As things developed quickly today, we contacted our brokerage customers to let them know we were buying stocks. Price broke out today on the S&P above the 10 DMA and closed near the high for the day. Stocks are now on week 8 of the intermediate cycle which should last another 15 weeks. I expect this is the beginning of a major trending move. As commodity traders, our best trades are based on trending moves.
Moore's data shows that the ES S&P futures bought now and held through December 6 have been profitable 15 of the past 15 years.
But it is not just the S&P. You could buy the NASDAQ, Dow, Russell 2000 or the Nikkei index and make money with all of them. I own each of these indexes myself, but my personal favorite to perform the best over the next 3-4 months will be the NASDAQ. Since the beginning of November the Russell and Nikkei have been on a tear. I think the NASDAQ and the S&P will do a lot of catching up over the next few weeks.
We are committed to helping you navigate the next daily cycle, We plan to set stops above your break evens as quickly as possible to limit risk yet allow us to capture the tremendous potential that exists in today's market. The reason I could see this intermediate cycle develop into a major trend is because of several factors:
1. The uncertainty of election is behind us.
2. Covid-19 vaccines are on the way.
3. Regardless who is president, trillions more dollars will be printed creating inflation in dollar valued assets such as stocks and commodities. (More on commodities later)
4. The potential breakout which is happening in what appears to be a broadening top megaphone pattern.
I think we could be entering a phase of the market with a major trending move that could match the April-July move in stocks this past year. I am talking about a melt up in the S&P of 1000-1200 points over the next 3-4 months. We could see the S&P in the 46-4800 range. We could see the NASDAQ in the 15000-16000 range. A move from 12000 to 15500 is a 3500 point move. 3500 X $20 is $70,000. We would only be risking 200 points or $4000. This translates into a risk reward ratio of 17-1. A 1200 point move on the S&P would be worth $60,000.
We propose that if you buy any of the indexes near their opening value tonight you should have a Happy Thanksgiving and an even Merrier Christmas. Price is just now breaking above the 200 DMA's after a week or two of sideways congestion. It is not stretched excessively far above the 10 DMA and short term sentiment shows there is still upside room.
Again, this projection would unfold over the course of 3-4 months. Our job is to keep you on the horse through the next daily cycle. This is just the beginning of a long term trade. To capture the entire move, we won't be moving in and out. There will be pain and joy along the way.
Most of the trades we recommend are shorting at cycle peaks and buying at cycle bottoms. You can also buy assets on breakouts and Cotton looks to be on the verge of breaking out.
All of the indicators are overbought. You will not have extreme oversold conditions when you have a breakout. Cycles no longer work. Think about what happened to Lumber, or more recently what is happening with soybeans. When soybeans broke out above the 2018 high, it opened up the sky for a run to the 2016 high.
If you are feeling like some of these commodities are moving irrationally, it is because after years of being suppressed they are entering a new bull market. We are entering a new inflationary period which happens when you print trillions of dollars out of thin air.
Moore's Research shows that buying Cotton February 21 (would have been Saturday) and sold January 4 has been profitable 14 of the past 15 years.
Sentiment Trader shows us that December is the best month seasonally to own Cotton.
So we are recommending buying cotton on a breakout. We recommend buying the March Cotton now and we would expect to hold cotton through the end of the year. My expectation would be at least a 6 point rally to the April 2019 peak which would take the March contract to the $79-80 level
Each point cotton moves is worth $500. We recommend buying cotton around $73.25 with a stop at 71.25, so you would be risking 2 points or $1000. We think cotton will make a run to around $79.25 which would be a 6 point gain, or $3000. This would give this trade a 3:1 Risk Reward Ratio. Cotton margins are $2915.
We have multiple signs that the 30 year bond has bottomed. Tonight we are getting a swing low which is our first confirmation that today is day one of a new daily and likely intermediate cycle.
The commodity channel index is giving bonds a buy signal tonight. The CCI has been a reliable indicator of Intermediate Cycle Lows. We are still buying very early but we can manage the risk easier than if we wait.
The weekly chart also shows extreme oversold conditions which are consistent with ICL's.
According to Moore's Research, 30 year bonds purchased November 13 and sold November 28 has worked 13 of the past 15 years. Average profit on the trades has been $2812 per contract.
The optimism index on bonds are pegged at zero. I have never seen this but you have to assume that there aren't any bullish bond traders left.
