MARKETS UPDATE (3:30 pm EDT)
Last Tuesday the DOW, which had been falling for eight days, made a final bottom and reversed up in the center of a reversal zone (Aug. 2). Unlike the DOW, the S&P 500 and NASDAQ were making new highs last Monday, but they also dropped steeply on Tuesday before reversing back up. Friday's strong jobs report gave a boost to equity markets and fueled a strong rally into the end of the week. (The U.S. Labor Department reported 255,000 new jobs in July which was far above the 180,000 number predicted by many economists.) Tuesday's bottom may have been a significant correction for the DOW but was probably not one for the S&P 500 or NASDAQ. This suggests that these latter two indices could still correct further. We are now out of last week's reversal zone but are entering a stronger one later this week into next week. If equities move lower into this time frame, the S&P 500 and NASDAQ (and possibly the DOW) could make deeper corrective bottoms before starting a new rally. The alternative scenario could see these markets rally into this next reversal zone. If that happens we will watch for a top and another correction. As I stated in my last blog, I don't think any corrections now will be serious and should be viewed as opportunities to add to long positions or buy if not already long in the broad stock market. Holding my long position here.
We are also exiting last week's reversal zone for gold and silver and are entering another one late this week into next week. Our chart analysis for the precious metals is similar to that for the broad stock market. Gold and silver prices could now fall into this new reversal zone. If this happens, silver could easily make its final medium-term cycle bottom before reversing and starting a new cycle and bullish rally. Gold could make a subcycle bottom and then also turn bullish. These would be buying opportunities. If these metals rally into next week, however, we could instead see this reversal zone correspond to a top followed by a sharp correction. This could set up an opportunity to sell short. Our main strategy, though, will be to watch for silver's final cycle bottom as this will be a strong signal to buy both metals. On the sidelines of gold and silver for now.
We may have missed crude oil's medium-term cycle bottom which could have been last Tuesday's low of $39.26 (Sept. contract chart). That cycle bottom was (is) now overdue, and last week's low was only a little below our price target range of $40 - $45. Oil prices are now rallying strongly off that point. That could have been the bottom; however, there is a strong reversal zone specifically related to crude oil coming up in the fourth week of this month. It is therefore possible to see prices move back down to form either a double bottom to the cycle or even a new low in that time frame. My reluctance to go long last week was due to the directional momentum in crude charts turning 100% bearish. This is still the case (but could change as markets are quite volatile). If we are starting a new medium-term cycle, crude prices could turn very bullish, and we could eventually see prices back above $50. We will watch carefully over the next several weeks for buying opportunities on any corrections back towards last week's low (or lower), especially if that happens in the fourth week of this month. Still on the sidelines of crude oil.
Last Tuesday the DOW, which had been falling for eight days, made a final bottom and reversed up in the center of a reversal zone (Aug. 2). Unlike the DOW, the S&P 500 and NASDAQ were making new highs last Monday, but they also dropped steeply on Tuesday before reversing back up. Friday's strong jobs report gave a boost to equity markets and fueled a strong rally into the end of the week. (The U.S. Labor Department reported 255,000 new jobs in July which was far above the 180,000 number predicted by many economists.) Tuesday's bottom may have been a significant correction for the DOW but was probably not one for the S&P 500 or NASDAQ. This suggests that these latter two indices could still correct further. We are now out of last week's reversal zone but are entering a stronger one later this week into next week. If equities move lower into this time frame, the S&P 500 and NASDAQ (and possibly the DOW) could make deeper corrective bottoms before starting a new rally. The alternative scenario could see these markets rally into this next reversal zone. If that happens we will watch for a top and another correction. As I stated in my last blog, I don't think any corrections now will be serious and should be viewed as opportunities to add to long positions or buy if not already long in the broad stock market. Holding my long position here.
We are also exiting last week's reversal zone for gold and silver and are entering another one late this week into next week. Our chart analysis for the precious metals is similar to that for the broad stock market. Gold and silver prices could now fall into this new reversal zone. If this happens, silver could easily make its final medium-term cycle bottom before reversing and starting a new cycle and bullish rally. Gold could make a subcycle bottom and then also turn bullish. These would be buying opportunities. If these metals rally into next week, however, we could instead see this reversal zone correspond to a top followed by a sharp correction. This could set up an opportunity to sell short. Our main strategy, though, will be to watch for silver's final cycle bottom as this will be a strong signal to buy both metals. On the sidelines of gold and silver for now.
We may have missed crude oil's medium-term cycle bottom which could have been last Tuesday's low of $39.26 (Sept. contract chart). That cycle bottom was (is) now overdue, and last week's low was only a little below our price target range of $40 - $45. Oil prices are now rallying strongly off that point. That could have been the bottom; however, there is a strong reversal zone specifically related to crude oil coming up in the fourth week of this month. It is therefore possible to see prices move back down to form either a double bottom to the cycle or even a new low in that time frame. My reluctance to go long last week was due to the directional momentum in crude charts turning 100% bearish. This is still the case (but could change as markets are quite volatile). If we are starting a new medium-term cycle, crude prices could turn very bullish, and we could eventually see prices back above $50. We will watch carefully over the next several weeks for buying opportunities on any corrections back towards last week's low (or lower), especially if that happens in the fourth week of this month. Still on the sidelines of crude oil.
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