Weekend Report – Bull Cycles

In this weekend report,  I want to review the markets as usual and discuss where they are at. Things look very interesting in many ways.  I also wanted to discuss a few things about my personal view of trading around cycles. In my analysis, many are aware that I incorporate a variety of helpful techniques.  I Mainly use various forms of Technical analysis, and along with that I add Cycles, Sentiment, a little Elliot Wave and so on. In this weekend report, I  want to also briefly discuss a few things regarding Cycles and some of the trading that goes on around them. To the charts…

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SPX –  As mentioned in a prior report, for the amount of time that the SPX has rallied out of lows and moved to oversold,  it has had a mild pullback.  Not even a 38.2% retrace yet.

 

 

Look at the SPX here-  It is actually matching an area right now that is where prior Lows were found,  not tops.

 

SPX WKLY –  Guess what? The weekly SPX chart is a Bullish set up.  That is very interesting, because most analysts are recommending sell in may and go away.  SENTIMENT is bearish, people are selling holdings and even shorting the sideways move here  ( Group mentality is usually wrong). They are looking at valuations and a variety of other things that are encouraging people to go short or sell.   A break out higher could…. (read the chart)

The SOX WEEKLY –  Often the Semi’s lead the markets, and this is NOT leading the markets lower.  The Sox index is bullish and oversold on a weekly.

QQQ-  This also looks like it wants to eventually break out, maybe sooner than later.

So the general markets actually look like they are lining up bullishly within this consolidation. Being oversold on the weekly charts also would indicate that a break out higher could have some legs to it  ( Short cover and technical buying).

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USD –  We got the expected rally and it is at resistance, so it may pause or pull back into a DCL.  A drop in the USD into a daily cycle low could cause a small pop in Gold & miners, but I expect a higher dollar and lower Precious Metals for a while.  More on that later.

WTIC – Oil can continue higher for a bit, but is reaching the 50 area where I expected a pause or pullback.

NATGAS – Oversold and possibly ready to bounce, but I do not expect it to get through the 200sma. Read the chart.

 

CRB – The CRB has been moving along the 200sma and basically moving as expected and stated in prior reports.  I would expect sideways action for a while.

 

CRB WEEKLY –

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GOLD & MINERS

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GOLD – Gold has been holding the 50sma rather well, now near $1250. The USD ran higher and Gold drifted lower.  Now the USD  ‘Could’ be ready to drop into a dcl soon, and that could lift Gold again, but how high?  I feel that GOLD is going to drop into an ICL in the near future.

GOLD WKLY –  We see a break of the weekly trend line, and this could start the drop into an ICL.

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GDX WKLY –  For Miners – If I was using E.W., I’d expect another push higher. This may not play out unless we get a dip in the $USD into a DCL.

 

GDX –  The GDX broke down with strong volume 3 days ago.  It did do that in March too and then recovered, so I take note of that.  Look at  DUST & JDST and they had HUGE volume 3 days ago, and in the past, that has marked Tops in GDX, so I think we may finally  have a top in the miners.   Time will tell.

 

Before getting overly bearish and trying to short Miners  ( I do not recommend that) note that  GDX  found support again, so lets keep an eye on it.

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Miners have been so bullish coming out of the lows that many cannot even picture a pull back, so lets discuss that possibility for a moment.  Take a look at this run in  AG  for example.  So strong and another bullish reversal last Thursday,  could it realistically pull back very much? 

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Well,  US STEEL  (X )  was a stock that looked pretty strong on its run from roughly $6 to $20+

Could a stock like X that was practically running straight up really drop all the way to the 200sma?  That would be $2.91 at the 50sma.

 

First we saw a double top, and maybe we see that in Miners if the Dollar does dip down.  As of May 20 X  had dipped below $13.00, a 50% pull back.  This just shows how rapidly things can change when the selling accelerates.

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SO I hope this can help to give us a visualization of what some Miners could look like when they  eventually start  pulling back.  This will  give us a much lower entry point if we can remain patient. This chart should say  ICL , not DCL.

That is what I am seeing in the markets. There may be some strong opportunities in the general markets if they break out higher.  They Could just go sideways for a while, so I will be keeping an eye on things.  OIL and Commodities have been very bullish for the first few months of 2016, I expect a pull back that will lead to another run higher. Precious Metals have been VERY strong on their run from the Bear Market lows. A pull back will give us a great buying opportunity and I do think that one is coming, though topping can be a process.  We may see a double top or a break higher and then a drop, so I still recommend patience in this area. 

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We’ll see how these things unfold in the Mondays trading.  At that point we can look for more clues and go from there.

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~ALEX

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Read this part of the report when you have extra time.   This is a basic review of Cycles and like anything else, there are exceptions to the rules.  It is not a perfect explanation, but should give you a better idea of cycles if you aren’t familiar with them.  This may be a bit lengthy and may need to be read a few times.  I also wanted to explain how I personally try to go about trading at different times within a cycle.  This could be difficult to grasp at first glance, but its worth trying. If you already understand cycles, you can skip or skim this.

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CYCLES AND TRADING

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– An  ICL ( this is an ‘Intermediate Cycles’ low)  is THE LOW of an Intermediate Cycle and the time period from one ICL to another is Roughly 5-6 Months for Gold.

