All three major market indices are down today (DOW, S&P 500, NASDAQ). This could mean that the reversal we had been expecting has started from last Friday's highs. Because those highs broke our intermarket bearish divergence signal, we were stopped out of our short positions on Friday. As I stated in Friday's blog:
"There is a chance we are being "whipsawed" out of this trade too early...The next reversal zone for this market is coming up around July 1, but if we get another case of intermarket bearish divergence next week, I might consider going short again."
OK. The strength of the NASDAQ's fall today suggests a correction is starting in that index, but the DOW and S&P 500 are not falling as much. If the DOW and/or the S&P 500 can poke above last week's high(s) this week, we could get another bearish divergence signal that would give us another opportunity to sell short. Otherwise, we may have to wait for a corrective bottom to buy. Longer-term analysis of this market still shows a strong possibility of another strong rally into the summer that would likely start from any corrective bottom that forms over the next several weeks. On the sidelines of the broad stock market for now.
Gold and silver prices have been falling sharply from last week's reversal zone specifically for precious metals (centered on June 7) and we should now be watching for the bottom of this correction and a good spot to buy. That may come this week as the Fed is expected to announce another interest rate hike after its meeting this Tuesday/Wednesday which could be a turning point for the precious metals. Directional momentum in gold charts is now nearly 100% bullish which supports the idea of an imminent rally (silver is still mixed bullish and bearish). A good target for a bottom in gold would be around $1250 - $1260. A good silver target would be around $16.50. We will watch for those levels over the next two days as potential spots to buy. Still on the sidelines of gold and silver.
The U.S. Dollar Index made a bottom at 96.54 on June 6 near the center of a reversal zone specifically for currencies. In last Monday's blog I wrote:
"...the U.S. dollar seems to be in trouble. Directional momentum in the dollar chart is still nearly 100% bearish. This reversal zone could possibly be a turning point for the dollar to stage a rebound rally, but that rebound may be short-lived as other technical signals are suggesting the dollar could move quite a bit lower. If we do get a short-term dollar rally, that could be just the thing we need to push precious metal prices back down..."
The dollar's "rebound" rally has so far not been able to get beyond a strong resistance line around 97.50. Can the dollar "break out" here? Possibly, but directional momentum is still nearly 100% bearish for the dollar, and if the dollar's longer-term cycle began in February (this is still not confirmed) then the cycle is bearish and will go lower. This week's expected interest rate hike may be driving the dollar's rally from last week's bottom (a rate hike is generally bullish for the dollar), but if and when they do announce a hike on Wednesday, we could see the adage "buy the rumor, sell the news" play out with the dollar turning back down again. That would be bullish for the precious metals.
Last week on June 8, crude oil made a bottom at $45.20 (July contract chart) in the center of a reversal zone specifically for crude. Prices have rallied from there so that could have been a sub-cycle bottom. Normally we would look to buy such a bottom, but last week directional momentum in crude turned 100% bearish. This means that the current medium-term cycle in crude may have started back on March 22 (not May 5) at $48, and if so it would be bearish until it ends, which could be in several more weeks or even much longer. We will stay on the sidelines of crude until the cycle becomes more clear. Any break below the May 5th low of $44.13 will confirm that the cycle has turned bearish.