The bullish divergence signal we had in the broad stock market for most of last week came to an end on Friday as all three stock market indices (DOW, S&P 500 and NASDAQ) plunged and broke below their Sept. 6-7 lows from the previous week. This could be a significant bearish development as those Sept. 6-7 lows most likely represented a significant medium-term sub-cycle bottom. Breaching them could mean the current cycle is turning bearish and headed much lower. There are some short-term technical signals and a strong reversal zone this week and next, however, that might turn this market back up for at least a few more weeks. No index made a new low today, and all three closed in positive territory. If last week's lows hold, we could see a rally now to challenge last week's highs. Even if these indices break below last week's lows, they might still make a significant bottom this week or next that could be the start of a significant rally - as long as the lows don't fall below the start of the current medium-term cycles (i.e. 29,653 from June 17 in the DOW and 3,637 from June 17 in the S&P 500). Any break below those mid-June lows would be a VERY bearish development.
The bottom line here is that we are waiting to see if there is at least one more bullish rally over the next several weeks that could at least challenge last week's highs, and maybe even the highs from mid-August. (It is highly unlikely at this point that any of these indices will challenge their all time highs - from January 2022 and November 2021 - within the current medium-term cycle.) If we get any significant rally, we will be looking to sell short at the top. For now, we remain on the sidelines of the broad stock market.
In my last blog on gold I wrote:
"Gold started its current medium-term cycle (and probably a longer-term 16-month cycle as well) with its low of $1681 on July 21. It essentially made a double-bottom to this low at $1689 on Sept. 1. If this labeling is correct, this market should be very bullish now and ready to rally strongly.... We don't want to see prices start to close below $1681 as that would suggest that the short-term trend is turning bearish."
Well, prices have now broken below $1681 (they went to $16.54 on Friday) which suggests that the current medium-term cycle is turning bearish - if our labeling is correct. If that low at $16.54 was instead the start of a new medium-term cycle (this would mean the previous cycle was distorted), the market could be bullish and could rally now. Supporting that idea is the fact that this low happened in a reversal zone specifically for precious metals (that ends tomorrow), and it was in a general reversal zone that will last through this week. We are also getting a strong intermarket bullish divergence signal to silver because silver prices are staying well above their Sept. lows while gold has broken well below its Sept. lows. The precious metals are thus giving us mixed signals.
Silver's current medium-term cycle likely began on July 14 with its low at $18.15, but like gold, there is another possible labeling that could be a distortion of the normal cycle. A new medium-term cycle could have started on Sept.1 with silver's low at $17.59. If that's the case, silver could be bullish and rally strongly from here. For the bullish labeling to be correct, prices have to start breaking and closing above $20. If the cycle did begin on July 14, silver is bearish as prices have gone below that start.
Both metals are tricky to call right now. If silver can break that $20 level (it is close), we may consider a long position. Gold prices need to rally a bit more to look even slightly bullish; they need to break and close at least above last week's high of $1734. We will remain on the sidelines of both metals for now, as this market's labeling and short-term trend is not clear.
Our longer-term view of gold is similar to that of the broad stock market. As I wrote in last Tuesday's blog:
"...the final top to a long-term 23 year cycle in gold most likely happened in Aug. 2020 at $2070 (see Gold Update on the Homepage). This means we will want to reverse any long positions and short sell at the top of any strong rally now to ride down a steep corrective drop to the final 23 year cycle bottom that is due around 2023 - 2024. That correction could go down to $1000.] "
Last Wednesday I presented three possible scenarios for crude oil :
"There are three possible ways to label the current medium-term cycle in crude oil right now:
1) Last week's deep low at $81.20 (Oct. contract chart) on Sept. 8 could be the start of a new medium-term cycle (and possibly a longer-term cycle as well). This labeling would mean that crude is very bullish now and should rally strongly. Prices need to start closing above $95 and especially $97 to confirm this bullish labeling.
2) Crude could be nearing the end of a much older medium-term cycle that is due to bottom by next week at prices at or below last week's low ($81.20). In this labeling, that final bottom would be a good spot to go long.
3) Crude may have started a new medium-term cycle with the low of $85.37 on Aug. 16. This labeling is the most bearish because prices have already gone below the start of the cycle. In this view, prices would be in a downtrend for many more weeks and would be going much lower."
Nothing has changed. Today prices plunged dramatically to $82.10 but then snapped right back to close at $85.73 (Oct. contract chart). We note that we are now approaching the center of a reversal zone specifically for crude (Sept.16 - 26), so some sort of bottom could be forming this week. We will watch for it. In the meantime we will remain on the sidelines of this market.