MARKETS UPDATE (5:15 pm EDT)
We are now approaching the next strong reversal zone for the broad stock market (and other markets) late this week. This reversal zone has a wide window (April 5 - 21), and a significant top or bottom (or both) could happen in this time period. We are near the end of a medium-term cycle in the broad stock market so ideally we would like to see equities move down to their final cycle bottoms in this window. Cycle movements, however, are not always "ideal". As I suggested last week, there is a possibility that the DOW and/or S&P 500 made that final cycle bottom with last Monday's low(s). If that was the case then we could see a rally into this upcoming reversal zone as a new cycle begins. (That scenario would likely lead to a top within the next few weeks from which a very severe correction could follow). The argument against a cycle bottom last week is the fact that last Monday's lows were not in a major reversal zone, and the correction was very minimal. Today's downturn in equities also argues against this being a new cycle. Let's hold our short position in the broad stock market for now with the idea of equities going lower over the next week or two for a final cycle bottom. This would involve both the DOW and S&P 500 moving below last Monday's lows. If only one index (DOW or S&P 500) breaks below last Monday's low (and not the other) as we move into the end of this week or into next week, we could have a case of intermarket bullish divergence. If that happens, I may cover my short position and even consider going long as it could indicate the cycle bottom is forming.
We are also approaching the next reversal zone for gold and silver, but it has a narrower window (April 5 - 17) than that for equities. As with equity markets, gold is near the end of its medium-term cycle and is due to take its final corrective drop to complete a cycle bottom. It could do that from yesterday's (Sunday's) high and form the cycle bottom over the next few weeks in the reversal zone, but it could also push higher this week and next to form a top in the reversal zone. Let's watch and see if we get an intermarket bearish divergence signal (i.e. either gold or silver, but not both, taking out last week's high, or even better, gold or silver taking out their last cycle high - $1,263.59 in gold or $18.54 in silver - without the other), and try to sell short. If we miss this trade we will wait for a final cycle bottom to buy in gold over the next week or two. Silver's cycle is a bit more ambiguous than gold's at the moment as silver's medium-term cycle may have bottomed on March 15 at $16.84. Nevertheless, if silver makes a new high with bearish divergence to gold, it could still be a good opportunity to sell short. I realize this is all a bit confusing, but I will clarify any trading opportunities if and when they arise. On the sidelines of gold and silver for now.
What happens to gold and silver could depend on the U.S. dollar, but the chart and cycle pattern of the U.S. Dollar Index is very ambiguous now and open to several interpretations. The dollar could be in the process of completing a medium-term cycle bottom (it is due now) which ideally would lead to that bottom in the upcoming reversal zone for currencies (April 10 - 22). That bottom would test or go below the March 27 low of 99.19. But it is also possible the March 27 low was the bottom already, and this market is turning bullish. A third (very bearish) possibility would place the medium-term cycle bottom on the Feb. 1 low of 99.50. That would be bearish because the dollar has since broken below 99.50 (which would be the start of the new cycle) and would likely continue down for the rest of the cycle (at least four more months). This last scenario would be very bullish for gold and silver. Right now I am favoring the first scenario of the dollar making its final cycle bottom in the April 10 - 22 reversal zone. That bottom in the dollar could coincide with a top in the precious metals followed by a severe correction in gold and silver prices.
Crude oil prices rallied strongly last week and directional momentum in this market has switched from 100% bearish to mixed bullish and bearish. It looks like the two lows at $47 on March 22 and March 27 (May contract chart) was a double bottom and the start of a new medium-term cycle in crude oil (which is bullish). We were expecting that bottom in this week's reversal zone for crude (a better cycle fit), and while it's theoretically possible for prices to plunge to a new low this week, it seems very unlikely that will happen. We will now watch for a modest correction from a high this week (crude already made a new weekly high early today and then closed well below that high), perhaps down to the $48 - $49 area where we will look to buy (with a stop loss on a close below $47). Still on the sidelines of crude oil.
