The broad stock market may have reached a temporary peak with last Wednesday's high of 18,622 in the DOW and 2,176 in the S&P 500 and could now be taking a minor correction before resuming its rally. If so, a good time for a corrective bottom would be late this week into next week's reversal zone. There is strong support for the DOW around 18,000 and for the S&P 500 around 2,100. If we see those levels by the end of this week or into next week, there is a good chance of a reversal and a resumption of the rally. An alternative scenario could see a rally into next week and then a correction into mid-August. In either case I don't expect the correction to be serious as the current cycle analysis is pointing to new highs for at least several more weeks and possibly several months. What we don't want to see is the DOW move below 17,400 or the S&P 500 break below 2,040. That would call our bullish view into question. We can still use those levels as a general stop loss for our long positions in the broad stock market. Holding my long position here. Anyone who is not yet long can consider buying if we approach the 18,000 or 2,100 levels mentioned above, especially if that happens at the end of this week or next week.
In last Wednesday's blog on gold and silver I wrote:
"There is another reversal zone coming up in the first week of August so we could see prices continue down into that time (which would be ideal for a final bottom in silver's medium-term cycle). It is still possible for gold prices to stay above our stop loss level at $1,300 because, unlike silver, it is only taking a subcycle correction (its final cycle bottom isn't due for at least 8 weeks); however, gold is close to $1300 now and could easily go lower into the end of this month as it follows silver's lead."
Gold prices are holding above $1,300 so far, but both gold and silver still look vulnerable. The Commitment of Traders (COT) charts for both metals still show a record level of short positions in gold and silver from Commercial traders ("smart money"). It would be unwise to bet against the Commercials as they are nearly always right. (OK, it's possible for them to be wrong, but not likely). This was one major reason for selling our gold long positions last week.
Today several gold and silver mining company indices and ETFs are flashing bearish signals which is also not a good sign for these metals. Besides the first week of August, there is also another reversal zone for the precious metals in the third week of August. We could see a correction move prices down into either one of those time windows or we may get a brief rise into the first one and then a downward correction into the second one. Our main strategy here should be to wait and buy the corrective bottom which could be around $18 in silver and anywhere from $1,230 to $1,300 in gold. (Silver is the better reference point as it is due for its final medium-term cycle bottom.)
If we do get a minor rally into early or even mid-August, I may consider going short to ride a significant correction down, especially in silver. The precious metals market is a bit confusing right now and is giving us a lot of mixed signals. Please refer to my recent blog from July 18 for a brief discussion of gold and silver's longer-term direction. On the sidelines of both gold and silver for now.
Even though crude oil's medium-term cycle bottom is now due, I have been avoiding going long because technical signals have been pointing towards a final bottom in the lower part of our target range of $40 -$45. We seem to be getting there as prices broke briefly below $43 today before closing at $43.04 (September contract chart). That could be it, but we always prefer to see a cycle bottom in a reversal zone, and we have one coming up later this week into next week. Let's see if prices can go lower into that time frame for a good spot to buy. On the sidelines of crude but looking to buy soon.
Another Federal Reserve meeting is happening this week (Tuesday/Wednesday) and Janet Yellen is scheduled to give a press conference Wednesday afternoon to discuss the Fed's current economic policy. The issue of the recent "Brexit" vote and its potential effect on European economic stability will most likely be mentioned, and most analysts are expecting the Fed to leave interest rates unchanged in view of this latest geopolitical development. If they do, this should give a boost to equity markets and help propel them higher into the November presidential election (which is most likely what they want). We will watch carefully how all markets react to Wednesday's Fed statement.