We are now near the mid-point of our current general reversal zone for all markets (Sept. 13 - 21), and the direction of the broad stock market is still not clear. Our three indices (DOW, S&P 500, NASDAQ) have been indecisive and relatively flat this week. All three indices made new highs for the week yesterday and are dropping sharply today to new lows (for this week). This COULD be the start of a significant reversal, but it will take several more down days to confirm that. Alternatively, there is still time for these indices to push back up to new highs inside this reversal zone.
The big question now is whether or not these indices started new medium-term cycles on Aug. 25 (DOW at 34,029) and Aug.18 (S&P 500 and NASDAQ at 4,336 and 13,162, respectively). If they did, we don't expect those starting lows to be taken out. But it's still possible one or more index is still completing an older medium-term cycle and could make a new final (older) cycle low shortly - possibly next week inside the current reversal zone. We would like to buy near the start of any new cycle, but until we get past this reversal zone, we can't be certain where that's going to be. Ideally, we would like to see one (or two) of these indices break their Aug. low(s) next week, but not all three. That would give us a strong bullish divergence in the reversal zone and encourage us to buy for another short-term but potentially strong rally. We note, however, that after THAT rally, we are looking for a steep correction into Nov. - Jan., so we will not worry so much if we miss a good buy spot. It will probably be more important to focus on selling short the top of this next rally. For now, we remain on the sidelines of this market.
Sept. 13 - 21 is also a reversal zone specifically for gold and silver. Both metals made new and deep lows for the week yesterday and are rallying strongly from those lows today. Could this be a significant sub-cycle low in gold? Maybe - especially if gold is in a new medium-term cycle that began with the low of $1885 on Aug. 21. But today's surge in gold found resistance at the 15-day moving average, and this reversal zone lasts all through next week. I suspect prices could turn down again and make a new low. I am going to stay on the sidelines of gold for now.
Yesterday's $22.33 low in silver could be a final medium-term cycle bottom. It's actually a 'double-bottom" to the mid-point sub-cycle low ($22.31 on Aug. 21). We note that neither of these lows broke below the start of the cycle ($22.19 on June 23), so the cycle didn't technically turn bearish (yet), but it certainly isn't bullish. As with gold, however, I think it's possible for prices to push lower into next week. If silver does this and breaks its Aug. low without gold doing the same, we could have a strong bullish divergence signal and possibly a good place to buy both metals. Let's stay on the sidelines of silver for now.
Crude oil prices continued edging higher today and broke above $91 (Oct. contract chart). We are now approaching the center of our general reversal zone, so a top and some sort of correction could be very imminent. As I stated in Tuesday's blog:
"...we can now confirm that crude started a new longer-term 3 year cycle with its deep "double-bottom" lows of $64.42 on March 20 and $64.58 on May 4. This means crude prices should be bullish for many more months. Shorter-term, it looks like a new medium-term cycle in crude started with the low of $77.59 on Aug. 24, but there's a small chance that we are still in an older medium-term cycle that started on May 4. Either way, a top and a corrective downturn seems imminent. If this IS an older cycle, the correction could be steep and take prices down to the 45-day moving average (now around $81). That would be an ideal place to buy, but I don't think it will happen. It's more likely this is a younger, new cycle that started on Aug. 24 and that any correction now will be modest - especially as this market seems very bullish right now"
All of this still applies as we wait for a corrective dip and a good place to buy. We are currently on the sidelines of crude oil.