We are now approaching the next strong reversal zone for the broad stock market (and other markets) late this week. This reversal zone has a wide window (April 5 - 21), and a significant top or bottom (or both) could happen in this time period. We are near the end of a medium-term cycle in the broad stock market so ideally we would like to see equities move down to their final cycle bottoms in this window. Cycle movements, however, are not always "ideal". As I suggested last week, there is a possibility that the DOW and/or S&P 500 made that final cycle bottom with last Monday's low(s). If that was the case then we could see a rally into this upcoming reversal zone as a new cycle begins. (That scenario would likely lead to a top within the next few weeks from which a very severe correction could follow). The argument against a cycle bottom last week is the fact that last Monday's lows were not in a major reversal zone, and the correction was very minimal. Today's downturn in equities also argues against this being a new cycle. Let's hold our short position in the broad stock market for now with the idea of equities going lower over the next week or two for a final cycle bottom. This would involve both the DOW and S&P 500 moving below last Monday's lows. If only one index (DOW or S&P 500) breaks below last Monday's low (and not the other) as we move into the end of this week or into next week, we could have a case of intermarket bullish divergence. If that happens, I may cover my short position and even consider going long as it could indicate the cycle bottom is forming.
We are also approaching the next reversal zone for gold and silver, but it has a narrower window (April 5 - 17) than that for equities. As with equity markets, gold is near the end of its medium-term cycle and is due to take its final corrective drop to complete a cycle bottom. It could do that from yesterday's (Sunday's) high and form the cycle bottom over the next few weeks in the reversal zone, but it could also push higher this week and next to form a top in the reversal zone. Let's watch and see if we get an intermarket bearish divergence signal (i.e. either gold or silver, but not both, taking out last week's high, or even better, gold or silver taking out their last cycle high - $1,263.59 in gold or $18.54 in silver - without the other), and try to sell short. If we miss this trade we will wait for a final cycle bottom to buy in gold over the next week or two. Silver's cycle is a bit more ambiguous than gold's at the moment as silver's medium-term cycle may have bottomed on March 15 at $16.84. Nevertheless, if silver makes a new high with bearish divergence to gold, it could still be a good opportunity to sell short. I realize this is all a bit confusing, but I will clarify any trading opportunities if and when they arise. On the sidelines of gold and silver for now.
What happens to gold and silver could depend on the U.S. dollar, but the chart and cycle pattern of the U.S. Dollar Index is very ambiguous now and open to several interpretations. The dollar could be in the process of completing a medium-term cycle bottom (it is due now) which ideally would lead to that bottom in the upcoming reversal zone for currencies (April 10 - 22). That bottom would test or go below the March 27 low of 99.19. But it is also possible the March 27 low was the bottom already, and this market is turning bullish. A third (very bearish) possibility would place the medium-term cycle bottom on the Feb. 1 low of 99.50. That would be bearish because the dollar has since broken below 99.50 (which would be the start of the new cycle) and would likely continue down for the rest of the cycle (at least four more months). This last scenario would be very bullish for gold and silver. Right now I am favoring the first scenario of the dollar making its final cycle bottom in the April 10 - 22 reversal zone. That bottom in the dollar could coincide with a top in the precious metals followed by a severe correction in gold and silver prices.
Crude oil prices rallied strongly last week and directional momentum in this market has switched from 100% bearish to mixed bullish and bearish. It looks like the two lows at $47 on March 22 and March 27 (May contract chart) was a double bottom and the start of a new medium-term cycle in crude oil (which is bullish). We were expecting that bottom in this week's reversal zone for crude (a better cycle fit), and while it's theoretically possible for prices to plunge to a new low this week, it seems very unlikely that will happen. We will now watch for a modest correction from a high this week (crude already made a new weekly high early today and then closed well below that high), perhaps down to the $48 - $49 area where we will look to buy (with a stop loss on a close below $47). Still on the sidelines of crude oil.
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