All three of our major broad stock market indices (DOW, S&P 500, NASDAQ) found support last week after a steep plunge on Monday (Jan. 24). It's possible one, two, or even all three indices completed medium-term cycle bottoms last week; however, there was no bullish divergence between them (they all made new lows), and last Monday was not in a reversal zone. This means the cycles could still be bearish and heading lower into our current reversal zone (Jan. 28 - Feb. 12). These indices are starting today with a rally. We will stay with our short position in the NASDAQ for now and will consider taking profits and covering that position if this rally can gain some legs. We don't want to see the DOW close above 35,500, and we would like the S&P 500 to stay below 4,600. The NASDAQ closing above 14,500 would also be a bullish sign. We will watch this rally carefully now - especially if it starts approaching these levels. If prices do drop again and one, two, but NOT ALL THREE indices make new weekly lows, that would also be a bullish signal (bullish divergence in a reversal zone) and would make us consider covering our short NASDAQ position.
In last Thursday's blog on gold and silver I wrote:
"We should be watching for a bottom to buy over the next several trading days, as long as gold can stay above $1759 and silver above $21.44. An ideal set-up would be for gold or silver (but not both) to make a new weekly low early next week for a case of intermarket bullish divergence inside our new reversal zone."
Well, we are now approaching the center of our reversal zone for gold and silver, and both metals are staying above our lower limit. Nevertheless, we are not getting any bullish divergence signal (yet), but more significantly, there are several very bearish technical signals appearing now - especially in the chart of silver. I am reluctant to go long just yet. Let's wait to see if silver or gold (but not both) can make a new weekly low. We will stay on the sidelines of both metals for now.
Today is the first day of a new reversal zone for crude oil (Jan. 31 - Feb. 8). Last Friday's high at $88.84 (March contract chart) may have been a significant top, but if not, there's plenty of time to make a new one this week or early next week. We have been watching crude for a significant correction to possibly buy, but so far we haven't gotten one. This new reversal zone may give us one. Let's wait and see. This market is still looking quite bullish. We will remain on the sidelines of crude for now.