The broad stock market is coming on like gangbusters today with the DOW up 347 points at the time of this writing. Last week's bearish divergence signal has been negated as all three market indices (DOW, S&P 500, and NASDAQ) make new weekly highs. We can now confirm that the DOW and S&P 500 (and maybe the NASDAQ) started new medium-term cycles with their lows on Feb. 9. Although the early part of any cycle is bullish (which is now being demonstrated), we are now entering a very strong reversal zone for this market. (I am going to expand that zone a bit and define it from Feb.26 -today- through March 13). If the rallying persists this week or even into next week, we should be seeing a top followed by some sort of correction. The nature of of the correction will depend on how far this rally can go. If the rally is weak and the DOW and/or S&P 500 cannot exceed their recent all-time highs (26,617 in the DOW and 2,873 in the S&P 500, then these new cycles could be peaking early, and we could see a severe correction down. On the other hand, if all three indices do exceed their all-time highs then any correction would probably be modest and followed by more rallying into the spring or even summer months. In both scenarios (but especially the first one) we will be looking to sell short at the top of this rally sometime over the next two weeks. If the second scenario unfolds (all three indices making new all-time highs) then we will cover our shorts after a modest correction and go long for a potentially strong rally into the summer. (Note that the top of that rally, if it happens, would likely be followed by a very severe market correction which we would also want to sell short). For now, we wait and watch for signs of a top and see how high this rally can go over the next week or two. On the sidelines of the broad stock market.
Today gold and silver prices rallied a bit but seem to be closing in the lower part of their day's range. Silver also made a new weekly high while gold did not. These are bearish signals and may be warning us of a short-term downturn. Since we already have a profit in both metals, I'm going to sell my long positions in both gold and silver today
We are entering a reversal zone specifically for these metals tomorrow (Feb. 27 - March 8). We could be making new lows in this reversal (which we may look to re-buy), but even if we make new highs, they will likely turn down quickly so I think it is best to sell our longs now. Curiously, at the moment the COT charts for silver are strongly bullish while gold COTs are slightly bearish which is a little odd as both metals usually move in sync. Selling my gold and silver long positions today.