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.
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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