 

– A DCL   ( This is a shorter ‘Daily Cycle’ that lasts roughly for a month of trading days).  A daily cycle is a bounce or rally that rises to a ‘peak ‘ and then drops to its next low. After sufficient time has passed in this move higher, a daily cycle will begin to sell off into that next low.  There may be ‘false swing lows’,  so we look for a ‘ confirmed swing low’  to be safe.  This swing low is a  bounce or reversal that moves above the candle of the lowest point, and above the high of prior days candle –  to confirm a DCL it shows its strength by regaining the 10sma and breaking above the overhead down trend line, but also needs to be within the proper timing.

 

EDIT: If the above still sounds a bit hazy, no worries, I  always cover these details in the daily reports.

 

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For the sake of our example:   Lets discuss this as An Intermediate Cycle of GOLD  6 months long.  An Intermediate Cycle for Gold can be made up of 3, 4, maybe even 5 bounces as shown in the chart below.  These are DAILY CYCLES within the larger 6 month cycle.  The 6 month intermediate cycle would be ICL to ICL. So below we see Gold rise out of an ICL ( Intermediate Cycle Low) and bounce as 4 daily cycles lasting roughly 17-20 days  ( They last roughly 30 lately) .  A Right Translated (R.T.) cycle shows strength.  A L.T. daily cycle peaks early and gets weak.   Read the chart.

 

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 1.  SO I drew this example to point out that a R.T. Daily cycle peaks on the right side of the daily cycle bounce, and then usually runs higher after a dip into the dcl. 

2.  A  L.T. Daily cycle peaks early and if you see it in the 3rd daily cycle, the 4th will most likely be weak, with no new highs.   SO trading in the 3rd or 4th daily cycles requires lighter positions in my opinion. 

 

 

This is an OLD CHART of GOLD that I use to show how these daily cycles bounced along, and made up the 3 longer Intermediate Cycles that occurred roughly every 6 months. The point that I wanted to make is this…

1. Notice thateven in these bear market rallies,  the first 2 daily cycles out of an ICL are usually strong and ran right up.  See The ICL : THIS IS WHEN I GO IN HEAVY. Leverage can often be used in the first or second daily cycle, especially in Bull Markets. 

2. This ‘bounce’ action is why you often here me say that I went in heavy, but I sell partials as it rises.  I hold partial positions in case it does keep going, but since I expect a dip into a DCL eventually, I lighten up on the run higher.   Then I can add again at the next dip  (DCL).

3.   With GOLD being in a bear market, The 3rd daily cycle was always at risk of being L.T. and weak – That means it would peak early, maybe by day 10 or 12.  SO I would not go in very heavy after the 2nd DCL  in an intermediate cycle. The 3rd and 4th daily cycle may exhibit volatility, sideways moves, and weakness, rather than being able to rally strongly.  I’m more cautious in 3rd or 4th daily cycles.  IN the bear market, this would drop to new deeper ICLs  lows)
   

 

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This was GOLD coming out of the 2008 lows  (ICL).    It would now be starting a Bull Run.  You see the daily cycles run up and dip down into a higher DCL  (Daily Cycle low).  Coming out of this Bear Mkt sell off,  the first 3 daily cycle were strong , much like we have seen on 2016.   See the 1st Dcycle in blue, the 2nd in Magenta, and the 3rd in Orange all lead to higher prices and were R.T.  Then the 4th in Green topped L.T. and dipped in a big way.  THAT is where I think we could be at this time.   SO please notice that the dip to the ICL took ‘weeks’.  Patience was needed. This dip from the Peak in mid February didn’t hit the ICL until mid April.

 In the past when we were approaching an ICL in Gold, The CRB, or Oil, etc.  I repeatedly said in report after report that it is a deep meaningful Low that should run higher for weeks, be ready to buy it.  Often times we saw a “Shake out’ move and then the run begins when none dares to buy.      ICL’s have a lot of short covering and they rally strongly , like we saw with Miners and Oil in 2016.   

 So now maybe you can see that if I say ,  “We are dipping down into a DCL, and then we should be starting the 3rd daily cycle”  –  that means that we might be nearing the entire intermediate Cycles peak.  The peak from  ICL to ICL.    That means that Gold, Oil, or Commodities,  whatever I am talking about, has been running out of its lows for the past 2 daily cycles and may be getting tired.    I take trades since surprises are to the upside in a bull market run, but not as many trades in a 3rd daily cycle and not “All in” or leveraged.  Timing within the Intermediate Cycle is important to how much risk may be in the trade too.   At Bear market lows  (ICL’s),  even old dogs will run strongly , because they are so heavily shorted.  The first and maybe 2nd daily cycle will see exceptional gains . In the 3rd or 4th daily cycle,  I am more cautious about trading heavily.  I would rather raise cash,  have a few trades on of some good set ups, and wait patiently for the next ICL.    THIS IS NOT EASY.  MANY DO NOT LIKE THE WAIT FOR A DIP INTO AN ICL WHEN STOCKS HAVE BEEN RUNNING HIGHER.   We see this in Miners now.

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Now go back and look at the WTIC, NATGAS, and CRB charts in this report and see if you see daily cycles.

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