The deadline for making a significant sub-cycle low in the broad stock market was this week. Our three market indices (DOW, S&P 500, and NASDAQ) did not make new lows this week. Unless these indices can fall steeply to new lows early next week, we may have to assume that significant sub-cycle lows happened for the DOW and S&P 500 on Dec. 22 (at 32,573 and 3,764, respectively) and for the NASDAQ on Dec. 28 (at 10,207). Today's sharp rally supports this idea, but to confirm it we need to see all three indices close back above their 45-day moving averages. The DOW did that today, but the S&P 500 and NASDAQ did not (the S&P 500 is close).
Our plan was to buy near a sub-cycle low for a potentially steep (but short-term) rally into the new year. The problem now is that if those lows happened on Dec.22 and 28 and we continue to rally into next week, we could be making new highs inside our new strong reversal zone (Jan. 5 - 13), and that could mean that another top and downturn is imminent. That would put a damper on any plans to go long, even if the S&P 500 and NASDAQ manage to close above their 45-day moving averages. So unless this market plunges to new lows early next week, we are going to hold off buying for now. (We may even consider selling short if it looks like a significant high is forming over the next week or two). We remain on the sidelines of the broad stock market for now.
Gold prices pushed to a new weekly high ($1866) today. Silver also rallied but remained well below its high from Tuesday ($24.52). In yesterday's blog I wrote:
"We are expecting a sharp sub-cycle correction in gold's medium-term cycle and a sharp correction to the final bottom of the medium-term cycle in silver - both very soon. Gold's sub-cycle corrective low is due anytime now by Jan. 21. Silver's bottom is due anytime by Jan. 28. The Jan. 5-13 reversal zone would be a good time frame for these bottoms...A good target for a corrective drop from today's high in gold would be around $1766. We're still looking at $21 - $22 as a good target for silver's cycle bottom. Even if these metals push a bit higher into the reversal zone, we could have two reversals - a top and a bottom - in the same time frame."
All of this still applies, so we will remain on the sidelines of both metals as we wait to see if prices can move down into those target areas next week.
After falling steeply this week and breaking support at $75, crude oil prices seem to be taking a break with a "relief rally" yesterday and today with prices rising back to test $75 (which is now resistance). If that resistance holds, we could easily see crude turning back down to test or break below $70. If that happens in next week's reversal zone, it might be a good place buy. The medium-term cycle labeling of this market is still a little unclear, but that could change soon - especially if we see a new low (below $70) next week. Let's remain on the sidelines of crude for now.