Here we are - the day before the U.S. presidential election - and I am very happy to be on the sidelines of every market. Why? Because most markets, and especially equity markets, do not like uncertainty, and this election will probably be one of the most hotly contested presidential elections in U.S. history, regardless of which side wins. There is therefore the possibility of a lot of market volatility all this week, and perhaps even longer if the determination of the election winner is delayed and becomes mired in violent protests and complex legal proceedings. If things do get ugly, there is always the possibility of a major equity sell-off, especially considering the fact that the broad stock market is quite overbought now and could be described as a bubble ready to pop.
All three of our broad stock market indices (DOW, S&P 500, NASDAQ) have already been falling and are due to make significant sub-cycle bottoms. A bottom in the DOW and S&P 500 could be imminent, but the NASDAQ looks like it could go a bit lower before bottoming. Both the DOW and S&P 500 made new weekly lows today, but the NASDAQ did not. This bullish divergence could be setting the stage for a rally, assuming the election doesn't trigger a major sell-off. It is getting late in the medium-term cycles of all three indices, so we may just wait until the end of the current cycles before we consider trading this market. We will stay on the sidelines of this market for now.
Gold and silver prices have also been taking a dip down, but this has been from recent record highs - last week's isolated all-time high in gold at $2790 and silver's new 11 year high the previous week at $34.85. Those new highs on different weeks gives us a bearish divergence signal which suggests lower prices could be imminent. But this week's potential volatility could also lead to new highs before any serious correction. We are expecting a final medium-term cycle bottom in silver soon, so we will watch for that as a possible spot to buy. Gold's medium-term cycle is less clear, but unless a new cycle began with the low of $2606 on Oct. 10 (that would be bullish), we could also see a sharp correction in gold soon. Let's remain on the sidelines of both metals for now.
Crude oil prices rallied strongly from last week's low of $66.72, and today prices closed above both the 15-day and 45-day moving averages. This suggests crude's trend is turning bullish again. Nevertheless, we still need a stronger confirmation of this. That and this week's presidential election is enough to keep me out of this market for now.