stock daily cycles typically last 30-45 days, we are currently on day 12 of this daily cycle. We will know for sure when we have a HCL when the 3 day RSI hits oversold levels.
You can see from the chart above that the Russel, which has been leading stocks this rally, is already at oversold levels on the 3 day RSI. The NASDAQ is close behind but the S&P has a bit further to go. The cycle should right translate and trade into higher high's. If prices don't and the top is in, then the cycle will left translate and most likely head into an Intermediate cycle low. At week 21, we are entering the timing band when we should expect such an event.
ICL's occur every 20-35 weeks, we are currently in week 21. We will recommend tightening stops as this plays out and not just exiting our positions. Our Russell stops were hit at 2230 today and S&P stops hit at 3900. Nasdaq stops are still holding at 135000. As we have stated before with run away rallies like this, they do not always follow cycles and you do not want to exit a trade early and find yourself chasing the trade for an entry point as price continues up in case the NASDAQ wants to move quickly 15000.
Well I am not sure how in depth I need to go on this topic, if you have turned on your TV today you likely know what I am talking about. A group of traders on reddit have changed the trading game. They have targeted hedge funds shorting massive positions and succeeded. Lets take a look at the stock that started it all. Game Stop rose from about $20 a share to over $480 in 2 weeks... This bled into blockbuster, AMC, blackberry, and more.
In a successful move to force price back down, brokers like Robin Hood and Interactive Brokers stepped in and either halted trading on these stocks or refused to submit orders for them.
The reason I am talking about this as a commodity broker and trader is today, I believe, we saw this move into the commodity market, specifically silver. As soon as the stock market opened at 9:30 AM EST silver was up 6% and over 27 in a matter of minutes. Things like this are all over twitter.
Now this was out before the stock market opened. AG, a miners stock for silver opened well above the close and eventually also had trading halted. With these stocks, they halted buy orders but allowed people to sell, literally forcing price back down as your only option was to sell. Lucky for us, the commodities market cannot halt trading the same way, although there are circuit breakers that can get triggered that limit moves.
You may remember our post from 1/8, 12,000 gold contract dump, where we explained how bullion banks dumped 12,000 contracts at 3 AM in the morning to force price back down in metals when we had been making good money on the trade. Obviously it was no coincidence this was done at 3 AM, that is when trading volume is lowest so price is easiest to manipulate. These banks and large companies can freely manipulate price while we, the casual traders can only hold 200 contracts on one side of the market at once. That is an CFTC regulation which was put in place to prevent price manipulation... By us, the casual traders while these corporations can hold thousands.
Wall street does not know how to react to what is going on in the stock market. Hedge funds are calling brokers and telling them to stop submitting orders, CEO's of these companies are going on news networks and berating day traders. These companies are losing up to 20% of their value from what I have read which equates to multiple billions. It is something I never imagined I would see and is really exposing how the market is set up for so few to succeed. Hopefully, this creates transparency in the the commodities market at a large scale, creating transparency which will allow a level playing field between small traders like us and large companies and banks.
We have a few folks interested in catching a falling knife here. There is a real risk that the metals could left translate, meaning that we have a failed intermediate cycle happening. We just don't know and should stay on the sidelines until this situation resolves itself. Before re-entering any metals, we will need to wait for a swing low at the very least.
For starters, the Dollar looks to have bottomed. We were expecting the dollar to drop a bit further down to 88 before a final cycle bottom but now it would appear the dollar is on day 2 of a new daily cycle. This will make long positions in the metals harder.
We are all out of metals now but we are still vulnerable with stocks. We are advising that you tighten stops on NQ positions to 12900 and RTY positions to 2050 or to just exit your positions entirely and move to cash.
The Speculation page is used for educational purposes and to talk about our opinion on trades and what is going on in the market. All trade recommendations are made in "The Pit". 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. If you have any questions feel free to reach out to us via email.