MARKETS UPDATE (4:30 pm EST)
It appears that despite all the controversy and conflicting discourse surrounding the new U.S. President, Wall Street continues to like Donald Trump as we see "irrational exuberance" (thank you Alan Greenspan) pushing equity markets higher. Today all three major market indices (DOW, S&P 500, and NASDAQ) made new all-time highs. We are still within a reversal zone for equities through Wednesday, however, so a corrective downturn is still possible. This is especially true for the S&P 500. Nevertheless, any correction now will probably be minor, and would be an opportunity for us to go long again in this market. Another factor driving the current rally is the fact that we are approaching the end of the tax year in the U.S. and many aging "baby boomers" are contributing large sums to their retirement accounts into early April. Despite these bullish forces, it is late in the current medium-term cycles of the DOW, S&P 500 and NASDAQ so a crest or top followed by a significant correction in these markets could happen (and likely will happen) any time over the next several weeks. Such a top could form early this week (now), but is more likely to happen in the next strong reversal zone coming up in the last week of February through the first week of March. The bullish forces just mentioned (Trumphoria and retirement account funding) could theoretically drive a "blow-off" top into this time period. We will watch for a corrective dip this week to possibly go long again in the broad stock market.
Unlike the broad stock market, gold prices did take a correction last week and are continuing down today. Silver prices dipped last Thursday but then made new highs on Friday (and Sunday) and are down today. Based on current cycle patterns, we have two possibilities now for gold and silver. Prices could start rallying again towards a new high and a top likely in the last week of February (the next reversal zone for the precious metals). The other possibility is that gold and/or silver would continue to fall considerably lower and form a bottom in that same time period. This latter (bearish) scenario seems more likely at the moment, but that might change because this market may be quite volatile over the next several weeks. Our basic strategy will be to watch for this correction and to buy a bottom in late February. We will also watch for any short-term shorting opportunities if the cycle pattern and technical signals support it. Still on the sidelines of gold and silver.
The U.S. Dollar Index may be turning bullish. Last week directional momentum in the dollar switched from mixed bullish and bearish to nearly 100% bullish. It is late in the dollar's current medium-term cycle. The last week of February is also a strong reversal zone for the dollar so I had been thinking the cycle would bottom with a new low then. While that could still happen, we now need to consider the possibility that the low on Feb. 1 was the cycle bottom. If so, the dollar could rally now. Last week the dollar broke through resistance at 100 and is now pushing against another resistance line at 101. If the dollar can continue to rally into the end of the month it would likely push gold and silver prices lower.
It looks like crude oil made a significant sub-cycle bottom last Wednesday when prices dropped to $51.22 and then snapped back up to $54 by Friday. If the current medium-term cycle is going to stay bullish, we should now see prices rise to challenge their December highs around $56 (March contract chart). Prices today, however, were down strongly, and directional momentum is still mixed bullish and bearish in this market. With these mixed signals, I am going to remain on the sidelines of crude for now.
It appears that despite all the controversy and conflicting discourse surrounding the new U.S. President, Wall Street continues to like Donald Trump as we see "irrational exuberance" (thank you Alan Greenspan) pushing equity markets higher. Today all three major market indices (DOW, S&P 500, and NASDAQ) made new all-time highs. We are still within a reversal zone for equities through Wednesday, however, so a corrective downturn is still possible. This is especially true for the S&P 500. Nevertheless, any correction now will probably be minor, and would be an opportunity for us to go long again in this market. Another factor driving the current rally is the fact that we are approaching the end of the tax year in the U.S. and many aging "baby boomers" are contributing large sums to their retirement accounts into early April. Despite these bullish forces, it is late in the current medium-term cycles of the DOW, S&P 500 and NASDAQ so a crest or top followed by a significant correction in these markets could happen (and likely will happen) any time over the next several weeks. Such a top could form early this week (now), but is more likely to happen in the next strong reversal zone coming up in the last week of February through the first week of March. The bullish forces just mentioned (Trumphoria and retirement account funding) could theoretically drive a "blow-off" top into this time period. We will watch for a corrective dip this week to possibly go long again in the broad stock market.
Unlike the broad stock market, gold prices did take a correction last week and are continuing down today. Silver prices dipped last Thursday but then made new highs on Friday (and Sunday) and are down today. Based on current cycle patterns, we have two possibilities now for gold and silver. Prices could start rallying again towards a new high and a top likely in the last week of February (the next reversal zone for the precious metals). The other possibility is that gold and/or silver would continue to fall considerably lower and form a bottom in that same time period. This latter (bearish) scenario seems more likely at the moment, but that might change because this market may be quite volatile over the next several weeks. Our basic strategy will be to watch for this correction and to buy a bottom in late February. We will also watch for any short-term shorting opportunities if the cycle pattern and technical signals support it. Still on the sidelines of gold and silver.
The U.S. Dollar Index may be turning bullish. Last week directional momentum in the dollar switched from mixed bullish and bearish to nearly 100% bullish. It is late in the dollar's current medium-term cycle. The last week of February is also a strong reversal zone for the dollar so I had been thinking the cycle would bottom with a new low then. While that could still happen, we now need to consider the possibility that the low on Feb. 1 was the cycle bottom. If so, the dollar could rally now. Last week the dollar broke through resistance at 100 and is now pushing against another resistance line at 101. If the dollar can continue to rally into the end of the month it would likely push gold and silver prices lower.
It looks like crude oil made a significant sub-cycle bottom last Wednesday when prices dropped to $51.22 and then snapped back up to $54 by Friday. If the current medium-term cycle is going to stay bullish, we should now see prices rise to challenge their December highs around $56 (March contract chart). Prices today, however, were down strongly, and directional momentum is still mixed bullish and bearish in this market. With these mixed signals, I am going to remain on the sidelines of crude for now.
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