It is starting to look like all three of our broad stock market indices (DOW, S&P 500, NASDAQ) are new medium-term cycles that started with their lows on June 16-17 (although we still can't rule out the possibility they are older cycles - especially the NASDAQ). If new cycles, they appear to be bullish as they all broke well above their June 27-28 highs last week. Despite this bullishness, they are all now due for a sub-cycle correction - a corrective dip that should bottom sometime over the next 2-3 weeks. The highs could have been last Friday, or they might happen this week (or next). If this sub-cycle correction doesn't go too deep and stays above the June 16-17 lows, we may look to buy the bottom for a potentially strong rally into August and September. (Keep in mind, however, that we don't expect all three indices to make new all-time highs, and we will be ready to cover our long positions and go short at the top of the rally as it appears that a long-term correction in the broad stock market is already in progress - see the "Crash Update" on the Home page).
Another FOMC meeting concludes this Wednesday (at 2pm EDST), and investors are anticipating the announcement of another interest rate hike from a hawkish Fed. Today's shaky stock market and dip may be from jittery investors already "selling the rumor" of the hike. If the market continues down into Wednesday, we may have a subsequent "buy the news (if we get a rate hike announcement - very likely)" bounce back rally. Of course, we could also get a significant sell-off, which would fit in nicely with our sub-cycle correction mentioned above. Any week with an FOMC meeting can easily turn into a roller-coaster ride in equities. We will watch from the sidelines and keep an eye out for a significant corrective dip and potential buy spot.
We went long in gold last Thursday as the low that day appeared to be the bottom of a new medium-term cycle. That idea was reinforced by the strong rally on Friday, and prices seem to be holding above Thursday's low today. Let's hold that long position with a stop loss based on prices going below that low ($1681) if silver also makes a new weekly low (and especially if silver drops below it's low from July 14, i.e. $18.15).
Silver's medium-term cycle is a little more ambiguous than gold's cycle right now, so it's final bottom may still be forming. If silver drops below $18.15 this week (we are still in a reversal zone for silver and gold through Friday) while gold remains above $1681, it would create a strong bullish divergence signal and could be a good opportunity to go long in silver. We will remain on the sidelines of silver for now.
Crude oil's chart is still not telling us whether it wants to be bullish or bearish. We've now entered a reversal zone specifically for crude (July 25 - Aug. 2). As I mentioned in my last blog on crude (July 18), we could be near the end of an old medium-term cycle. If so, a final bottom in this reversal zone around $85 - $87 (Sept. contract chart) would be ideal and a potential spot to buy. But if prices don't get there, and they start to rally now, we may have to assume that the July 14 low at $88.23 was the cycle bottom. Let's stay on the sidelines of crude oil for now.