MARKETS UPDATE (7:00 pm EDT)
Today the DOW rallied strongly and sharply off its deep low from Friday. The S&P 500 and NASDAQ were also up, but not quite as much. Because we are in the center of a modest reversal zone (Oct. 25 - Nov. 1), the broad stock market is entitled to a bounce back up here; however, I don't think the bounce will get very far for several reasons. First of all, it's a little too early for a significant sub-cycle low in all three indices. Secondly, the current medium-term cycles for all three indices have definitely turned bearish and are pointed down. And finally, any rally from here will be rising into our next STRONG general reversal zone coming up tomorrow (Oct. 31 - Nov. 9), and that would likely curb the rally and send it back down soon. For these reasons we will continue to hold our short position in this market for now.
Gold and silver are a tricky call right now. There are some technical signatures suggesting a strong rally (up to two weeks in duration) in both metals could start tomorrow from an isolated nearby low. Silver made an isolated low just last Thursday (at $22.51) which might qualify, but gold's most recent low was $1958 from last Tuesday. Gold then made an isolated high last Friday at $2008. The problem here is that 20% of the time the current technical signatures can correlate to a high and a subsequent PLUNGE instead of a rally. While it's possible gold could continue to rally from last Tuesday's low along with a rally in silver, it's also possible for both metals to turn sharply down starting tomorrow. Gold's steep rally looks especially vulnerable to a correction. We will stay on the sidelines of both metals for now. If we do see a strong rally this week, we will wait for it to peak either this week or next and then watch for the sharp correction down that usually follows such a rally to give us another possible buying opportunity. There is a reversal zone specifically for the precious metals coming up Thursday (Nov. 2 - 14) as well as the strong general reversal zone mentioned above (Oct. 31 - Nov. 9). They overlap Nov. 2 - 9, so that would be an ideal time for a top in any gold and silver rally. We will watch for it. Alternatively, if prices start falling from here, we will be looking for a low (and possibly a buy spot) in that same time frame.
The U.S. Dollar Index still seems to be finding a support line around 106. If it can launch a rally from there right now, it could put downward pressure on the precious metals and trigger a plunge as just described above. On the other hand, if that 106 support breaks, it could give a lift to gold and silver and kick start a strong rally.
Crude oil is also a difficult market to call right now. The volatility in this market due to the ongoing Israel/Palestine war warns us to be careful. That volatility was seen in the sharp rally from the deep low of $80.20 (Dec. contract chart) on Oct. 6 to near $90 on Oct. 20 and the subsequent fall back to $82 today. We note that crude is making this new low near the center of a reversal zone specifically for crude (Oct. 26 - Nov. 3) and also inside a general reversal zone (Oct. 25 - Nov. 1). This means a reversal back up could be imminent. What bothers me here is that the recent high near $90 on Oct. 20 was significantly below crude's previous high of $92.48 on Sept. 28 which means the cycle could be turning bearish. Also, today's low is getting close to the Oct. 6 low of $80.20 (which could have been the start of a new medium-term cycle) which is another bearish warning. If prices can stay above $80.20 over the next day or two, we may look to buy as we are now deep inside several reversal zones. Let's stay on the sidelines for today.
MARKETS UPDATE (11:00 pm EDT)
In Monday's blog on the broad stock market I wrote:
"The broad stock market's steep fall last week is reinforcing our bearish view of the current medium-term cycles in all three market indices (DOW, S&P 500, NASDAQ). In other words, we expect them to fall further. We may be getting a bullish divergence signal today as the S&P 500 and NASDAQ are making new weekly lows but the DOW is not (at the time of this writing). We could get a small relief bounce here after last week's plunge, but I don't expect it to get far before turning down again."
