MARKETS UPDATE (5:45 pm EST)
The next two weeks are important as we could see a major directional reversal in several financial markets and especially in the broad stock market. Friday is the center point of this reversal zone so we will carefully watch how markets move into the end of this week. I know I haven't engaged in any trading for some time and blog readers may be a little tired of "sitting on their hands" (I know I am) and staying on the sidelines, but impatience is not a good reason to trade financial markets. I am generally not a short-term trader and will trade mostly when technical, cycle and timing factors line up for an unusually good (and hopefully long-term) profit potential. Fortunately this seems to be happening now in several markets (especially the precious metals) so it won't be long now before we see some very good trading opportunities.
Uncertainty about when interest rates will rise as well as Argentina defaulting on its financial debts last week spooked the DOW into a 300+ point drop, but will investor jitters persist and drive the broad stock market lower now?
Maybe, but the DOW seems to be finding support just above 16,400 and, in fact, there is support for this index all the way down to the 16,200 area. Cycle studies indicate that we are near the end of the current cycles of the DOW, S&P 500 and NASDAQ so a bottom is close at hand, and we are in a time period for a likely directional reversal. If the DOW continues down into Friday and stays above the 16,200 area, that will probably be a good place to buy.
Because of last week's steep fall, however, we may get a short-term bounce first (perhaps to the 16,700 area) before seeing that final bottom. It appears that the major correction of 8-15 % (possibly more) may not occur at the end of the current DOW cycle (the drop so far from the July 17 high of 17,151 has only been 4%) but will likely follow the peak of the next cycle (which could be later this month). Any clear break below the 16,200 area, however, would change that view and would likely indicate the big correction is happening now. But for now I am going to assume that the 16,200-16,400 support will hold and I expect a cycle bottom in that range. Still on the sidelines.
Short-term indicators continue to look bearish for gold and silver metal, and some strong bearish momentum signals are now appearing in the charts of several gold mining company ETFs as well as in the two main gold and silver mining company indices HUI and XAU. This is not a good sign as precious metal mining company stocks often lead the prices of the metals themselves. It seems likely that gold and silver haven't found a bottom yet. We will wait and see how prices move into the end of this week. If prices start to rally now they may not get very far before turning down again. On the sidelines and still waiting to buy the long-term cycle bottoms in gold and silver.
The U.S. Dollar Index has rallied strongly this month and has been partly responsible for keeping gold and silver prices down. The dollar is now quite overbought, however, and may take a corrective breather. This could encourage a short-term rally in the precious metals, but, as stated above, that rally may not be substantial. The strong bullish momentum in the dollar right now (nearly 100%) also suggests that any correction it takes may be brief and followed by more rallying (and more downside in precious metals).
As I mentioned in my last blog, crude oil's cycle seems to be turning bearish. Crude prices are a little tricky to call at the moment. Last Friday was a likely turning point for a reversal in crude and prices made a new monthly low just above $97; however, this Friday could also be a turning point for crude. If prices rise into Friday it may present an ideal shorting opportunity. On the other hand, if prices fall lower into Friday (and especially if they break below $96) we could be seeing the end of the current cycle and an imminent bottom to buy. I would prefer to see the former scenario as the overall picture for this market now appears to be bearish. Crude prices recently seem to be ignoring the ongoing geopolitical turmoil in the Middle East and Russia, but we still need to keep that wildcard factor in mind when making any trading decisions (especially when selling short). Out of this market for now.
The next two weeks are important as we could see a major directional reversal in several financial markets and especially in the broad stock market. Friday is the center point of this reversal zone so we will carefully watch how markets move into the end of this week. I know I haven't engaged in any trading for some time and blog readers may be a little tired of "sitting on their hands" (I know I am) and staying on the sidelines, but impatience is not a good reason to trade financial markets. I am generally not a short-term trader and will trade mostly when technical, cycle and timing factors line up for an unusually good (and hopefully long-term) profit potential. Fortunately this seems to be happening now in several markets (especially the precious metals) so it won't be long now before we see some very good trading opportunities.
Uncertainty about when interest rates will rise as well as Argentina defaulting on its financial debts last week spooked the DOW into a 300+ point drop, but will investor jitters persist and drive the broad stock market lower now?
Maybe, but the DOW seems to be finding support just above 16,400 and, in fact, there is support for this index all the way down to the 16,200 area. Cycle studies indicate that we are near the end of the current cycles of the DOW, S&P 500 and NASDAQ so a bottom is close at hand, and we are in a time period for a likely directional reversal. If the DOW continues down into Friday and stays above the 16,200 area, that will probably be a good place to buy.
Because of last week's steep fall, however, we may get a short-term bounce first (perhaps to the 16,700 area) before seeing that final bottom. It appears that the major correction of 8-15 % (possibly more) may not occur at the end of the current DOW cycle (the drop so far from the July 17 high of 17,151 has only been 4%) but will likely follow the peak of the next cycle (which could be later this month). Any clear break below the 16,200 area, however, would change that view and would likely indicate the big correction is happening now. But for now I am going to assume that the 16,200-16,400 support will hold and I expect a cycle bottom in that range. Still on the sidelines.
Short-term indicators continue to look bearish for gold and silver metal, and some strong bearish momentum signals are now appearing in the charts of several gold mining company ETFs as well as in the two main gold and silver mining company indices HUI and XAU. This is not a good sign as precious metal mining company stocks often lead the prices of the metals themselves. It seems likely that gold and silver haven't found a bottom yet. We will wait and see how prices move into the end of this week. If prices start to rally now they may not get very far before turning down again. On the sidelines and still waiting to buy the long-term cycle bottoms in gold and silver.
The U.S. Dollar Index has rallied strongly this month and has been partly responsible for keeping gold and silver prices down. The dollar is now quite overbought, however, and may take a corrective breather. This could encourage a short-term rally in the precious metals, but, as stated above, that rally may not be substantial. The strong bullish momentum in the dollar right now (nearly 100%) also suggests that any correction it takes may be brief and followed by more rallying (and more downside in precious metals).
As I mentioned in my last blog, crude oil's cycle seems to be turning bearish. Crude prices are a little tricky to call at the moment. Last Friday was a likely turning point for a reversal in crude and prices made a new monthly low just above $97; however, this Friday could also be a turning point for crude. If prices rise into Friday it may present an ideal shorting opportunity. On the other hand, if prices fall lower into Friday (and especially if they break below $96) we could be seeing the end of the current cycle and an imminent bottom to buy. I would prefer to see the former scenario as the overall picture for this market now appears to be bearish. Crude prices recently seem to be ignoring the ongoing geopolitical turmoil in the Middle East and Russia, but we still need to keep that wildcard factor in mind when making any trading decisions (especially when selling short). Out of this market for now.
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