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Midweek Update – Oct 19th
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Excessive Crude Speculation
Excessive Crude Speculation
Crude has been on a fantastic run, and has gained 20% during just the first half of a single Daily Cycle. Unfortunately, however, we need to temper our enthusiasm, since Crude tends to move quickly during both up and down trending Cycles. And with the first half of the current Daily Cycle lining up with the rising portion of the Investor Cycle, the prolonged strength we’ve seen becomes easier to understand.
Macro news this week helped to fuel the current move by providing a catalyst for speculators to push their upside bets. Russia announced that it is considering joining OPEC, and that it’s open to the possibility of cutting oil production.
This announcement is almost certainly just talk designed to push up Crude’s price. Russia is not the collaborative type, and it certainly wants to maintain complete control over its natural resources. And with Russia currently pumping record amounts of Crude and its economy struggling for revenues and foreign reserves, it’s hard to imagine that Russia would consider such a move.
From a global economic standpoint, the macro data is poor, yet Oil is flowing faster than ever. Even with a fair-sized reduction in high cost US production, estimates have the world pumping 1.8 million barrels per day above current demand. And any price increases tend to quickly push a flood of additional Oil from high cost producers back onto the market.
In summary, the global supply/demand imbalance that led to the bear market has not corrected itself. Sure, higher cost Canadian and US production has decreased, but the declines have been offset by higher Russian, Libyan, and Iranian oil production. From a Cycles standpoint, we have little choice other than to assume that a cyclical bear market Cycle remains in control. By extension, all shorter Cycles should follow this bearish construct, and influence price significantly to the downside.
A huge number of bullish Crude Oil analyses have recently found their way into the popular press. It appears that many people believe that Crude’s lows are well behind it. As outlined above, I disagree completely, but the dynamic both reflects the speculative nature of the Crude market and explains the horrible picture that has developed in the COT report.
Crude Oil speculators are, once again, Long by nearly record amounts. This is the second largest speculative Long position in 30 years, giving you an idea on how quickly this market have become overheated. And on the flip side, commercial traders (smart money) have taken a significant Short position. These positions, in a bear market context, are evidence that the Crude market is fast approaching another significant top.
Too many people appear to be focused on the inverse head and shoulders bottom that has developed in Crude. While H&S patterns have their place, the problem with the current pattern is that for it develop and complete, Crude needs to be in a new cyclical bull market. I’m OK with a partial breakout – a solid punch above the below trend line – that acts as a bull trap, but that’s all that will make sense at this point. Crude Oil is structurally not ready to resume a bull market, and the macro-economic landscape simply does not align well with one. I believe that we’re seeing a bear market, counter-trend rally that is near exhaustion.
The Financial Tap – Premium
The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.
NOTE: The Financial Tap offers you a Full 14 day, no risk, money back Trial. It’s just $99 thereafter for a full 3 months of membership, a fraction of what one stopped out trade is likely to cost you. Consider joining The Financial Tap and receive two reports per week and the education you need to become a better trader or investor See >> SIGN UP PAGE!
Bob.
Excessive Speculation
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Midweek Update – Oct 12th
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Pain is Good
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A Spill in the Making – Free Report
Premium Report published on October 2nd, 2016
Gold Cycle
Cycle Counts
| Cycle | Count | Observation |
Cycle Position |
Cycle Clarity |
| Daily | Day 21 | Range 24-28 Days – 2nd Daily Cycle | Topped |
Green |
| Investor | Week 18 | Range 22-26 Weeks | Topped |
Green |
Supporting Indicators
| Sentiment Level | 58% |
Above Average (Bearish) |
| Commitment of Traders (COT) | Blees Rating – 15 (0-100) | Bearish |
| Primary Trend (Weekly Chart) | Up | Bull Trend |
The Gold market continues to be lethargic. 2 weeks ago, negative rumblings about Deutsche Bank pushed Gold higher out of the Half Cycle Low. But the move quickly stalled and reversed, ensuring that the current Daily Cycle would remain Left Translated.
Gold’s current sluggishness is not unexpected, however. 18 weeks into any Investor Cycle should see sellers largely controlling the action, and I’d expect that to be the case with Gold until it finds an ICL.
