Yesterday equity markets made new highs but then sold off sharply in late afternoon trading. This is bearish behavior. Before selling off, the NASDAQ made a new yearly high (surpassing its April 20 high of 4,969). The S&P 500 also made another new high for the year at 2,119 before it sold off. The DOW broke briefly above 18,000 before it turned down and closed the day with only a 17 point gain. The DOW did not break above its yearly high of 18,167 so we still have a strong intermarket bearish divergence signal in a reversal zone (which technically ends tomorrow). This looks like a good time to sell these markets short for at least a moderate correction which could last into the end of this month. We can set a stop loss for this trade on the DOW exceeding its yearly high of 18,167, especially if that happens after Wednesday (i.e. outside the current reversal zone). I would suggest shorting the S&P 500 or NASDAQ here because there is a chance that the DOW has already started a new medium-term cycle and may not correct down as far as the other two indices. Entering a short position in the broad stock market before the markets open this morning.
BROAD STOCK MARKET TRADE ALERT (1:00 am EDT)
Yesterday equity markets made new highs but then sold off sharply in late afternoon trading. This is bearish behavior. Before selling off, the NASDAQ made a new yearly high (surpassing its April 20 high of 4,969). The S&P 500 also made another new high for the year at 2,119 before it sold off. The DOW broke briefly above 18,000 before it turned down and closed the day with only a 17 point gain. The DOW did not break above its yearly high of 18,167 so we still have a strong intermarket bearish divergence signal in a reversal zone (which technically ends tomorrow). This looks like a good time to sell these markets short for at least a moderate correction which could last into the end of this month. We can set a stop loss for this trade on the DOW exceeding its yearly high of 18,167, especially if that happens after Wednesday (i.e. outside the current reversal zone). I would suggest shorting the S&P 500 or NASDAQ here because there is a chance that the DOW has already started a new medium-term cycle and may not correct down as far as the other two indices. Entering a short position in the broad stock market before the markets open this morning. MARKETS UPDATE (4:30 pm EDT)
The U.S. Labor Department's jobs report on Friday was very disappointing. The U.S. economy created just 38,000 jobs in May, the weakest level of hiring in nearly six years. This unusually low number apparently frightened investors as equity markets dropped steeply in early trading on Friday, but that fear was short-lived, and the markets recovered by late afternoon. Of course, this dismal economic data may now curb the Fed's enthusiasm for raising interest rates. Wall Street investors most likely had this in mind today as equity markets rallied strongly. In fact, the DOW's directional momentum switched from mixed bullish and bearish to 100% bullish today. This means that the DOW, S&P 500 and NASDAQ are all 100% bullish now. This Wednesday is technically the last day of the current reversal period for the broad stock market and these markets continue to rise into it. The S&P 500 today broke above its yearly high of 2,111 while the DOW stayed below its yearly high of 18,167 so we are getting an intermarket bearish divergence signal in this reversal zone (until that 18,167 level is breached). In last Thursday's blog I wrote: "I am going to wait and see how these markets respond to tomorrow's jobs report. If the data is disappointing, equities may rally and we could still see intermarket bearish divergence if the S&P 500 breaks above 2,111 and the DOW stays below 18,167 (or vice-versa). That could give us a good spot to sell short, but I am starting to think that any correction now will be minimal so we will also be looking to go long at any corrective bottom." This is all happening, but today's strong bullish signals are making me reluctant to sell short right now. I may do it over the next two days if the DOW can stay under 18,167. If the DOW exceeds that high, however, we may just get a minor correction into the end of June which we will look to buy. Still on the sidelines of this market. I also wrote in Thursday's blog: "Tomorrow's jobs data may also have an effect on precious metal prices... A disappointing report could ease rate hike fears, push down the dollar and encourage a rally in the precious metals." This is also happening. The U.S. Dollar Index plunged on Friday and this triggered a surge in gold and silver prices. Unfortunately, this price movement is not clarifying the cycle pattern in these metals just yet. If gold continues to rally into the end of this week or early next week and stays under $1,290, we may have a good spot to sell short for a final correction into the end of the month. There is a possibility, however, that gold ended its old medium-term cycle and started a new one on May 29 with the low of $1,200. If this is the case, gold could be very bullish now and any rally would likely exceed $1,300. Silver's situation is similar to gold's and silver may also rally now, but if that rally stalls later this week or early next week, prices could fall again into a corrective low. Directional