The broad stock market rallied strongly today. All three indices (DOW, S&P 500 and NASDAQ) are making new weekly highs so last week was not a cycle top. We are now entering another reversal zone (April 22 - May 1) with a strong potential for giving us a top to sell short. All three indices are now approaching their all-time highs (26,951 in the DOW, 2,941 in the S&P 500, and 8,133 in the NASDAQ) so we will watch for an intermarket bearish divergence signal where one or two indices break(s) to a new record high, but not all three. That could happen this week or next week and would most likely be a good opportunity to sell short the S&P 500 or NASDAQ (not the DOW as it may have already started a new medium-term cycle from its March 25 low at 25,372, and if so, any correction would be modest). At the time of this writing, breaking news is reporting that U.S / China trade talks are to resume next week in Beijing. This announcement could further boost the stock market tomorrow and propel those indices into record highs. Still on the sidelines.
Both gold and silver pushed down to new monthly lows today so we are not going to get a bullish divergence signal this week. We may get one next week, however, and next Tuesday we enter a reversal zone specifically targeted to precious metals (April 30 - May 9). That would be a good time for a bottom in gold and/or silver and a bullish divergence signal to buy. But this week is also a general reversal zone that can affect these metals so we can't rule out a bottom in one or both metals this week. We are already in our target range for a bottom in gold ($1251 - $1273). A good target range now for silver would be $14.10 - $14.57. Today's low at $14.76 is not quite there. Let's stay on the sidelines for now and wait for a stronger signal to buy. Directional momentum is still nearly 100% bearish in both metals so prices could move lower. Perhaps gold makes its low this week and silver makes its low next week for an ideal case of bullish divergence in that new reversal zone. We will watch for this.
One of the factors driving down precious metal prices now is a recent surge in the U.S. Dollar Index. The dollar is at an interesting point right now. Today the greenback made a double-top to its high from last year. (It actually exceeded that high of 97.71 on Dec. 13, 2018 just a bit - today's high was 97.77). This is a significant resistance line for the dollar, and we are just entering a reversal zone specifically for currencies (April 23 - May 1). The greenback may be ready to top out and reverse down here just in time to drive a rally from a bottom in gold and silver.
What would make the greenback turn south right now? Well, just a few weeks ago President Trump suggested that the Federal Reserve not only stop raising interest rates but bring back QE (Quantitative Easing)! Whether or not the Fed will take this suggestion seriously is debatable, but Fed Chairman Jerome Powell and the FOMC seem to have recently switched their policy tone from quite hawkish to cautiously dovish, and that may have been prompted by criticisms from Mr. Trump. Dovish fiscal policy puts downward pressure on the U.S. dollar. I should further mention here that the U.S. dollar is slightly past the center point of a long-term 16.5 year cycle that started in early 2008 around 73. There is a good chance this cycle peaked on Jan. 2017 at 103.82 and is now pointed down for a bottom in early 2025 that could go back to that 73 area or even lower. Of course, there will be ups and downs along the way (we have been riding a big "up" since early 2018), but if 103.82 was the high, the general trend of the U.S. dollar will be bearish over the next several years. The only thing that would change this scenario would be for the greenback to break above 103.82. I don't think it's going to do that, but these days it seems like anything is possible so we can't rule out that possibility. Most significantly to us, a bearish dollar would mean a bullish market in precious metals.