All three of our broad stock market indices (DOW, S&P 500, NASDAQ) made isolated highs in the middle of last week (near our second "pivot point" - Feb. 7 - within our current reversal zone), but only the DOW and NASDAQ made new weekly highs (the S&P 500 did not). This gave us a bearish divergence signal, and indeed, the market has been falling steeply from those highs (so far). But now these three indices are approaching support near their January lows. This is a critical juncture. If the lows hold, these indices could rebound into another strong rally to test and possibly exceed their all-time highs. But there are several technical signals suggesting this is unlikely. The recent rally penetrated between the 15-day and 45-day moving averages (the DOW even exceeded BOTH moving averages), but it quickly backed down and is now below those averages - a bearish sign.
Our long reversal zone ends this week on Wednesday. If equities don't rebound by then, they are likely headed lower. But if the January lows hold and sustain a bounce here, we may take profits and cover our short position in the NASDAQ, then wait and see if the rally gains any legs. Right now, it looks like the all-time highs from early January (DOW and S&P 500) and late November (NASDAQ) were long-term tops, but there's still a small chance that one, two, or all three indices could re-test or even exceed those tops over the next six weeks before taking the plunge to a final long-term cycle bottom. We will hold our short position in the NASDAQ for now.
In last Tuesday's blog on the precious metals I wrote:
"Last week silver made a new weekly low but gold did not, and that gave us a bullish divergence signal within our reversal zone for the precious metals. We are now out of that reversal zone but still within our general reversal zone for all markets which ends next week on Wednesday. Another top could form by then, but it's also possible that last week's low in silver and the prior week's low in gold were significant sub-cycle bottoms. The trend here is still uncertain, but it may be turning bullish."
Well, our reversal zone ends this Wednesday, and both metals are rallying strongly. Gold has been especially strong and surged dramatically on Friday as it exceeded its high from January. Silver rallied too, but it is still well below its January high. This sets up a possible bearish divergence within our reversal zone, so a top and the start of a corrective drop is still possible by Wednesday.
It seems that gold started a new medium-term cycle with its low on Dec. 15 (at $1759), so it its cycle is relatively young, and it looks like it is turning bullish. We don't want to buy this steep rally, but we will watch for any significant sub-cycle corrections to buy (one is due now) - possibly from a top forming this week. Silver also most likely started a new medium-term cycle with its low of $21.45 on Dec. 15. Like gold, silver could also be ready for a significant sub-cycle corrective drop, and it could be imminent. We will remain on the sidelines of both metals for now and watch for any corrective drops that could give us good spots to buy
Today crude oil prices pushed up to yet another new multiyear high at $95.82 (March contract chart) as geopolitical tensions between the U.S., Russia and Ukraine continue. Like the precious metals, the medium-term cycle in crude is due for a significant sub-cycle top and correction, and it's possible that top could be this week. We will watch for it and a possible corrective drop to buy. According to our cycle estimates, crude prices could surge as high as $115 this year. If tension between Russia and the U.S. continues to escalate, we may see even higher prices. We are still on the sidelines of crude.