We are now in a new strong reversal zone for equities that will be in effect through the middle of next week (it peaks near the end of this week and early next week). The rally in the broad stock market from a sub-cycle low on May 18 (in the DOW, S&P 500 and NASDAQ) should be coming to a peak in this reversal zone, and we should now be looking for a spot to take profits in our long positions as a significant downward correction in this cycle could be imminent (possibly 10% or more). This rally has been a lackluster one. Wall Street's "Trumphoria" seems to be waning and possibly morphing into "Trumphobia" as a media-driven frenzy questioning the stability of the new president and his administration continues unabated. Equity markets do not like uncertainty, and they may chose to show their displeasure in this current reversal zone. The DOW still has not exceeded its all-time high of 21,169 from March 1. If it can't do that by the end of the week that may be a good signal to pull out of our long positions (and maybe even sell short). Even if the DOW does make a new high this week (or early next), we will probably look to step aside the broad stock market as the high would be in a strong reversal zone. If equities do start to turn down, the depth of the correction will tell us if the broad stock market's general trend is going to turn bearish or if it will stay bullish with a rebound and another strong rally into the summer. Holding my long position in the broad stock market for now but preparing to sell these positions this week or early next week.
Gold and silver prices were down a bit today, but the cycle and technical picture for both metals is starting to look more bullish. In last Thursday's blog I wrote:
"There is a reversal zone centered around June 2 for all markets and a specific one for the precious metals centered around June 7. If prices now fall into one of those dates, it will be a good buy spot (especially if we get a bullish divergence signal...). If prices instead rise into early June (I think this is more likely) then we would likely unload and take profits in our long position in gold and maybe even sell short..."
This still applies as we approach those dates. An ideal corrective level to buy would be around $1240 - $1250 in gold (we don't want to see it below $1220) and around $16.50 in silver. We are still holding long positions in gold but are out of silver. If prices push higher into the end of the week, we will consider taking profits and unloading our gold trade and possibly selling short (both gold and silver). If we miss the short sell we will wait to buy both metals at those corrective levels mentioned above. Holding my long gold position and out of silver for now.
In Thursday's blog on the U.S. dollar I wrote:
"The U.S. Dollar Index is finding support at 97, but can it start a new rally from there? Maybe, but directional momentum in this chart is still nearly 100% bearish. Also, there is a major reversal zone for currencies coming up in the first week of June. If the dollar is going to make a major bottom and reverse, it is more likely to happen then, not now."
The dollar's rally got to 97.77 early today, but then fell abruptly and closed the day at 97.24. The rally may be over, although it still has time to push higher into the June 2 reversal zone which is especially strong for currencies. That would be a good set-up for a strong correction down. If instead the greenback moves lower into the end of this week or early next week we could see a significant low and the pivot point for another rally. A rising dollar would push gold and silver prices down. A falling dollar would favor the precious metals.
As with the precious metals, crude oil could reverse near June 2 or near June 7. Crude appears to be taking a sub-cycle correction from its $52 high on May 25 (July contract chart) and could easily complete that correction this week or next. We will watch for this bottom ideally below last week's low of $48.18 but above $46 as a possible spot to buy. On the sidelines of crude oil.