MARKETS UPDATE (11:30 pm EST)
Despite recent hawkish rhetoric from the Fed's Jerome Powell and the persistent coronavirus epidemic, the broad stock market continues to rally with what some might call "irrational exuberance". All three market indices (DOW, S&P 500, and NASDAQ) made new all-time highs last week and stopped us out of our short positions. These indices seem poised for more rallying this week, but if we see another bearish divergence signal (one or two but not all three making new highs), it's possible a top and reversal could start this week. If that happens, we could see a sharp correction into our next reversal zone (a very strong one) Feb. 24 - March 9. I think it's more likely, however, the market will rally into that new reversal zone and make a top then.
Right now it appears that the the NASDAQ is at the end of an old medium-term cycle that is due to peak any time and correct sharply down to its final cycle bottom. The DOW and S&P 500 could also be completing older cycles, but it is also possible they already completed their older cycles and started new ones with their Jan. 31 lows. The difference is important because new cycles are usually very bullish and any corrective dips would likely be shallow. Based on this, any short positions that we enter now should probably be in the NASDAQ (i.e. an ETF or Index Fund tied to the NASDAQ). We will consider selling short again if we see a bearish divergence signal this week, but ideally I would prefer to see bearish divergence in next week's new reversal zone for a better spot to go short. Let's remain on the sidelines for now.
Gold and silver are still trading in a narrow range without breaking upside or downside, and cycle patterns are still not clear. We are in the middle of a reversal zone specifically for the precious metals (February 14 - 25), and prices have been rising so we may see a top shortly followed by some sort of correction. A drop down to the $1525 area in gold could be an ideal spot to buy. A close above $1610 would be a bullish signal and could also have us looking for a good buy spot. The $16 area (or even $17) in silver could also be a good spot to buy, but any close above $1810 could lead to a strong rally to chase. Let's stay on the sidelines of these metals for now and see if the current reversal zone can turn prices down into our ideal buying areas.
It's still not clear if crude oil's low at $49.31 (March contract chart) on Feb. 4 was a final medium-term cycle bottom. If it wasn't, there's still time for prices to go lower as a normal cycle bottom is due anytime over the next three weeks (if it didn't already happen on Feb. 4). That new reversal zone (Feb. 4 - March 9) would be an ideal time for the final bottom. Let's stay on the sidelines of crude oil for now.
Despite recent hawkish rhetoric from the Fed's Jerome Powell and the persistent coronavirus epidemic, the broad stock market continues to rally with what some might call "irrational exuberance". All three market indices (DOW, S&P 500, and NASDAQ) made new all-time highs last week and stopped us out of our short positions. These indices seem poised for more rallying this week, but if we see another bearish divergence signal (one or two but not all three making new highs), it's possible a top and reversal could start this week. If that happens, we could see a sharp correction into our next reversal zone (a very strong one) Feb. 24 - March 9. I think it's more likely, however, the market will rally into that new reversal zone and make a top then.
Right now it appears that the the NASDAQ is at the end of an old medium-term cycle that is due to peak any time and correct sharply down to its final cycle bottom. The DOW and S&P 500 could also be completing older cycles, but it is also possible they already completed their older cycles and started new ones with their Jan. 31 lows. The difference is important because new cycles are usually very bullish and any corrective dips would likely be shallow. Based on this, any short positions that we enter now should probably be in the NASDAQ (i.e. an ETF or Index Fund tied to the NASDAQ). We will consider selling short again if we see a bearish divergence signal this week, but ideally I would prefer to see bearish divergence in next week's new reversal zone for a better spot to go short. Let's remain on the sidelines for now.
Gold and silver are still trading in a narrow range without breaking upside or downside, and cycle patterns are still not clear. We are in the middle of a reversal zone specifically for the precious metals (February 14 - 25), and prices have been rising so we may see a top shortly followed by some sort of correction. A drop down to the $1525 area in gold could be an ideal spot to buy. A close above $1610 would be a bullish signal and could also have us looking for a good buy spot. The $16 area (or even $17) in silver could also be a good spot to buy, but any close above $1810 could lead to a strong rally to chase. Let's stay on the sidelines of these metals for now and see if the current reversal zone can turn prices down into our ideal buying areas.
It's still not clear if crude oil's low at $49.31 (March contract chart) on Feb. 4 was a final medium-term cycle bottom. If it wasn't, there's still time for prices to go lower as a normal cycle bottom is due anytime over the next three weeks (if it didn't already happen on Feb. 4). That new reversal zone (Feb. 4 - March 9) would be an ideal time for the final bottom. Let's stay on the sidelines of crude oil for now.
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