This trade really personifies everything we try to do with out trading. There is confluence between the cycles, the daily indicators, the weekly indicators, the optix and historical data all giving buy signals, and here tonight we are getting a swing low. Now is the time to buy.
A move out of an ICL should take bonds to the 50% retracement level at 176 in a matter of weeks. This happens to be at the 200 day moving average which combined will probably be major resistance. 176 will be the target on the continuous chart.
The financial section on the Contract Specs page on the website shows the particulars for the various contracts. On the 30 year, each full point move is worth $1000. My expectation would be that out of an ICL, the March 30 year bonds should move at least to the 176 area which would be a a 4 point gain. We will be trading the March contract which is at 172. We would place the stop at 171 which would be risking $1000. This would be a 4-1 Risk Reward Ratio. If we get a good push higher tomorrow, I could see raising the stop quickly, reducing the risk quickly.
We suggest you size your positions wisely and bonds make it easy to do so. Margin for the 30 year is $5170, but you could also trade this with the 10 year note for a $1,705 margin, a 5 Year with a $515 margin and even a 2 year with a $396 margin. If you want help picking the right option for you give us a call.
Over the past few months we have not been trading our usual style do to the extreme trading volatility in the market relating to the election and COVID. We are cycle traders. That is our bread and butter and where we have have most of our success. When trading futures, we need a trend to develop. The markets have been trading sideways now for months as we have seen in the dollar and metals. With the election seemingly decided (though anything can happen in 2020) the market has taken off. Today's big moves are a recognition by traders and investors that lows have been made and now is the time to go long.
Assuming the Republicans hold on to the senate, I think the market is recognizing that there will be a check against the tax increases and Green New Deal the Democrats have proposed while they will continue to give us stimulus galore. This is why the dollar is dropping like a stone this morning. This is what is pushing stocks, metals and energy markets. The dollar is on the verge of forming a failed daily cycle. A failed daily cycle happens when the price drops below the previous daily cycle low which normally precedes an intermediate cycle low. This is the kind of environment you want to be trading into. It is a tail wind in the sail of other assets which are at major cycle lows.
Stocks are on day 4 of the 2nd daily cycle of this intermediate cycle. Stock cycles tend to last 35-45 days so we are still early. With an endless supply of stimulus, the stock market and metals will be boosted to new all time highs while the dollar plummets. With a Democratic victory, the market is recognizing that the big tech companies should be safe from being broken up, so the biggest gainer in the stock market will likely be the NASDAQ.
The election is the trigger for these events. On average though, stocks bought November 21 have finished higher by December 6th 15 of the past 15 years.
Metals are on day 5 of its new daily cycle and the 2nd daily cycle of this intermediate cycle. Daily cycles in gold tend to run 25-50 days so there should be time for some nice gains before the cycle tops.
Looking at the bigger picture on gold, the price blew through the 50 DMA this morning and is making a higher high above the previous daily cycle top. This is a strong move that could take us back up to the all time highs in a few weeks. The 50 day moving average happens to be the same as the longer term 10 week moving average on the weekly chart, so today's move has significance on a longer term time horizon as well.
Metals are becoming overbought short term now but there is a LOT more room to go longer term. I believe we can go ahead and enter SMALL positions in the metals, trading it the same way we intend to trade the stock market, buying the dip.
As we mentioned Monday, Gasoline made a buy signal on the CCI. Today, Oil and gas are on day 3 of new daily cycles and Intermediate cycles. Oil cycles last 35-50 days so there should be the expectation that these have 3-4 weeks to go before they top.
While we like energy, we would prefer you focus on stocks and gold. Gains with energy will be somewhat limited in the environment we are in today, but stocks and metals can make new all time highs soon. We prefer the energy as an additional way to add diversity to a trading portfolio shorter term. There should be more potential for oil longer term once the price breaks above the 41-42 area.
Though we are bullish now, we cannot stress enough to begin with small position sizes. We know there will be volatility and days when the market will try to knock us out. Small position sizes allow us to build trading equity that allows us to ride through the volatility. Over time this will give you a stronger hand and allow you to trade bigger.
Recommended entry or exit prices may not necessarily be reflected on the track record. Markets can change quickly resulting in stops being moved or profit levels changed based on new information. Brokerage customers are the recipients of these potential price adjustments made after initial recommendations.