All of this has played out. The DOW had a two day bounce on Tuesday and Wednesday while the S&P 500 and NASDAQ both had one day bounces on Tuesday, but all three are now headed down again with the DOW making a new weekly low today which negates the bullish divergence signal from earlier in the week. The current medium-term cycles for all three indices are officially bearish and most likely pointed down until at least the end of November, but possibly longer. We expect the final bottom to these cycles to happen somewhere between Nov. 20 and early January. A good final target for the DOW would be in the 31,000 - 32,000 range, and the S&P 500 could get down to 3,700 - 3,800.
Of course, these indices won't move straight down over the next two to three months. There will be relief rallies along the way, and because we are now entering a strong general reversal zone (Oct. 25 - Nov. 1), we should be on the lookout for a sub-cycle bottom and a possible rally off that bottom. A second even stronger general reversal zone (Oct. 31 - Nov. 9) is overlapping the first one, and that leaves a big time frame for a sub-cycle bottom to happen. We may even get a bottom followed by a brief rally up and then a reversal back down all within this Oct. 25 - Nov. 9 window (i.e. two reversals). But I'm getting ahead of myself here. For now, we'll keep holding our short positions in this market. If we do see signs of an imminent sub-cycle bottom, we may take some profits and cover our positions and then jump back in (go short) again at the top of any brief relief rally. Or perhaps we'll just stay short until these medium-term cycles reach their final bottoms near the end of this year or in early January 2024. We are holding our short position in the broad stock market.
We have been looking to buy gold and/or silver on any significant corrective dips. Gold edged down to $1958 on Tuesday and has been rising a bit from there. Silver has been moving straight down since last Friday's high and is making a new weekly low today. There is a possibility of both metals starting a strong rally early next week, but I would like to see gold make another isolated low first. If gold makes a new weekly low on Monday next week without silver doing the same (bullish divergence), we could have an ideal scenario for buying both metals. We will remain on the sidelines of gold and silver for now.
We have also been looking to buy a corrective dip in crude oil. Prices have been falling since last Friday, and they made an isolated low yesterday at $82.08 (Dec. contract chart). We entered a reversal zone specifically for crude today (Oct. 26 - Nov. 3). There is time for crude to make a lower low closer to the center of this reversal zone. One thing that concerns me now is that prices are getting close to the Oct. 6 low ($80.20) that may have started a new medium-term cycle. If prices get below that, it could mean the new cycle is turning bearish. But it could also indicate the cycle is older and started with the low of $77.03 from Aug. 24. Let's wait and see if prices can go lower, and if so, how low they go. Any new low next week would probably be a good buy spot, as long as it stays above $77.03. We will stay on the sidelines of crude for now. I should note here that because the Israel/Palestine conflict continues to escalate and shows no signs of cooling off, we should expect high volatility in this market and will be very cautious in our trading.
MARKETS UPDATE (2:00 pm EDT)
The broad stock market's steep fall last week is reinforcing our bearish view of the current medium-term cycles in all three market indices (DOW, S&P 500, NASDAQ). In other words, we expect them to fall further. We may be getting a bullish divergence signal today as the S&P 500 and NASDAQ are making new weekly lows but the DOW is not (at the time of this writing). We could get a small relief bounce here after last week's plunge, but I don't expect it to get far before turning down again. We will continue to hold our short position in the broad stock market for now.
Unfortunately, we missed out on gold and silver's steep rise over the last two weeks because several reversal zones turned out to be "break-outs" instead of "turn-downs". This is not common, but it can happen in very bullish markets. But even in bullish markets, steep rallies eventually take a breather and correct down to some extent, and the current steep rally in precious metals is getting ripe for some sort of correction. There is a strong possibility of more rallying in gold in the first two weeks of November from an isolated low that could happen sometime this week or early next week. We will watch for this as a possible opportunity to buy. If we miss it, we will wait for a top in the rally (if we get one) near mid-November as a sharp correction down should follow and give us another opportunity to go long. We are out of both gold and silver for now.
