In last Thursday's blog we observed a bullish divergence signal in the broad stock market, and I wrote:
"We could see some sort of corrective bounce now, but we won't take it too seriously until the DOW and S&P 500 can break above their June 28 highs (31,885 and 3,945, respectively) and the NASDAQ breaks above its high from July 8 (11,690). Until that happens, these indices could fall lower."
Well, we did see a sharp jump in the markets on Friday, and today a large "gap up" in all three broad stock market indices (DOW, S&P 500, NASDAQ) at the opening bell looked very bullish. But not one of these indices has broken above the highs mentioned above, and at today's closing bell, the market lost all its gain and turned bearish. The DOW made a new weekly high, but the S&P 500 and NASDAQ did not, so we now have a BEARISH divergence signal in this market. This market is being very indecisive, and it's still not clear if these indices have started new medium-term cycles on June 16-17 (possibly bullish) or are completing older ones (bearish). We have the rest of the week to see if they want to rally and negate today's bearish signal or continue lower to challenge the lows of June 16 (NASDAQ) and June 17 (DOW and S&P 500). Let's remain on the sidelines of this market for now.
I should emphasize here that our long-term view right now is that equity markets made a major long-term cycle peak in November (NASDAQ) and January (DOW and S&P 500) and that they are now in the process of taking a MAJOR long-term correction that could be quite severe (i.e. crash) over the next several years (see my "CRASH UPDATE" on the Home page). So far, the DOW has dropped 20%, the S&P 500 has dropped 24%, and the NASDAQ has dropped a whopping 35%. Despite these bearish drops, it looks like this market could now take a significant "relief rally" that might persist into September. These indices might challenge or even exceed their all-time highs, although that doesn't seem likely at this point (especially for the NASDAQ).
The question right now is if this relief rally has already started with the lows of June 16-17 (new cycles) or if these indices will make lower lows (soon complete older cycles). Either way, we may look to go long once we're confident a new medium-term cycle has started in order to ride a rally that may be sharply up for a month or two. But our main goal will be to sell short at the top of that rally - as long as all three indices do not make new all-time highs (very unlikely).
Gold and silver's medium-term cycles are also ambiguous at the moment - it is not clear if they are old or new. In both cases, however, the cycles are bearish and prices should be headed lower. Our goal now is to identify the final medium-term cycle low and go long for a new rally. As with the broad stock market, this new rally will most likely not make new all-time highs, but could be significant and therefore worth buying.
Gold's final medium-term cycle bottom will likely form anytime over the next three weeks. There is a reversal zone specifically for the precious metals coming up July 20-29, so that would be a good time for a bottom. A good price target would be around $1675. Let's watch for this as a possible buy spot.
A good target for silver's bottom would be in a wide range from $15 - $19. Last week's low at $18.15 may have been the bottom already, but it's more likely prices will fall lower into the upcoming reversal zone (which starts on Wednesday). Silver is a little trickier than gold to call right now. Silver prices could rally as high as $21.50 before falling again, so we are not anxious to buy this metal until it falls a bit lower.
We are currently on the sidelines of both metals.
Last week's price plunge in crude oil most likely turned the current medium-term cycle bearish. Because it is late in this cycle, there's a chance that last week's low ($88.23 - we have switched to the Sept. contract chart) was actually the final cycle bottom. If that's true, prices could be very bullish now. I think it's more likely, however, that the final bottom is still ahead at a lower price. There's a reversal zone specifically for crude coming up July 25 - Aug. 2. That would be a better time for a final medium-term cycle bottom. A good price target could be $85 - $87. Let's watch for that. If prices now rally instead and close the week above $102, we may have to assume a new cycle started with last week's low, and we may or may not want to chase that rally. We remain on the sidelines of crude for now.