Considering the advanced age of the IC, it’s impressive how well Gold has held up. And it’s a boost to bulls that the Miners and Silver are following suit with relative strength of their own. The broader precious metals complex appears to be consolidating its massive gains from early 2016 via time, rather than price, and that’s decidedly long term bullish.
The Miners, in particular, provide a case in point. GDX rose 120% in 6 months to start 2016, and in the 2 months since topping have retraced a relatively meager 20%. I’ve discussed the volatility of the Miners frequently, so readers will know that such relative strength during a move into an ICL is extremely bullish for the intermediate and longer terms.
It’s easiest to see the Gold’s bullish consolidation via time on the Investor Cycle chart. Gold topped 12 weeks ago and has a failed Daily Cycle behind it, yet is down only $70 from the IC peak. It’s a classic bull market consolidation of the huge six-month rally, and is a significant change in character from what we all lived through during Gold’s bear market.
A turn higher is on the way, make no mistake about it, but we may need to be patient as we wait for it. Gold could need another full Daily Cycle lower before finding its ICL, and that would mean another 4-5 weeks of declines. Rest assured, however, that the bull market trend is firmly established. During the next series of higher IC’s, I expect the general public to again pay attention to Gold.
Investor Cycle Trading Strategy
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Daily Cycle Trader Strategy
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Portfolio Positions Summary
Open Positions – Investor Portfolio –
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Open Positions – Daily Cycle Trader Portfolio –
None.
Equities (S&P500) 
Cycle Counts
| Cycle | Count | Observation |
Cycle Position |
Cycle Clarity |
| Daily | Day 21 | Range 36-42 Days – 2nd Daily Cycle | Near Mid Cycle |
Green |
| Investor | Week 15 | Range 22-26 Weeks | Mid Cycle Rally |
Green |
Supporting Indicators
| Sentiment Level | 61% |
Elevated |
| Commitment of Traders (COT) | NA | |
| Primary Trend (Weekly Chart) | Up | Bull Trend Established |
Although equities have remained largely range-bound, there appears to be some short-term hesitation in the markets. That’s not necessarily a sign that the market has topped, but is more a reflection of uncertainty in the environment brought on by powerful cross currents that are washing through the markets. More specifically, the FED is looking to raise rates (at the wrong time), and the presidential candidates offer distinctly different visions for economic and trade policies.
I don’t believe the market is currently leaning strongly in either direction. And there are no technical signs, nor any analysis, that decisively shifts the argument. So rather than trying to bet on which way the market will break, a more prudent course is to focus on how to react to either possibility – a break higher or a break lower.
What we do know is that a break higher would result in equities hitting a new all-time high. And any market breaking to an all-time high in a new IC is almost certainly in a bull market – and giving traders ample reason to be Long. So despite the uncertain economic environment and equities’ poor fundamentals, a breakout here would give a good reason for upside exposure.
The same argument holds true for a breakdown. A break below the September Low would signal a failed Daily Cycle, and would confirm a week-7 IC top and a Left Translated IC. If a failed DC were to happen, I believe an aggressive Short position would be warranted.
Investor Cycle Trading Strategy
No positions at present. With Cycle timing approaching the midpoint for an IC, and with price at a crossroads, there is no logical play on the intermediate timeframe. Taking a position at present, Short or Long, is a 50/50 proposition. As outlined above, until the S&P moves past either of the two price points that signal a break to the upside or a breakdown, the setup won’t offer an edge.
Daily Cycle Trader Strategy
No positions at present.
Portfolio Positions Summary
Open Position – Investor Portfolio –
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Open Position – Daily Cycle Trader –
Reserved for Premium Members only. See https://thefinancialtap.com/ for membership details.
CRUDE OIL
Cycle Counts
| Cycle | Count | Observation |
Cycle Position |
Cycle Clarity |
| Daily | Day 9 | Range 36-42 Days (2nd DC) | Towards Half Cycle Top | Green |
| Investor | Week 9 | Range 22-26 Weeks | IC Rally |
Green |
Supporting Indicators
| Sentiment Level | 42% |
Pessimistic (Bullish) |
| Commitment of Traders (COT) | Blees Rating (0-100) – 36 | Bearish (Up this week). |
| Primary Trend (Weekly Chart) | Down | Bear Market Trend |
OPEC made some bullish announcements this week, which lifted the price of Crude Oil. Even so, experience suggests that OPEC will have little ability to manage Oil prices going forward; it’s members are too dependent on Oil revenues to cut output significantly for any length of time. In addition, many are in desperate economic positions, so it’s unlikely that any OPEC members will restrain production. They have consistently demonstrated that they are incapable of taking short term pain (by cutting production) to achieve higher prices over the long term.