Crude oil prices nearly touched $90 (Dec. contract chart) on Friday, but today they are falling back into the $85 - $86 area. We are pretty certain that crude started a new medium-term cycle either on Aug. 24 or Oct. 6 (most likely). In either case, a sharp rally took off from the Oct. 6 low. If this rally rolls over now, we could get a corrective dip into two reversal zones coming up later this week: a general reversal zone Oct.25 - Nov. 9, and a reversal zone specifically for crude Oct. 26 - Nov. 3 that may give us a good spot to buy (assuming the dip stays above $80). If instead crude prices rally higher into these reversal zones, we may have to wait a little longer for a correction into a good buy spot. This market looks very bullish right now, but any break below $80, and especially below $77 would start turning things bearish. We remain on the sidelines of crude for now.
BRIEF COMMENT ON THE U.S.DOLLAR INDEX (1:30 pm ET)
The U.S. Dollar Index made an isolated low last week at 105.54 near the center of our general reversal zone. It then rallied from there to close above 106. The greenback seems to be finding a support line just above 106. If it can rally a bit more off this support, that could put downward pressure on gold and silver prices, both of which look like they could take a corrective breather from their steep rallies over the last two weeks. We will watch for this as it may give us a good buy spot in the precious metals. Alternatively, any breakdown below 106 in the dollar would likely boost these metal prices. We note that the next significant general reversal zone is coming up next Wednesday (Oct. 25 - Nov. 9), so the current gold and silver rally is not facing much resistance until then.
UPDATES ON THE BROAD STOCK MARKET and CRUDE OIL (8:00 pm EDT)
Both the DOW and S&P 500 made new weekly highs yesterday and are sharply down today. Our preferred labeling right now is that both indices started new medium-term cycles with their August lows (the DOW's low of 34,029 on Aug. 25 and the S&P's low of 4,336 on Aug. 18). Because both have now moved well below those starting points, their medium-term cycles are technically bearish and pointed down until the end of the cycle, which is not due for at least another month. In this scenario, the DOW made its first sub-cycle low on Oct. 6 at 32,847 and the S&P 500 made its first sub-cycle low on Oct. 3 at 4,216. The current modest rally from those lows should be peaking this week (yesterday may have been the peak) or next week as we then anticipate another leg down in these cycles.
There is a possible alternative (but less likely) scenario to the one described above. The Oct. 3 and Oct. 6 lows in the S&P 500 and DOW, respectively, might be the start of new medium-term cycles (meaning the previous cycles were longer than we thought). If this is the case, both indices could be very bullish now. If this market rallies past next week, we will have to consider this possibility. For now, we will stick with the bearish view and continue to hold our short position in the broad stock market. In this bearish scenario the DOW could move down to around 31,400 and the S&P 500 down to 4,100 or even lower.
Crude oil's medium-term cycle labeling is still unclear. I think we will abandon the idea of an older cycle forming its final bottom now, and rather, go with the view that a new medium-term cycle started with the Oct. 6 low at $81.50 (Nov. contract chart). This would mean the cycle is very young and probably bullish. A second possibility is that a new medium-term cycle began on Aug. 24 at $77.32. This would make the cycle a little older but certainly bullish as it has already gone well above the top of the previous cycle. In both cases, we are only a week and a half into a rally off that Oct. 6 low, so we should be watching for the next sub-cycle top. Next week we enter a new reversal zone specifically for crude Oct. 26 - Nov.3. That could be a good time frame for a top followed by another correction down. Let's wait and see how far this current rally can go. To stay bullish, prices need to close above $95. Our trading strategy now will be to buy any significant corrective lows, but we may have to wait at least another week to see that. In the meantime, we remain on the sidelines of crude. We note that the Israel/Palestine conflict is driving crude prices up right now, but this kind of volatility in price movement can quickly and easily turn in the other direction, so we need to be careful in trading crude oil under these conditions.
