We are seeing a bounce and reversal from Tuesday's lows in the broad stock market, but were those lows a significant sub-cycle bottom, and will this rally gain any legs? That is the important question. To be bullish, this rally should at least break and close above 32,000 in the DOW, 4,000 in the S&P 500 (it did that today), and 12,000 in the NASDAQ. Otherwise, this rally may be short-lived, and equities could roll over and continue their descent to lower levels. Let's remain on the sidelines of the broad stock market for now.
Gold and silver prices have been relatively flat so far this week (although silver is rallying a bit today). We still have a strong bullish divergence signal between these metals as silver broke below its mid-July low ($18.15) last week while gold has yet to breach its July low ($1681). Gold prices seem to be stabilizing with a possible "double-bottom" to that July low around $1700. This "double-bottom" and last week's low in silver ($17.59) may be significant cycle bottoms, but we need to see stronger rallying to confirm that. We also note that we enter a strong reversal zone specifically for the precious metals next week (Sept. 12 - 20). I would rather see a significant low in that time frame to consider going long in either metal. If instead prices rally strongly into next week, we would avoid buying and may even consider selling short at the top of a possible imminent correction. The cycle patterns in these two metals are still ambiguous, so we will remain on the sidelines of both gold and silver for now.
The U.S. Dollar Index is taking a breather today from its recent non-stop rally. I don't expect a major corrective drop in this index right now because there are no major reversal zones this week. But we might see a move down to the 15-day moving average (around 109), or even down to 108. That would help push up gold and silver prices, but if the dollar starts to rally again, the precious metals could fall lower.
In Tuesday's blog on crude oil I wrote:
"...prices rallied sharply in early trading today, but then fell back and lost all of their early gain near the end of the trading day. This is bearish behavior. Prices could now challenge or push lower than the Aug. 16 low of $85.37 (Oct. contract chart) to form a final medium-term cycle bottom."
Well, crude did push a LOT lower yesterday and today with prices getting as low as $81.20 (Oct. contract chart). This could mean that a final older medium-term cycle bottom is imminent. It could also mean that a new medium-term cycle began with the $85.37 low on Aug. 16 and is turning bearish. Even if an older cycle is bottoming here, the trend would still be bearish because prices are now below the start of the cycle ($90.48 on April 11).
There is a reversal zone specifically for crude coming up at the end of next week (Sept. 16 - 26) that overlaps with another general reversal zone for all markets. That would be a good time for a final cycle bottom in an older cycle (that is due now). But because the overall trend in this market seems to be turning bearish, we will be cautious about buying that bottom - especially if prices go much lower. We will stay on the sidelines of crude as we wait to see how prices move into the upcoming reversal zone.