We appear to be on track (so far) with our bullish interpretation of the broad stock market and the idea of a new medium-term cycle starting in all three major indices (from the DOW's low of 20,379 last week and the S&P 500 and NASDAQ lows of 2,322 and 5,769, respectively, on March 27). These indices are rallying strongly from those bottoms, but now the DOW and S&P 500 are approaching and testing their all-time highs from March 1 (the NASDAQ is already making new all-time highs) so we will soon see if this market is truly bullish. There is resistance for the DOW and S&P 500 at those highs (21,169 in the DOW and 2,400 in the S&P 500), and it would be normal now to see these markets back down a bit after this week's strong rally. Nevertheless, we need to see the DOW and S&P 500 break through those highs soon or we will have another case of intermarket bearish divergence (as the NASDAQ has already broken through its all-time high from early March). Directional momentum in all three indices is now nearly 100% bullish so I am fairly confident in the bullish scenario. What we don't want to see is both the DOW and S&P 500 break below those cycle bottoms mentioned above. The breaking of those lows may still be used as a stop loss for our current long position in this market. Holding my long position in the broad stock market.
Gold and silver are still hard to call right now. Silver is falling sharply this week and appears to be headed down to its major cycle bottom as prices approach last month's low near $16.84. Gold prices are also down this week but not as steeply, and gold's correction so far has been very minimal. Directional momentum in both gold and silver metal charts is nearly 100% bullish; however, gold and silver stock price indices (HUI, XAU, GDX) are all 100% bearish. Precious metal stock prices often lead precious metal prices so it seems like this market wants to head lower, but directional momentum could give us some short-term rallies. It is probably best to remain on the sidelines of this market for now. Any rally with intermarket bearish divergence (i.e. gold making a new high but not silver) might be a good spot to sell short if it happens. If it doesn't, we may have to wait for both cycles to bottom and look to buy then. On the sidelines of gold and silver.
In Monday's blog on crude oil I wrote:
"...crude prices dropped to $49.20 (June contract chart) which is a bit below our target for this correction, but more importantly, directional momentum in some crude charts changed from mixed bullish and bearish to 100% bearish. This is making me reluctant to go long now. We are moving out of a reversal zone for crude, but there is another one coming up in the second week of May. It is possible for this correction to continue down and bottom in that time period. If prices break below the start of this cycle on March 22 ($47.58), the cycle trend would likely be turning bearish, and we might switch our trading strategy to selling short the top of any short-term rally."
Crude prices dropped to $48.20 early this morning so it is getting very close to the start of the current cycle, and directional momentum in crude charts is still nearly 100% bearish. This correction could continue down into the next reversal zone in the second week of May, but prices snapped back up today from that $48.20 low to close at $49.25. That is bullish behavior. If that was a bottom and crude prices now rise into the next reversal zone, we may have a top to sell short instead of a bottom to buy. Still on the sidelines of crude oil.