MARKETS UPDATE (9:30 pm EST)
Friday's plunge in the broad stock market (over 600 points in the DOW) is reinforcing our bearish view of equity markets right now, and more specifically, our idea that medium-term cycles in the DOW, S&P 500, and NASDAQ are in the process of correcting down to their final cycle bottoms. There is a slight chance that the DOW's low on Friday was already the cycle bottom (if true, it will rally strongly now), but this doesn't appear to be the case with the S&P 500 or NASDAQ. We shorted the S&P 500 on Thursday, and we will stick with our bearish view for now. The only thing that would turn us bullish now would be all three indices making new all-time highs, which doesn't seem likely at the moment. A good target for a bottom in the S&P 500 would be between 3,500 - 3,600 (it could go even lower if this is a longer-term cycle also coming to an end). Let's keep our short position in this market for now.
Most investors learned about the small video game store company GameStop last week as a coordinated social network of internet traders succeeded in driving its stock price to the moon. Today these same traders may have turned their attention to the precious metal silver as its price also took off like a rocket; however, some analysts are speculating that the silver rally is being driven by Wall Street hedge fund managers as a ploy to get investor attention away from the GameStop buying that caused enormous losses in their funds last week. We won't get into the politics and ethics of this kind of trading, but we note that this kind of volatility is obviously going to make any market more difficult (and dangerous) to trade. That said, it is interesting to note that, unlike GameStop, silver had been doing very well before today's surge, and in fact, in my last post on the precious metals (1/25/21) I had mentioned the possibility of both gold and silver turning bullish:
"There is a possibility that gold already started a new medium-term cycle with its low on Nov.30 ($1766) and that silver started a new cycle with last Monday's low at $24.28. If that is the case, both metals should be bullish now (especially silver). But until we see some strong rallying, I'm going to stick with our original bearish view of older cycles still moving towards a final bottom (and buy spot)."
So it looks like silver could have been ready for a big rally even in the absence of "GameStop" speculators. We note, however, that today's "super surge" in silver was not duplicated in gold, and the rally lost a lot of momentum in the final hours of trading suggesting it may just be a "flash in the pan". In other words, gold still looks like an older cycle that is bearish and heading towards its final medium-term cycle bottom. And even if silver did start a new cycle, it too could be turning bearish with an early peak. Any strong rallying in gold right now would change that view. It is clearly best to remain on the sidelines of this market (especially silver) for now.
In my Jan. 5 blog on crude oil I stated:
"It looks like crude oil may have made a shallow sub-cycle dip and bottom last Friday at $51.44 (March contract chart). If so, prices should rally now into a final top for the current medium-term cycle. That could happen this week and push prices somewhere above $54."
Well, it didn't happen last week in the reversal zone specifically for crude (now over), but overnight prices are just now pushing just above $54, and we are in a general reversal zone for all markets that ends on Friday (Jan. 27 - Feb. 5). It is late in this medium-term cycle so a final cycle top could be forming this week. If the broad stock market is going to continue its fall from here, crude may go down with it. I may consider a short sell in crude this week barring a strong rally in equities. If we miss the top in crude, we will wait for the final cycle bottom for a good buy spot. We are still on the sidelines of crude.
Friday's plunge in the broad stock market (over 600 points in the DOW) is reinforcing our bearish view of equity markets right now, and more specifically, our idea that medium-term cycles in the DOW, S&P 500, and NASDAQ are in the process of correcting down to their final cycle bottoms. There is a slight chance that the DOW's low on Friday was already the cycle bottom (if true, it will rally strongly now), but this doesn't appear to be the case with the S&P 500 or NASDAQ. We shorted the S&P 500 on Thursday, and we will stick with our bearish view for now. The only thing that would turn us bullish now would be all three indices making new all-time highs, which doesn't seem likely at the moment. A good target for a bottom in the S&P 500 would be between 3,500 - 3,600 (it could go even lower if this is a longer-term cycle also coming to an end). Let's keep our short position in this market for now.
Most investors learned about the small video game store company GameStop last week as a coordinated social network of internet traders succeeded in driving its stock price to the moon. Today these same traders may have turned their attention to the precious metal silver as its price also took off like a rocket; however, some analysts are speculating that the silver rally is being driven by Wall Street hedge fund managers as a ploy to get investor attention away from the GameStop buying that caused enormous losses in their funds last week. We won't get into the politics and ethics of this kind of trading, but we note that this kind of volatility is obviously going to make any market more difficult (and dangerous) to trade. That said, it is interesting to note that, unlike GameStop, silver had been doing very well before today's surge, and in fact, in my last post on the precious metals (1/25/21) I had mentioned the possibility of both gold and silver turning bullish:
"There is a possibility that gold already started a new medium-term cycle with its low on Nov.30 ($1766) and that silver started a new cycle with last Monday's low at $24.28. If that is the case, both metals should be bullish now (especially silver). But until we see some strong rallying, I'm going to stick with our original bearish view of older cycles still moving towards a final bottom (and buy spot)."
So it looks like silver could have been ready for a big rally even in the absence of "GameStop" speculators. We note, however, that today's "super surge" in silver was not duplicated in gold, and the rally lost a lot of momentum in the final hours of trading suggesting it may just be a "flash in the pan". In other words, gold still looks like an older cycle that is bearish and heading towards its final medium-term cycle bottom. And even if silver did start a new cycle, it too could be turning bearish with an early peak. Any strong rallying in gold right now would change that view. It is clearly best to remain on the sidelines of this market (especially silver) for now.
In my Jan. 5 blog on crude oil I stated:
"It looks like crude oil may have made a shallow sub-cycle dip and bottom last Friday at $51.44 (March contract chart). If so, prices should rally now into a final top for the current medium-term cycle. That could happen this week and push prices somewhere above $54."
Well, it didn't happen last week in the reversal zone specifically for crude (now over), but overnight prices are just now pushing just above $54, and we are in a general reversal zone for all markets that ends on Friday (Jan. 27 - Feb. 5). It is late in this medium-term cycle so a final cycle top could be forming this week. If the broad stock market is going to continue its fall from here, crude may go down with it. I may consider a short sell in crude this week barring a strong rally in equities. If we miss the top in crude, we will wait for the final cycle bottom for a good buy spot. We are still on the sidelines of crude.
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