We are now at the center of a reversal zone for the broad stock market (it extends into next Wednesday), and equities continue to seesaw up and down. Yesterday all three market indices (DOW, S&P 500, NASDAQ) dropped steeply and made new weekly lows, but they seem to be rising a bit today (at the time of this writing - around 2:30 pm EDT). Right now it looks like this market wants to make a low in this reversal zone but is perhaps being buoyed by the upcoming holiday week-end in the U.S. (4th of July). Trader optimism often rises before holiday week-ends. Yesterday directional momentum in the S&P 500 and NASDAQ changed from nearly 100% bullish to mixed bullish and bearish which suggests a correction is in progress (although the DOW is still nearly 100% bullish). The DOW is still quite far above our corrective target range of 20,600 - 20,800 so I think this market could drop lower and get closer to that range within the current reversal zone by next Wednesday or Thursday for a possible spot to buy. On the other hand, if these indices push higher into that time, we may instead have a shorting opportunity (especially if one or two, but not all three, indices make new highs - i.e. intermarket bearish divergence). Still on the sidelines of the broad stock market.
In Tuesday's blog on the precious metals I wrote:
"...gold's sudden drop below a support line at $1240 introduces the possibility of a sharp sub-cycle correction into the upcoming reversal zone for gold and silver (June 28 - July 6). If such a correction sends gold below $1214, the overall trend could turn very bearish. If yesterday's "accidental" sell order produces only a short-term downward glitch in gold's chart then I will take off my tin foil hat and reconsider more bullish strategies for trading."
Gold got up to $1254 on Wednesday, but prices are back down again testing the $1240 level so it is still not clear if this market is going to turn bearish. We are now in the center of a reversal zone for both gold and silver which ends next Thursday so prices could easily make a new low by then, but first gold has to break clearly below support at $1240. We will watch for that and an opportunity to buy next week as long as gold prices stay above $1214 (and silver above $16.07). An ideal buy situation will set up if gold makes a new low next week and silver stays above this week's low (bullish divergence). On the sidelines of gold and silver.
Crude oil prices have been rising quite steeply this week and are now approaching a resistance level at $46 (Aug. contract chart). Because we are now entering a reversal zone specifically for crude (all next week), we will watch for an opportunity to sell short. In Tuesday's blog I wrote:
"If prices continue to rise into next week's reversal zone, we could see them turn down and fall lower into the second half of July closer to our target of $40 for the end of the cycle. Let's go with that scenario for now with the idea of buying a cycle bottom near $40."
We will still watch for that bottom near $40 which could be the end of a longer-term cycle and thus a very good buying spot, but this week's significant rally into a reversal zone may be giving us a good short-term shorting opportunity as well. Conservative longer-term traders may want to just wait for the cycle bottom near $40 to buy. Still on the sidelines of crude oil.