The DOW's medium-term cycle has officially turned bearish because this index has now broken below its 29,653 low from June 17, which was the start of the cycle. This does not bode well for the broad stock market as it could mean that the trend will be down for at least another 15 months, and possibly even two years (which would tie in with our prediction of a major crash bottoming around 2024).
Shorter-term, we note that although the DOW has broken below the start of its medium-term cycle, the S&P 500 and NASDAQ have not (yet). These latter two indices are now VERY close to their mid-June cycle bottoms (3,637 in the S&P 500 and 10,565 in the NASDAQ). If those bottoms hold, we'll have a bullish divergence signal in the center of our current strong reversal zone, and that would mean this market could suddenly turn back up. Because it is late in all three medium-term cycles, we could see the current cycles end here and see new ones start. That could give us at least a short-term (probably weak) rally before the downtrend resumes. If we get that, we will try to sell short near the top of any rally. But if the S&P 500 and NASDAQ do break below their mid-June lows, it will be "look-out below!" as the overall bearish tend could trigger a major sell-off with all three indices moving to their final medium-term cycle bottoms at much lower levels.
Longer-term, we can safely say that it is highly unlikely these indices will approach, let alone exceed, their all-time highs from Nov. 2021 (NASDAQ) or January 2022 (DOW and S&P 500) anytime soon. In other words. a major long-term downward correction in the broad stock market is probably now well underway and will likely continue into 2023 - 2024 (with periodic short-term rallies along the way) before reaching its final bottom. Our general trading strategy now should be to sell short at the top of any temporary rallies. We are staying on the sidelines of this market for now.
Like the broad stock market, gold's current medium-term cycle (which started on July 21 at $1681) has turned bearish as prices are now well below that start. Unlike the DOW, it's a little too early for this current cycle to make a final bottom. Nevertheless, we are in a reversal zone and there are several short-term signals suggesting a temporary sub-cycle low this week. I think the best trading strategy now is to wait for a short-term rally and try to sell short at its top. As with the broad stock market, it seems like we are not going to get another strong rally to challenge this year's highs near $2000. It looks like we are well into the final correction in a long-term 23-year cycle in gold that should bottom around 2023 - 2024, possibly as low as $1000. Long-term investors might want to wait until that final bottom is in as it will be an excellent spot to buy - literally a "golden opportunity" to get in at the start of a new 23-year cycle. We are still on the sidelines of gold.
Silver's medium-term cycle is a little more ambiguous than gold's, but it is also looking bearish right now. It would take a close below $17.59 to confirm the cycle as bearish. In the meantime, both metal prices could bounce up this week, especially as we are in a reversal zone and there is a bullish divergence between gold and silver (gold has made a new monthly low but silver has not). Any short-term rally in silver that stays bellow $20 might give us a good opportunity to sell short. We will watch prices carefully this week as we remain on the sidelines of silver for now.
The recent strong hawkish stance taken by the Federal Reserve to bring down inflation has propelled the U.S. Dollar Index to new heights. The greenback is now approaching 115, and it is getting close to its 121 high from 2001. It looks like the U.S. dollar is bypassing its normal 15-16 year cycle. I refer the reader to my posts from April 9 and April 27 this year describing the two long-term cycles in the U.S.dollar. Let me quote from my April 27 post here:
"...there's also the possibility that the greenback is not following a normal 15-16 year cycle and is instead following a "political cycle" related to which political party is currently in the U.S. White House. The dollar tends to rise during a Democrat administration, and indeed, it has been rising sharply since Jan. 2021. It's still possible an older "normal" cycle is in place and is ready to fall......however, if this index breaks clearly above $104 and continues to rise, we may have to assume the political cycle is taking over, and we will have to relabel the cycle as a younger, bullish one."
The U.S. Dollar Index is now well above 104, so it looks like the dollar is following the political cycle and is not falling to the final bottom of a 15-16 year cycle. The U.S. dollar should, in fact, be quite bullish now into 2025 with an upside potential that could challenge the 121 high from 2001. Needless to say, this is not good news for gold and silver prices, but it does support our current bearish view of the precious metals. It is also supporting my view that investors may be favoring the U.S. dollar as the best safe haven investment during a stock market crash - just like they did in 2008-2009. Sure, inflation is high and the greenback's value has been diminished, but in a basket of current global currencies, it's probably the "least rotten apple" in the bunch.
Crude oil prices have been falling sharply since my last update on this commodity, not surprisingly in sync with plummeting equity markets. On Sept. 14th I outlined 3 possible scenarios for crude:
" 1) Last week's deep low at $81.20 (Oct. contract chart) on Sept. 8 could be the start of a new medium-term cycle (and possibly a longer-term cycle as well). This labeling would mean that crude is very bullish now and should rally strongly. Prices need to start closing above $95 and especially $97 to confirm this bullish labeling.
2) Crude could be nearing the end of a much older medium-term cycle that is due to bottom by next week at prices at or below last week's low ($81.20). In this labeling, that final bottom would be a good spot to go long.
3) Crude may have started a new medium-term cycle with the low of $85.37 on Aug. 16. This labeling is the most bearish because prices have already gone below the start of the cycle. In this view, prices would be in a downtrend for many more weeks and would be going much lower. "
Well, crude has broken and closed below the Sept. 8 low ($80.89 - we switch now to the November contract chart) which means Scenario 1 is negated. Scenario 2 is still possible, but the final low should have been in last week. Prices dropped lower today (Monday), although it is still in the window of a reversal zone for crude (which ends tomorrow). If prices rally strongly from here, Scenario 2 could be viable and a new medium-term cycle could be starting. Our least likely Scenario 3 is starting to look very possible now. In this scenario prices are heading lower for many more weeks before it hits the current medium-term cycle bottom. Even if scenario 2 is correct and a new cycle is starting, that cycle would probably be bearish too. That's because it is starting lower than the bottom of the previous medium-term cycle ($89.74 way back on April 11) which means it could turn down sharply after a brief rally and go much lower.
The bottom line here is that scenario 2 and 3 are both possible and both are bearish. We may get a short-term bounce in prices this week, however, as we are in two reversal zones, but any subsequent rally will probably be modest and soon turn back down. We will remain on the sidelines of crude oil for now.