We are now entering a time period starting today through the first three weeks of October in which all markets could be very volatile and indecisive. Thus, we need to be especially cautious, nimble, and flexible with any trading during this period as markets may be giving us mixed signals. Even today the broad stock market is a little tricky to call, especially because our major indices (DOW, S&P 500, and NASDAQ) may be taking different cycle paths. It might be best to look at each index separately.
The DOW is probably ending an older medium-term cycle with its final bottom due anytime over the next 3-6 weeks. If this is the correct labeling, the current rally in this index should end soon (without making a new all-time high) and the DOW should fall to its final cycle bottom. But there is a possibility that the older cycle ended with last Monday's plunge and low at 33,613. In that case, this index could be bullish now and could make a new all-time high right away (even this week). We are now in the center of a reversal zone (Sept. 22-30), so some sort of top and reversal could be imminent. If the DOW can't close above its 45-day moving average (currently around 35,034), it's probably an older cycle and will fall quickly. On the other hand, a break above there (and especially to a new all-time high) would support the idea of a new cycle that could possibly rally into mid-October. Even a new cycle, though, might be bearish if it can't make a new all-time high. In that situation, we might get a top (below 35,361) in the first or second week of October followed by a very long and steep multi-month drop to the final cycle bottom. Although these medium-term cycles are not very clear at the moment, it IS clear that we should be keeping an eye out for a good spot to sell the DOW short as a longer-term cycle top is now due (overdue). The only question is whether this longer-term cycle has already topped out with the Aug.16th all-time high of 35,631 or will make a new all-time high.
The S&P 500 is most likely an older medium-term cycle that started on June 21 or July 19. In both cases, we are expecting a corrective drop to the final cycle bottom due sometime in the next 5-12 weeks. As with the DOW, the top may already be in with the S&P's all-time high (4,546 on Sept. 2). If that's the case, we expect this index to roll over soon and continue its drop to the final cycle low. But there's also the possibility of it breaking to a new all-time high before the final descent. That could happen in this week's reversal zone or possibly in the first half of October. We are looking to sell short here as well.
The NASDAQ is most likely a new, young medium-term cycle that started on Aug. 19 or Sept. 20. This makes the NASDAQ potentially the most bullish of the three indices. But to be bullish, this index now has to break its all-time high of 15,403 from Sept. 7 fairly soon, and NOT break below last week's low of 14,530 (and certainly not go below 14,424). As with the other two indices, we are looking for a final medium-term cycle top to sell short, and it might come early in the cycle of this index.
We will remain on the sidelines of all three indices for now.
I have been favoring a bullish view of gold recently because it looks like a longer-term (about 3 year) cycle in gold bottomed in March and August (double-bottom) this year, and early phases of a cycle are usually quite bullish. However, the current medium-term cycle (which began with the low of $1693 on Aug. 9) is showing a reluctance to rally and could be turning bearish. Last week's low at $1739 was in our reversal zone and could be a sub-cycle low and the starting point for a rally. Gold did rally early today, but then prices fell back to close near the bottom of today's range - a bearish sign. We need to see gold closing above $1800, and especially $1834, for the trend to start looking bullish again. A clear break below $1693 (and especially $1677) would be a very bearish signal and could mean gold is headed down to its final 23 year cycle bottom due sometime in 2023 - 2024 (with prices near $1000). We will watch these "lines in the sand" carefully now for any bullish or bearish breaks.
In last Monday's blog on silver I wrote:
"Silver prices are clearly breaking well below the $23 low of Aug. 9, which we had labeled as the start of a new medium-term cycle. If that labeling is correct, silver has turned very bearish and prices are breaking down. There is, however, the possibility that Aug. 9 was not the start of a new cycle and that instead an older cycle is now completing its final corrective drop to its final bottom below $23."
That low last Monday at $22.07 may have been the end of an old medium-term cycle and the start of a new one. That would make silver very bullish now, but prices would have to rally above $24.82 to confirm this labeling. The alternate view is that silver started a new medium-term cycle with the double-bottom of Aug. 9 ($23.02) and Aug. 20 ($22.92). In that case, silver's trend is bearish because prices have already moved below the start of the cycle. It is unclear at the moment which view - bullish or bearish - is correct.
We will remain on the sidelines of both gold and silver until the cycle patterns become more clear.
Tomorrow is the last day of our reversal zone for currencies (Sept. 20 - 28), and the U.S. Dollar Index appears to be making a top. If that's the case, we should see a correction down starting any day now. That would probably be bullish for the precious metals, but if the greenback pushes higher after tomorrow, gold and silver could fall lower.
Crude oil also seems to be topping out in the center of our current reversal zone. We are pretty confident that crude started a new medium-term cycle with its low of $61.11 on Aug. 23 (Dec. contract chart). That low may also be a longer-term cycle bottom (which would make crude potentially very bullish now). A sub-cycle top is now forming. The estimated target for that top is $76 - $78. Crude's price got above $75 today. We will now wait for a top and corrective drop and a good opportunity (price) to buy. There is a potential for this cycle to go as high as $88 - $90. Staying on the sidelines of crude for now.