This week’s announcements, however, did help to push Crude into a new Daily Cycle uptrend. And since it’s still early in the Investor Cycle, further short term upside is probable. I believe, however, that price is unlikely to exceed the high of Aug 19th, leaving us with a double top and another Left Translated Daily Cycle.
Investor Portfolio Trading Strategy
No trades at present, but an opportunity to Short Crude has arrived. A Swing High near the current level will provide a good entry, while the Aug 19th high (with some cushion) is a good place for a Stop.
Daily Cycle Trader Strategy
No trades at present. If Crude has a capitulation selloff next week, I will consider a Long scalp trade after a closing Swing Low. For this to be an option, I’d like to see Crude drop below $43.
Portfolio Positions Summary
Open Positions – Investor Cycle Portfolio –
Reserved for Premium Members only. See https://thefinancialtap.com/ for membership details.
Open Positions – Daily Cycle Trader Portfolio –
Reserved for Premium Members only. See https://thefinancialtap.com/ for membership details.
$US DOLLAR
Cycle Counts
| Cycle | Count | Observation |
Cycle Position |
Cycle Clarity |
| Daily | Day 31 | Range 18-22 Days – (DC #4) | Green | |
| Investor | Week 22 | Range 18-22 Weeks | Topped |
Green |
Supporting Indicators
| Sentiment Level | 49% | Elevated (Bearish) |
| Commitment of Traders (COT) | Blees Rating – 89 (0-100) | Bullish. |
| Primary Trend (Weekly Chart) | Flat | Neutral |
This week, the Dollar continued its recent range-bound action, and has still not shown any sign of a DCL. I am not sure that we’ll see a trend develop in the Dollar until either the November election or the FED moves on interest rates.
Even though it’s stuck in a range, the Dollar has seemed “heavy”, pushed downward by advanced Cycle timing on the weekly chart. A DCL is due soon, so I expect a breakdown from the current wedge in the very near-term
Investor Cycle Trading Strategy
No trades at present.
Daily Cycle Trader Strategy
No trades at present.
Portfolio Positions Summary
Investor Cycle Portfolio –
None.
Daily Cycle Trader Portfolio –
None.
U.S Bonds
Cycle Counts
| Cycle | Count | Observation |
Cycle Position |
Cycle Clarity |
| Daily | Day 12 | Range 20-26 Days – (DC#1 or #4) | New DC |
Green |
| Investor | Week 3 or 23 | Range 22-26 Weeks | Last DC or start of New DC |
AMBER |
Supporting Indicators
| Sentiment Level | 68% | Elevated (Bearish) – But nice drop |
| Commitment of Traders (COT) | NA | |
| Primary Trend (Weekly Chart) | Uptrend | Bull Market |
Bonds enjoyed a sharp, 9-day snapback rally that erased most of the losses from the last Daily Cycle decline. But the snapback rally has now reversed lower, leaving price atop the 10 dma. Until this point, Bonds have behaved as we’d expect in any Daily Cycle; how they move from here will be determined by the larger Investor Cycle.
At this point, we don’t know whether the last DCL also marked an ICL. In my opinion, however, the selloff into the last DCL was nowhere near large enough to reset sky-high sentiment and also mark a weekly Cycle Low. So Bonds are at a point of uncertainty. If they are in the final DC of the IC, price should break below the 10 dma in the coming week. From there, the selling should intensify, and we could see significant declines leading into the November elections.
On the other hand, if the current DC is the first of a new, surprise IC, then Bonds will have likely found support at the 10-day moving average before heading higher again. New, short-term highs will be followed in the coming months by a series of higher highs and a clear uptrend.
Investor Cycle Trading Strategy
No trades at present.
Daily Cycle Trader Strategy
No trades at present.
Portfolio Positions Summary
Investor Portfolio –
None
Daily Cycle Trader Portfolio –
None
(Reprint) A note on trading:
I have received several e-mails recently asking why I haven’t taken various trades when good setups appeared to be present. I appreciate the question, and have a couple of thoughts that I’d like to share.