momentum is now mixed bullish and bearish for both metals which gives us no clue as to directional trend at the moment. Let's wait and see if gold prices can rally this week and watch how high they go. There is resistance in the $1,280 - $1,290 area. If gold gets there and stalls, and if the U.S. Dollar Index falls to a support zone around 92 - 93, we could see the precious metals reverse back down (and an opportunity to go short). On the other hand, if gold and silver prices edge downwards this week, we may look to buy for a reversal back up and a potentially bullish rally. Stay tuned. On the sidelines of gold and silver for now. Crude oil prices are edging a bit higher today but are still below last week's high of $50.10 (July contract chart). The cycle picture for crude shows that a top is due and a sharp correction to the medium-term cycle bottom could start any time now (a correction could take prices to the $42 area). Next week is another reversal zone specifically for crude so it's possible prices could make a double top to last week's high or even make a new high into that time. We will try and maintain a stop loss for our current short position in crude around $51, but I may tolerate a slightly higher price, especially as we approach next week's reversal zone. Maintaining my short position in crude oil. BROAD STOCK MARKET and PRECIOUS METALS UPDATE (4:30 pm EDT)
We are now nearing the end of our current strong reversal zone for equities (although it could extend into next Wednesday). The DOW and S&P 500 have definitely been rising into it. A top may have formed on Tuesday in both indices, but there was no intermarket bearish divergence signal as both made new weekly highs and neither index broke above its yearly high (18,167 in the DOW and 2,111 in the S&P 500). These markets seem reluctant to fall this week, and this may be due to investor anticipation of the U.S. Department of Labor jobs report that comes out on Friday (tomorrow). As I stated in my last blog, the Fed has been recently hinting that they are on track to raise interest rates soon, and this would be supported by a positive jobs report. As we know from the past, talk of a rate hike can scare the markets so there is the potential for a broad stock market selloff here. On the other hand, I don't think the Fed (and others) want a significant market correction before this year's presidential election so they may be strongly motivated to keep equity markets buoyant into at least the end of the year. There are also some technical signals that are now suggesting that any imminent correction may not be serious and soon followed by more rallying. I am going to wait and see how these markets respond to tomorrow's jobs report. If the data is disappointing, equities may rally and we could still see intermarket bearish divergence if the S&P 500 breaks above 2,111 and the DOW stays below 18,167 (or vice-versa). That could give us a good spot to sell short, but I am starting to think that any correction now will be minimal so we will also be looking to go long at any corrective bottom. Any correction in the S&P 500 will take us to the bottom of the medium-term cycle and a good spot to buy. (The DOW's medium-term cycle may have already bottomed on May 19, and if so it is bullish). I realize that all of this may be confusing to anyone who is not personally analyzing the charts, but the natural cycles in these markets are most likely being distorted by overt (e.g. near-zero interest rates) and covert manipulation so they are currently presenting an ambiguous and confusing picture. Even though equity markets are ripe for a significant correction, I think it would be unwise to underestimate the power of the Fed to keep these markets rallying into the presidential election if that is what they want to do. If the S&P 500 starts to close above 2,111 and the DOW breaks above 18,167, the broad stock market could be bullish into the end of this year. Still on the sidelines. The precious metals market is also difficult to call right now. The current reversal zone is not as significant for gold and silver as it is for equity markets, but it still applies. (There are reversal points more directly related to the precious metals near June 13 and June 29). Gold may have bottomed on May 29 and silver on June 1, both within the current reversal zone, but there hasn't been any strong intermarket bullish divergence signal which makes me reluctant to go long. I am starting to think that any rally now will be minimal and will turn back down to make new lows later in the month. We may switch our trading strategy to selling short the top of any short-term rally now, especially if that happens into the two dates mentioned above - June 13 or June 29. Some technical studies are suggesting that gold could move down to the $1,120 - $1,140 area and silver to the $14.50 level. Tomorrow's jobs data may also have an effect on precious metal prices. Positive data could support an interest rate hike (or at least the fear of a rate hike) which could boost the dollar and push gold and silver down. A disappointing report, however, could ease rate hike fears, push down the dollar and encourage a rally in the precious metals. We will remain on the sidelines as we see how this plays out. |
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