Today the DOW rallied strongly while the other two broad stock market indices (S&P 500 and NASDAQ) also rallied, but not as much. None of these indices made a new weekly high, and the bearish divergence signal from last week (when only the DOW made a new monthly high without the other two indices) is still intact. Even more importantly, the final corrective bottoms to the current medium-term cycles in all three indices are due by the end of this month. That means that the final tops are most likely in with the highs of 14,447 on July 19 for the NASDAQ, 4,607 on July 27 for the S&P 500, and probably 35,679 on Aug. 1 (last week) for the DOW.
The NASDAQ and S&P 500 are staying below their 15-day moving averages, but today the DOW broke back above its 15-day moving average (more bearish divergence). We note that we are still in a relatively weak reversal zone through the end of this week, so the DOW could edge up to a new high (it is close), but it seems unlikely the S&P 500 and NASDAQ will follow and challenge their highs (yet more bearish divergence). So despite today's rally in the DOW, I am going to hold my short position in this index (traders may also keep holding any short positions in the S&P 500 and NASDAQ) as a steep correction to the final medium-term cycle bottoms still seems imminent (if it hasn't already begun). I would like to point out that the DOW's rise over the last three weeks has been steeper than the rally in the other two indices. This means any corrective drop now in the DOW should be greater. We expect any correction to AT LEAST test the 45-day moving average. Right now that would be 34,469 in the DOW and 4,440 in the S&P 500 - both rising.
We are now at the center of a reversal zone specifically for the precious metals (Aug. 1 - 10). Both gold and silver prices have been falling, but today silver dropped more dramatically than gold and made a new weekly low close to $23. Gold stayed above last week's low, so we have a bearish divergence signal between the metals (until gold breaks below $1931). This may be a good buying opportunity in silver. If silver prices can stay above support at $23, a rally back up could be imminent. We will watch for this as a rally to $30 in silver is still possible. We are still holding our long position in gold as a sub-cycle low could be forming in this current reversal zone.
A reversal zone specifically for currencies starts tomorrow (Aug. 8- 17). The U.S. Dollar Index has been falling a bit from last Thursday's high at 102.84. If it continues to fall, we could see a significant bottom inside this reversal period. However, if it rallies back up now, we could see a new top and then a reversal. In the latter case, we might see a new top in the dollar over the next day or two with precious metal prices going a bit lower followed by a reversal down in the dollar and a reversal back up in gold and silver. If the dollar continues to fall over the next several days without making a new top, however, we may see precious metal prices rise immediately. We will watch this closely over the next several days.
Like the broad stock market, crude oil prices continued to push a little higher today with crude touching $83.30 (Sept. contract chart) - barely exceeding last week's high of $83.24. It looks like a sub-cycle top could be forming here. A significant sub-cycle low is due this week, so a sharp correction down could be imminent. We will wait for that correction for a possible spot to buy. We would like to see that somewhere between the 15-day and 45-day moving averages (now at $79.81 and $74.36, respectively, and rising).
Crude's overall trend is currently very bullish. Because of this, there is a small possibility that last week's low at $78.69 was a sub-cycle bottom, and prices could continue to rally now without another correction. But that $78.69 low was just a one-day corrective dip. Most sub-cycle corrections drop for 3 - 8 days before bottoming, so last week's low doesn't really qualify as a legitimate sub-cycle. If we don't get another corrective drop this week, however, we may have to assume last week was it. We are still on the sidelines of crude oil.