We start this week in the center of our current strong general reversal zone (August 1 - 12), but there is another (not as strong) reversal zone (August 9 - 18) that overlaps this one. Thus this week and next represents a wide reversal zone which is especially intense this week Tuesday - Friday.
Today all three of our broad stock market indices (DOW, S&P 500, NASDAQ) made new weekly highs, but only the NASDAQ and S&P 500 are exceeding their early June highs (the DOW got close today but didn't quite make it); and after an early day rally, all three gave back their rally's gain at the the closing bell. We are thus starting the week with a strong bearish divergence signal. We have been anticipating some sort of significant sub-cycle correction in this market which is due anytime now. This would be a good week to see it start, perhaps from today's highs. As I stated in my last two blogs, it looks like all three indices started new medium-term cycles with their lows on June 17 (DOW and S&P 500) and June 16 (NASDAQ), and the trend of these new (young) cycles seems to be bullish. This means we will probably look to buy the bottom of any significant correction (as long as that bottom isn't TOO low) for more rallying into September. For now, we remain on the sidelines as we wait for a corrective drop.
As with the broad stock market, we are also waiting for significant sub-cycle corrections in both gold and silver. Both metals seem to be young cycles that began with their lows on July 21 ($1681 -gold) and July 14 ($18.15 - silver), and they are due for sub-cycle corrections anytime now. We are already long in gold with a profit from the July 21 bottom. Because these seem to be new, bullish cycles, I am going to hold this long position and ride out any corrective dips in gold (unless the correction goes very deep and approaches that $1681 low, which we can use as a stop loss level for our trade). Any correction in silver that stays above $18.15 could be a good place to buy this metal. Today silver made a new weekly high while gold did not, so we have an intermarket bearish divergence signal which may be the start of a corrective drop. We remain on the sidelines of silver for now as we hold our long position in gold.
We've just entered a reversal zone specifically for currencies Aug. 5 - 15. This means we could see a significant top or bottom in the U.S. Dollar Index in this time frame. After taking a significant corrective drop in the last two weeks of July, the greenback edged up a bit last week. If it moves higher into this week's reversal zone and reverses, that could correspond to a bottom and reversal up in the precious metals. We will watch for that.
Friday's low in crude oil at $87.01 (Sept. contract chart) did not hit our $85 target for a final medium-term cycle low, but it may have been close enough. It was in the center of a strong reversal zone, and we just entered a time frame where a final cycle bottom could happen - i.e. anytime over the next several weeks. But that strong reversal zone is in effect all this week, so prices could still push lower. Let's stay on the sidelines of crude for now. If prices start to rally strongly from here, we may look to go long.