In last Tuesday's blog on the broad stock market I wrote:
"We thus have a bearish divergence signal setting up as we move into the center of a general reversal zone (Nov. 16 - 25) that ends this week or early next week (unless both the S&P 500 and the NASDAQ can make new weekly highs). There is a potential here for a significant corrective drop following the holiday."
Well, on Friday the DOW not only made a new weekly high, but it also exceeded its Aug. 16 high. The S&P 500 also made a new weekly high, but it remains well below its high from Aug. 16. The NASDAQ was unable to even make a new weekly high and it is also well below its Aug. 16 high. We thus have several cases of intermarket bearish divergence setting up right now, so it is not surprising to see this market dropping today. We are still watching for a significant sub-cycle correction. If we get one now, we may look to buy for a possible strong short-term rally (maybe a Santa Claus rally into the Christmas holiday). We don't want any correction now to go TOO low, however, as that might indicate the markets are turning bearish and selling off into the new year. That's possible as protests over strict COVID policies in China and persistent hawkish rhetoric from the Federal Reserve may put a damper on any holiday cheer over the next several weeks. Let's stay on the sidelines of this market for now.
If we do get a "Santa Claus rally", we will watch to see if the S&P 500 and especially the NASDAQ can exceed their Aug. 16 highs (the NASDAQ has a long way to go). Interestingly, the DOW is not that far from its all-time high made in January (36,953) while the S&P 500 and especially the NASDAQ are quite far below their all-time highs (4,819 in Jan. for the S&P 500, and 16,212 in Nov. 2021 for the NASDAQ). Even if the S&P 500 and NASDAQ can exceed their August highs, we will likely still see bearish divergence if the DOW can challenge its all-time high and the other two (or one) cannot. In other words, a major short-selling opportunity could be coming up for longer-term traders as we are still holding to the idea that a long-term cycle in equities peaked in January for the DOW and S&P 500 and in November 2021 for the NASDAQ, and a long-term corrective decline has already started. The only thing that could challenge that scenario would be a break by ALL THREE indices above those all-time highs.
Both gold and silver made lows last Monday and rallied for the rest of the week from there, but today both metal prices dropped sharply and erased most of that gain. We are moving into the center of a very wide reversal zone for the precious metals (Nov. 22 - Dec. 8) with possible "pivot points" on Nov. 25, Dec. 1, and Dec. 7-8. Last week's highs were near Nov. 25, so prices could be moving lower now into Thursday (Dec. 1) or even next week (Dec. 7-8). A sub-cycle low is due in silver this week and in gold anytime this week or next (if these lows didn't happen last week). We should be watching for a good spot to buy in both metals, as long as prices don't fall too low. Silver looks especially bullish at the moment. If silver drops below last week's low ($20.59) and closer to $20 and gold stays above its low from last week ($1732.59), we may get a good buy spot with a bullish divergence signal between the metals. We will watch for that. We remain on the sidelines of both metals for now.
Today crude oil prices broke below the Sept. 28 low of $74.96 (Jan. contract chart) but then closed the day above at $77.24. We are at the dead center of a reversal zone specifically for crude (Nov.22 - Dec. 1) so some sort of bottom could be forming here. A typical sub-cycle low is due this week (actually it was due last week so it is overdue). The fact that the Sept. 28 low was breached is a bearish warning and makes me a little uncomfortable about going long. Nevertheless, we are in a reversal zone through the end of this week, and prices are getting close to the Biden Administration's price range to buy ($67 - $72 - see my previous post on crude). Let's see if a bottom can form this week in that range (or lower). We remain on the sidelines of crude for now.