MARKETS UPDATE (7:00 pm EST)
After rising last week to nearly touch the 45-day moving average, crude oil prices fell back down again today and remain trapped between support around $70 (Feb. contract chart) and the falling 45-day moving average (now at $74.18). As this range narrows, crude should break one way or the other, and we hope to the upside - not below $70 (our first stop loss point for our long position). As I mentioned in last week's blog, we're still going with the idea that the low of $67.98 on Dec. 13 was a medium-term cycle bottom (and the second one following a possible 4-year cycle low on May 4 last year at $65.24). But if prices start to fall below there, we will have to abandon our long trade, revise our cycle labeling and wait a little longer for the 4-year cycle to bottom before we go long again. Let's continue to hold our long position in crude for now.
The broad stock market, and especially the DOW, is demonstrating amazing buoyancy right now. All three market indices (DOW, S&P 500, and NASDAQ) are rallying strongly today. The S&P 500 took a 5-day dip from its Dec. 28 high and made a low last week below its 15-day moving average, but today it is closing back above that average. The NASDAQ took a steep 5-day correction from Dec. 28 - getting close to its 45-day moving average - but it too is rallying back up today. In contrast, the DOW pushed higher into Jan. 2 before dipping slightly to barely test its 15-day moving average last week, and it is closing back above it today. Unless the DOW turns back down this week, we will have to assume it is not going to take a sub-cycle correction and that the medium-term cycle will move straight up to its peak before it turns to fall to its final bottom. It is unusual to have a medium-term cycle with no sub-cycle corrections (usually there are two, but sometimes just one), but if a market is very bullish, it can happen. The S&P 500's 5-day correction was shallow, but it would qualify as a sub-cycle. The NASDAQ's steep correction towards its 45-day moving average was a more normal sub-cycle drop, but it was still a bit on the bullish side as it could have gone lower (and still could this week).
As far as trading goes, we have not seen a deep enough corrective drop in the DOW or S&P 500 to justify going long (yet). If we don't see deeper corrective lows this week, we may have to wait until the end of these current medium-term cycles and their final corrective bottoms to buy (which could be in as little as two weeks from now in the DOW, but could also be as long as 12 weeks). For now, we remain on the sidelines of the broad stock market.
Gold dropped to a new weekly low ($2019) today while silver remained above last week's low ($22.75) which creates a bullish divergence signal between the metals (until silver moves below $22.75). Could these metal prices start to rise from here? Yes, they could. We also note that the U.S. Dollar Index made an isolated high last Friday near its 45-day moving average and that this was near the center of a reversal zone specifically for currencies (Jan. 1 - 9) that ends tomorrow. If the dollar drops back down now, it could help push gold and silver prices up.
In last Thursday's blog on gold and silver I wrote:
"...we are not chasing any rallies in these metals at this late stage in their medium-term cycles and will wait for their final bottoms before considering any long positions. Gold's final cycle bottom is not due for at least two more weeks, and prices could theoretically go quite low - even back down to the $1900 area."
This still applies, so we remain on the sidelines of both metals. Could gold prices still jump up and challenge or exceed its all-time high of $2123 from Dec. 4? It's possible, but it is late in the medium-term cycle, and even if that happens, prices would soon fall back down to form the final cycle bottom, which could go quite low (i.e. towards $1900) and give us a better spot to buy.
After rising last week to nearly touch the 45-day moving average, crude oil prices fell back down again today and remain trapped between support around $70 (Feb. contract chart) and the falling 45-day moving average (now at $74.18). As this range narrows, crude should break one way or the other, and we hope to the upside - not below $70 (our first stop loss point for our long position). As I mentioned in last week's blog, we're still going with the idea that the low of $67.98 on Dec. 13 was a medium-term cycle bottom (and the second one following a possible 4-year cycle low on May 4 last year at $65.24). But if prices start to fall below there, we will have to abandon our long trade, revise our cycle labeling and wait a little longer for the 4-year cycle to bottom before we go long again. Let's continue to hold our long position in crude for now.
The broad stock market, and especially the DOW, is demonstrating amazing buoyancy right now. All three market indices (DOW, S&P 500, and NASDAQ) are rallying strongly today. The S&P 500 took a 5-day dip from its Dec. 28 high and made a low last week below its 15-day moving average, but today it is closing back above that average. The NASDAQ took a steep 5-day correction from Dec. 28 - getting close to its 45-day moving average - but it too is rallying back up today. In contrast, the DOW pushed higher into Jan. 2 before dipping slightly to barely test its 15-day moving average last week, and it is closing back above it today. Unless the DOW turns back down this week, we will have to assume it is not going to take a sub-cycle correction and that the medium-term cycle will move straight up to its peak before it turns to fall to its final bottom. It is unusual to have a medium-term cycle with no sub-cycle corrections (usually there are two, but sometimes just one), but if a market is very bullish, it can happen. The S&P 500's 5-day correction was shallow, but it would qualify as a sub-cycle. The NASDAQ's steep correction towards its 45-day moving average was a more normal sub-cycle drop, but it was still a bit on the bullish side as it could have gone lower (and still could this week).
As far as trading goes, we have not seen a deep enough corrective drop in the DOW or S&P 500 to justify going long (yet). If we don't see deeper corrective lows this week, we may have to wait until the end of these current medium-term cycles and their final corrective bottoms to buy (which could be in as little as two weeks from now in the DOW, but could also be as long as 12 weeks). For now, we remain on the sidelines of the broad stock market.
Gold dropped to a new weekly low ($2019) today while silver remained above last week's low ($22.75) which creates a bullish divergence signal between the metals (until silver moves below $22.75). Could these metal prices start to rise from here? Yes, they could. We also note that the U.S. Dollar Index made an isolated high last Friday near its 45-day moving average and that this was near the center of a reversal zone specifically for currencies (Jan. 1 - 9) that ends tomorrow. If the dollar drops back down now, it could help push gold and silver prices up.
In last Thursday's blog on gold and silver I wrote:
"...we are not chasing any rallies in these metals at this late stage in their medium-term cycles and will wait for their final bottoms before considering any long positions. Gold's final cycle bottom is not due for at least two more weeks, and prices could theoretically go quite low - even back down to the $1900 area."
This still applies, so we remain on the sidelines of both metals. Could gold prices still jump up and challenge or exceed its all-time high of $2123 from Dec. 4? It's possible, but it is late in the medium-term cycle, and even if that happens, prices would soon fall back down to form the final cycle bottom, which could go quite low (i.e. towards $1900) and give us a better spot to buy.
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