GOLD AND SILVER UPDATES (9:00 pm EDT)
We can now confirm that gold's low of $1812 on Oct. 6 was the end of an old medium-term cycle and the start of a new one. The previous cycle's trend was bearish (it ended lower than where it started), and that could mean this new cycle will be bearish, but it doesn't have to be. In fact, last week's steep rally is suggesting the trend could be turning bullish. It will take a close above the high of the last cycle - $1987 - to confirm a bullish trend, and this isn't too far away.
We are now moving out of any strong reversal zones (they end today). Gold made an isolated high yesterday and is down a bit today, so a significant correction could be starting. But if gold pushes higher over the next several days, we will have to assume it is bypassing a normal reversal and is breaking out instead (this can happen in strongly bullish markets). Assuming prices correct down modestly over the next few days (say to $1900), we may consider going long as there are many bullish factors driving gold right now (i.e geopolitical tensions). Alternatively, if we miss a good buy spot we will stay on the sidelines and wait for the next major corrective drop. We are expecting a major crest in this new medium-term cycle anytime between now and mid-November, and a strong correction should follow. Nov. 11 looks like a strong possibility for the crest. If at any time gold falls back below $1812, we will switch to bearish strategies. We remain on the sidelines of gold today.
It is now clear that, like gold, silver started a new medium-term cycle last week with its low of $20.70 on Oct. 3. It's strong rally from there is also a bullish sign, but as with gold, we have to be careful here (silver's previous medium-term cycle trend was also bearish). We may look to buy on any modest corrective drops over the next few days. If silver remains bullish, it could still rally back up into the $27 - $35 range into the end of this year and early 2024. We are on the sidelines of silver for now.
MARKETS UPDATE (3:00 pm EDT)
On Friday all three of our broad stock market indices (DOW, S&P 500, NASDAQ) closed with losses. Because there are only two days left in our reversal zone, there's a good chance they are headed lower, although we can't rule out a secondary top on Monday and Tuesday. What we don't want to see now are these indices rising to new highs past Tuesday, and that is our stop loss parameter for our current short position in the S&P 500, which we are holding for now.
Gold and silver prices rallied dramatically on Friday. Gold broke and closed well above its 15-day and 45-day moving averages which suggests that a new medium-term cycle started with the October 6 low of $1812. Silver prices closed above the 15-day moving average but below the 45-day moving average. Silver may have also started a new medium-term cycle from its low of $20.70 on Oct. 3, but we still can't be sure prices won't fall back below that low for an older cycle bottom. Both gold and silver are making these new highs within our general reversal zone and also inside strong "pivot point" time frames for both metals (which all end on Monday) so, yes, prices can still turn sharply down from here. Sometimes (infrequently), however, a rally into a reversal zone can correspond to a breakout instead of a reversal, and we may be getting that now as we were anticipating a strong rally in gold in October. If this is a breakout, we may have missed a good buy spot at those Oct. 3 and 6 lows. Let's wait and see if prices can move back down next week and possibly give us another buying opportunity. If not, we may have to refrain from trading until the trend of any new cycles are established. We will stay on the sidelines of both metals for now.
Oddly, the U.S. Dollar Index surged higher last Thursday and Friday, even as gold and silver prices took off. Normally, the greenback moves opposite these metals, although there are times when both move in tandem. The dollar made a significant low last Thursday near the center of our general reversal zone, so unless it turns down from an isolated high this Monday or Tuesday (the end of the reversal zone), it will likely continue higher. That would normally put downward pressure on precious metal prices, but all markets are now being affected by the Israel/Palestine conflict, so we can't count on normal market behavior right now.
And speaking of the Israel/Palestine conflict, we know that any conflicts in the Middle East often cause volatile price movements in crude oil. We consider these conflicts as "wild cards" in the game of trading crude. After "gapping up" on Monday last week, crude seemed to be resuming its sharp correction back down Tuesday-Thursday, but then it surged back up again on Friday, closing just above its 15-day and 45-day moving averages. We recently labeled the current medium-term cycle as an older one coming to an end with a 2-5 week steep drop to the final cycle low due inside our current reversal zone (which ends Tuesday) or possibly in our next reversal zone for crude coming up Oct. 26 - Nov. 30. That could still happen if prices turn back down over the next several days, but if the Israel/Palestine conflict escalates and drives prices even higher, we may have to relabel the current cycle. For now, we will remain on the sidelines of crude, which is probably the best place to be during a Middle East crisis.
