The broad stock market is starting this week with an upswing. After last week's "roller-coaster" dip on Thursday, all three indices (DOW, S&P 500, NASDAQ) are rising sharply. The S&P 500 and NASDAQ are breaking to new weekly highs, but the DOW is lagging behind and is considerably below its high from last week (34,342). This, of course, gives us an intermarket bearish divergence signal which means a reversal back down could be imminent. But there are other bullish technical signals (e.g. all three indices closed back above their 45-day and 15-day moving averages today) that lead me to believe this rally could continue, and the DOW may break that 34,342 high. If it can do that, the Dec. 13 high is not far away (for all three indices), and breaking above those highs would mean the medium-term cycle is still bullish. Although we are still in a reversal zone through Friday and the market is rising to new highs (making an imminent top possible), last week's lows on Thursday were centered on a strong pivot point in this reversal, so that could have been a significant low from which a strong rally can follow. Let's see how bullish this market can be into the end of this week. If we get more bearish divergence signals, we may consider going short. But if all three indices can break their Dec. 13 highs, we may just wait for this medium-term cycle to end and then buy the bottom and start of a new one for another challenge to the all-time highs. We are remaining on the sidelines for now.
Today gold prices edged higher and made a new weekly high while silver did not. Thus our bearish divergence signal between these metals is persisting and reinforcing our idea that silver is headed lower to its final medium-term cycle bottom. That bottom is technically due this week, and we would like to see prices in the $20 - $22 range. If we get that, we will cover and take profits in our current short position in silver. Gold is most likely due for a sub-cycle corrective low anytime from now to Feb. 3. That means the high will probably be this week or early next week. Today's high at $1941 could have been it, but there's still time for it to push higher. If the correction down is not too severe, we may look to buy for another short-term rally before the fall to the final medium-term cycle bottom. (We may buy silver as well if we get that cycle bottom this week). For now, we remain short in silver and on the sidelines of gold.
The U.S. Dollar Index may be forming a baseline around 102. We are now in the center of a reversal zone specifically for currencies (Jan. 18 - 27), so a bottom and reversal back up in the dollar could be imminent. Last week's low at 101.53 could have been it already, but the greenback could make a lower low this week before reversing. A rise in the U.S. dollar now could push gold and silver prices down into our cycle and sub-cycle lows. We will watch for that this week.
The medium-term cycle labeling for crude oil is still not clear, but there are two likely possibilities at this point in time:
1) Crude started a new medium-term cycle with its low of Sept. 28 at $73.28 (March contract chart). This scenario is bearish because prices have already fallen well below the start of the cycle (crude fell to $70.56 on Dec. 9), and the rally from Dec. 9 should turn back down soon with prices falling below $70.56 to the final cycle bottom due anytime now by March 4.
2) Crude started a new medium-term cycle on Dec. 9 at $70.56. This scenario could be bullish or bearish, depending on whether or not prices can stay above $70.56. Prices seem to have overcome resistance at $80 and are holding above there. The next steps in a bullish cycle would be to clear $85, and then $90. If bearish, however, prices will not clear these hurdles before turning down again and breaking below $70.
We are now also looking for the end of a longer-term 3-year cycle in crude which is due anytime now, but ideally around March 7 (or maybe near Feb. 4). If we get new lows then, it may be a very good spot to buy.
Because the crude cycle is not clear right now, we will remain on the sidelines until we see a more definitive trend up or down.