Nothing has changed concerning my Friday blog on the broad stock market. We are about to enter a strong reversal zone for equities (and other markets) which will run from Dec. 20 through Jan.3. The center point for this reversal will be around Dec. 26-27 which is the most likely spot for a turning point (although it could be earlier or later in the reversal zone). The Christmas holiday is this Sunday, and markets often rally into holiday week-ends so we may not see any significant downturn before then. Rallying may even persist into the New Year holiday on January 1st. At the time of this writing (2:30 pm EST), the highs from last week in the DOW, S&P 500 and NASDAQ are not being exceeded so we could still see these indices fall into this new reversal zone. As I stated in Friday's blog, if the DOW can get closer to 19,000 and the S&P near the 2,140 area, we will look to buy. Considering the imminent holidays, however, I suspect this market will go higher this week. If it does, we may look for a spot to sell short, especially if one or two of the three indices make(s) a new high (but not all three) for a case of bearish intermarket divergence in a reversal zone (good sell signal). The current cycle structure shows that a new high in this upcoming reversal zone could be followed by a very sharp correction (possibly as much as a 1000 points in the DOW) so a short position will be worth considering here. For now, we will stay on the sidelines and see how this market moves into the end of the week.
This upcoming reversal zone is also relevant to gold and silver. As with the broad stock market, we will watch how prices move into the end of this week or early next week. If prices move lower, we may look for a spot to buy, but a sharp rally this week may set up a good shorting opportunity. The cycle patterns in gold and silver are a little ambiguous at the moment; nevertheless, overall analysis shows that we should be watching for a significant bottom to buy that could be coming up within the next several weeks. As the current cycle pattern establishes itself, we will be more confident in identifying that bottom. We will remain on the sidelines for now. Unfortunately, gold and silver (and other markets) could be quite volatile over the next three or four weeks so we need to be very careful in our trading into early January.
With help from the Fed's first interest rate hike since Dec. 2015 last week, the U.S. Dollar Index broke through resistance at 102 and is now hovering just above the 103 level. If the dollar edges higher into this week's (or early next week's) reversal zone, it could be setting itself up for a sharp correction down. Such a correction could kick start a major rally in the precious metals. We will watch this carefully. A long-term cycle top in the dollar could be forming now or in early January. If the Fed follows through with its aggressive plan of three more interest rate hikes in 2017, however, the dollar could instead rally well into next summer or perhaps even longer. Geopolitics and the policies of the new Donald Trump presidency will also be major factors influencing the direction of the U.S. dollar in 2017.
As with the precious metals, crude oil's current cycle is still not clear. It looks like crude started a new medium-term cycle on Nov. 14, but it is still possible crude is completing an older cycle that is due to bottom anytime over the next three or four weeks. That bottom could come this week or early next if prices fall into this new reversal zone. A good target for that bottom would be in the $47 area (January contract chart). If prices instead rally into the end of this week/early next week then we might have a good shorting opportunity. Any break above last week's high of $54.51 supports the idea of a new cycle starting Nov. 14. On the sidelines of crude for now.