UPDATE on the BROAD STOCK MARKET, PRECIOUS METALS, and the U.S. DOLLAR (4:30 pm EDST)
It is looking like all three major broad stock market indices (DOW, S&P 500, and NASDAQ) ended their old medium-term cycles and started new ones on June 3. (The bottoms were 24,680, 2,729, and 7,292, respectively). It is highly likely this new cycle will be bullish and take these indices to new all-time highs into the summer. Thus our trading strategy now is bullish and we will look to buy any short-term corrective dips. This could be soon as we are now inside a very wide reversal zone (June 7 - 24) and this market is rising strongly into it. The current rally is about to challenge the all-time highs of all three indices (i.e. the peaks of the previous medium-term cycles). These highs are 26,696 from April 23 in the DOW, 2,954 from May 1 in the S&P 500, and 8,176 from April 29 in the NASDAQ. If we see strong resistance at these levels this week or next with possible double top formations and/or intermarket bearish divergence (i.e. one or two, but not all three indices breaking these high(s), it may indicate the new cycle is peaking early and turning bearish and will fall steeply, not rise, into the summer. In that situation we will consider selling short at the peak. For now, however, let's assume the cycle is bullish and look to buy any corrective declines. Still on the sidelines of the broad stock market.
The next major reversal zone specifically for precious metals is coming up this week (June 12 - 20; starts Wednesday). Gold and silver prices are now falling from their Friday highs. Ideally, I would like to see gold dip a little closer to its 15-day moving average (around $1310 and rising) as we enter this new reversal zone. That would be an ideal set-up to buy both metals. Gold most likely started a new medium-term cycle with its double bottom at $1266 on April 23 and May 2. Its cycle is still young and bullish, but it is now due for a sub-cycle correction. As just stated, a drop to the 15-day moving average would be an ideal correction. Silver likely started a new medium-term cycle more recently (on May 28 at $14.30). It is not yet due for a significant sub-cycle correction, but a short-term minor dip (happening now) would be normal. If these metals start to rally now, however, we could see a high in the upcoming reversal zone instead of a low. In that situation, we would most likely see a sharp corrective decline from that high, and we would look to buy a little later at the bottom of the correction. Let's stay on the sidelines for now and see how prices move into the second half of this week.
There is also a reversal zone specifically for currencies (June 12 - 20) that is concurrent with the upcoming reversal zone in precious metals. The U.S. Dollar Index fell steeply last week and may have formed a bottom on Friday at 96.45. If the dollar rises now into the end of this week (i.e. into the center of the reversal), it could help push gold prices closer to the 15-day moving average. Then a reversal in both markets would see the dollar turn back down and gold (and silver) rally (our ideal scenario). On the other hand, if the greenback can push a bit lower into the end of this week (or into next week), it could pivot off that low and have a significant rally. That could correspond with a high in the precious metals and then a sharp downturn. Both of these scenarios were discussed above for the precious metals.
It is looking like all three major broad stock market indices (DOW, S&P 500, and NASDAQ) ended their old medium-term cycles and started new ones on June 3. (The bottoms were 24,680, 2,729, and 7,292, respectively). It is highly likely this new cycle will be bullish and take these indices to new all-time highs into the summer. Thus our trading strategy now is bullish and we will look to buy any short-term corrective dips. This could be soon as we are now inside a very wide reversal zone (June 7 - 24) and this market is rising strongly into it. The current rally is about to challenge the all-time highs of all three indices (i.e. the peaks of the previous medium-term cycles). These highs are 26,696 from April 23 in the DOW, 2,954 from May 1 in the S&P 500, and 8,176 from April 29 in the NASDAQ. If we see strong resistance at these levels this week or next with possible double top formations and/or intermarket bearish divergence (i.e. one or two, but not all three indices breaking these high(s), it may indicate the new cycle is peaking early and turning bearish and will fall steeply, not rise, into the summer. In that situation we will consider selling short at the peak. For now, however, let's assume the cycle is bullish and look to buy any corrective declines. Still on the sidelines of the broad stock market.
The next major reversal zone specifically for precious metals is coming up this week (June 12 - 20; starts Wednesday). Gold and silver prices are now falling from their Friday highs. Ideally, I would like to see gold dip a little closer to its 15-day moving average (around $1310 and rising) as we enter this new reversal zone. That would be an ideal set-up to buy both metals. Gold most likely started a new medium-term cycle with its double bottom at $1266 on April 23 and May 2. Its cycle is still young and bullish, but it is now due for a sub-cycle correction. As just stated, a drop to the 15-day moving average would be an ideal correction. Silver likely started a new medium-term cycle more recently (on May 28 at $14.30). It is not yet due for a significant sub-cycle correction, but a short-term minor dip (happening now) would be normal. If these metals start to rally now, however, we could see a high in the upcoming reversal zone instead of a low. In that situation, we would most likely see a sharp corrective decline from that high, and we would look to buy a little later at the bottom of the correction. Let's stay on the sidelines for now and see how prices move into the second half of this week.
There is also a reversal zone specifically for currencies (June 12 - 20) that is concurrent with the upcoming reversal zone in precious metals. The U.S. Dollar Index fell steeply last week and may have formed a bottom on Friday at 96.45. If the dollar rises now into the end of this week (i.e. into the center of the reversal), it could help push gold prices closer to the 15-day moving average. Then a reversal in both markets would see the dollar turn back down and gold (and silver) rally (our ideal scenario). On the other hand, if the greenback can push a bit lower into the end of this week (or into next week), it could pivot off that low and have a significant rally. That could correspond with a high in the precious metals and then a sharp downturn. Both of these scenarios were discussed above for the precious metals.
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