In Friday's blog post I wrote:
"The DOW and S&P 500 are also now touching projected ideal target levels for the tops to their cycles, and, of course, in terms of timing these tops are due or even overdue. Let's see if we get a case of intermarket bearish divergence early next week."
The broad stock market rocketed out of the gate today with a very strong rally. All three major indices (DOW, S&P 500 and NASDAQ) made new highs and dashed our hopes of an intermarket bearish divergence signal this week. It looks like "Trumphoria" and irrational exuberance are still strong forces in this market as they continue to distort normal technical and cycle patterns. Notice I said distort, not eliminate. The top to the current medium-term cycle is being delayed, but it will come at some point and a corrective dip will follow. Because these indices are now exceeding their normal upside targets, we can consider this cycle to be in a "blow-off" phase. Sometimes a "blow-off' leads to a parabolic acceleration where the market rises steeply in a very short period of time, but several analysts I follow are pointing out that this pattern does not seem to be forming here. Instead, they see what is called a "three-arc fan ascent" (curious readers can google this term to see what the pattern looks like) which is bearish and could mean that a top is near and we will not see a parabolic rise. Our reversal zone for this market (and others) ends tomorrow. Yes, it's still possible for equities to turn down here even without a bearish divergence signal, but that is less likely now, especially if these indices push higher past Tuesday. Our next reversal zone is Feb. 2 - 12. A top is probably most likely then, but because this cycle is so overextended, we could see a top and reversal at any time now. We will continue to watch for short-term technical signals (like bearish divergence) that could signal an end to the rally. I know it is tempting to jump on to this bullish rally so as not to miss out on the ride up, but from a technical and cycle point of view this would be dangerous so close to a top formation. (Of course, if the market moves into a parabolic acceleration we could miss out on a lot, but a blow-off top, the peak of which is nearly impossible to call, is usually followed by an even steeper crash, and if long we could lose a lot as well!). Impatient bulls may be comforted by the fact that after a corrective dip we will likely be going long for another rally into Spring/Summer.
Staying on the sidelines of the broad stock market for now.
As with the broad stock market, we are also at the end of our reversal zone for gold and silver. Both metals are making new monthly highs, but gold is soaring above its October high while silver remains below its $17.46 high from Oct. 16 so we still have a case bearish divergence in this market. There are several other short-term signals that suggest a turn down in these metals this week. Let's wait and see if we get a corrective dip to buy. In gold that would be back down closer to $1300, and in silver near $17. Still on the sidelines of the precious metals.
Crude oil prices are pushing a bit higher today as they reached $64.89 (Feb. contract chart) before closing a bit below that high (around $64.80). We are at the end of a reversal zone in crude (it ends tomorrow) so we may be seeing a sub-cycle top here, but as I stated in Friday's blog, I am not comfortable selling short right now without a stronger reversal signal. Prices are above a normal target for this rally, and they are just above a support line for crude around $62. Let's wait to see if we get a corrective dip to buy, say in the $60 - $62 area. The overall picture for crude continues to look bullish. On the sidelines of crude for now but looking to buy.