BROAD STOCK MARKET TRADE ALERT (3:30 pm EDT)
Based on recent blogs, I am going to sell short the S&P 500 today. Those who receive this information late can put in an order for tomorrow's market open or wait and sell short tomorrow. As I mentioned yesterday, the S&P 500 has the most potential in any corrective fall from this point, but the other two indices (DOW and NASDAQ) will also be falling substantially if (when) this market resumes its correction down. Our stop loss for this trade will be based on these indices continuing to rally to new highs beyond next Tuesday (the end of our current reversal zone).
MARKETS UPDATE (6:00 pm EDT)
We are now in the dead center of our new general reversal zone (Oct. 5 - 16), and the broad stock market has been rising sharply into it. The DOW has been rising from last Friday's low (also in the reversal zone), and the S&P 500 has been rising from a low from last Tuesday. (We are going to ignore the NASDAQ for now as it's cycle may be taking a different path.)
Both the DOW and S&P 500 likely started new medium-term cycles in August (the DOW on Aug.25 at 34,029 and the S&P 500 on Aug. 18 at 4,336). Both indices have now dropped below those starting points and are therefore technically bearish and pointed down. Last week's lows look like the first sub-cycle corrections. If so, we could see a 3 - 8 day rally to a sub-cycle top and then a reversal back down and resumption of the bearish trend. So far the DOW has rallied two days and the S&P 500 has rallied five days. Today is the center of our reversal zone and both indices did not make new highs, so they may be getting ready to roll over. Let's get ready to sell short the S&P 500 tomorrow or Friday. (The S&P 500 is a better short play than the DOW right now as it has more room to fall in the current bearish trend.) What we don't want to see now are these indices rallying beyond next Tuesday as that is the end of the reversal zone and it would question the bearish trend. For today we remain on the sidelines of this market.
Gold and silver both rallied to new weekly highs today, and as with the stock market, they are doing this in the center of a general reversal zone. Today through Friday is also a potentially strong "pivot point" for both metals, especially gold. A short-term top could therefore be imminent any day now, and prices could turn back down. We have been waiting to buy at the final medium-term cycle bottoms in silver and gold. Those bottoms could have already happened last week with silver down to $20.70 on Tuesday and gold down to $1812 on Friday. Our current reversal zones could, however, turn prices back down to lower levels or at least give us a better entry point to buy near the start of new cycles. An ideal scenario now would be for gold or silver (but not both) to make a new weekly low (without the other) for a case of bullish divergence. That would be a good signal to buy, especially if it happens by next Tuesday. For now, we remain on the sidelines of both metals.
Yesterday and today the U.S. Dollar Index broke below a support line at 106. Nevertheless, it is now making new weekly lows in the center of our current reversal zone which means it could turn back up any day now. If it does, it will put some downward pressure on precious metal prices (but it will also be facing resistance at that 106 line).
After "gapping up" from last Friday's low of $81.50 (Nov. contract chart) to $87.24 on Monday, crude oil prices are falling again and seem to be closing that gap. This is supporting our idea that we are at the end of an older medium-term cycle in crude that is moving to its final cycle bottom. This is the second week of the final correction (from the $95.03 top on Sept. 28). Final corrections usually last 2-5 weeks, so we should be looking for a bottom to buy soon. It could be in this week's reversal zone, but there is another reversal zone coming up Oct. 25 - Nov. 1 and also a reversal zone specifically for crude coming up Oct. 26 - Nov. 3, so it's possible the final low could be then. To maintain a bullish trend, we would like to see the final bottom stay above $78. Let's stay on the sidelines of crude for now.