A primary goal of this service has always been to help Members develop a personal trading style. I can be definitive when I think a setup warrants a trade, but each Member needs to evaluate the analyses I present – Cycle, technical and Sentiment – in terms of his individual risk tolerance and determine whether a setup make sense to him. Not all of us will see trade setups the same way.
Cycles can be a powerful tool in trading, and I share my trades as a way to let Members know when I’m personally ready to “pull the trigger”. But The Financial Tap was never intended to be a trading service that directs Members to take multiple trades a week with the promise of spectacular gains if they do so. Rather, my intention has always been to provide tools that help Members to learn to make their own decisions about trading.
As an example, a longtime Member with whom I frequently exchange e-mails has developed a successful trading style that combines a setup (a high probability that a Cycle has bottomed/topped) with trade triggers (a combination of MACD, StochRSI and ADX indicators). He executes a trade when his triggers have all crossed higher/lower, but only after my Cycle analysis shows a strong probability that a Cycle has bottomed/topped. Another Member I know takes a more conservative approach, and sells Put options when different indices (SPY, IWM, GDX, GLD, SLV) appear to be bottoming – again based on my Cycle and Sentiment analysis.
Each Member should actively work to develop and refine his own trading style, using my Cycle and Sentiment work as a jumping off point. And don’t hesitate to reach out to me with questions or comments – they help me to better support you.
Bob
Midweek Cycles Update – Oct 5th
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Gold Price Reversal
Gold Price Reversal
The Gold market continues to be lethargic. Two weeks ago, negative rumblings about Deutsche Bank pushed Gold higher out of the Half Cycle Low. But the move quickly stalled on a gold price reversal, ensuring that the current Daily Cycle (DC) would remain Left Translated.
Gold’s current sluggishness is not unexpected, however. 18 weeks into any Investor Cycle should see sellers largely controlling the action, and I’d expect that to be the case with Gold until it finds an Investor Cycle Low (ICL).
Considering the advanced age of the Investor Cycle (IC), it’s impressive how well Gold has held up. And it’s a boost to bulls that the Miners and Silver are following suit with relative strength of their own. The broader precious metals complex appears to be consolidating its massive gains from early 2016 via time, rather than price, and that’s decidedly long term bullish.
The Miners, in particular, provide a case in point. GDX rose 120% in 6 months to start 2016, and in the 2 months since topping have retraced a relatively meager 20%. I’ve discussed the volatility of the Miners frequently, so readers will know that such relative strength during a move into an ICL is extremely bullish for the intermediate and longer terms.
It’s easiest to see the Gold’s bullish consolidation via time on the Investor Cycle chart. Gold topped 12 weeks ago and has a failed Daily Cycle behind it, yet is down only $70 from the IC peak. It’s a classic bull market consolidation of the huge six-month rally, and is a significant change in character from what we all lived through during Gold’s bear market.
A Gold Price Reversal is on the way, make no mistake about it, but we may need to be patient as we wait for it. Gold could need another full Daily Cycle lower before finding its ICL, and that would mean another 4-5 weeks of declines. Rest assured, however, that the bull market trend is firmly established. During the next series of higher IC’s, I expect the general public to again pay attention to Gold.
Trading Strategy
Long term investors should already be holding a strong core portfolio. Short term fluctuations in the Gold Price market should only be viewed as an opportunity to add to long term positions. If you’re under invested, I personally would not wait for a Cycle Low, this price level is more than attractive.
Traders should be flat or short this market currently. There is a real possibility that we’re going to see a large stop run below $1,305 on gold and the Sept 1st lows in the precious metals miners. Within 5 to 10 trading days however, we should see a Cycle Low and reversal form, providing an excellent opportunity for traders to get Long this sector for what could be a promising new Daily and Weekly Cycle.
The Financial Tap – Premium
The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.
NOTE: The Financial Tap offers you a Full 14 day, no risk, money back Trial. It’s just $99 thereafter for a full 3 months of membership, a fraction of what one stopped out trade is likely to cost you. Consider joining The Financial Tap and receive two reports per week and the education you need to become a better trader or investor See >> SIGN UP PAGE!
Bob.
A Spill in the Making
This content is for members only