Today the broad stock market took a dive which is suggesting the start of a significant correction from last week's Wednesday and Thursday highs. Technically, however, those highs were just outside our reversal zone (July 27 - Aug. 6) so while they could represent a significant top, it would be better to see another high this week (and ideally a new high in one or two of the three major indices- DOW, S&P 500, NASDAQ- but not all three for another bearish divergence signal. If that happens, we will look to short this market again). If equities continue to fall, however, we may have to just wait for a bottom to buy (as long as it doesn't go too low) which could be in this week's reversal zone. This is a very volatile market right now that has the potential to move strongly in either direction, but we are still on the lookout for a cycle top that could happen anytime between now and October to be followed by a very significant correction. On the sidelines of this market for now.
This week also brings us into a reversal zone for the precious metals (July 30 - Aug. 7). The cycle picture for the precious metals is ambiguous and complicated at the moment (please read my July 22 update on gold and silver), but short-term we are looking for a turning point in this reversal zone. The recent lows in both metals on July 19 ($1212 in gold, $15.18 in silver) could be significant bottoms, but July 19 was not in any reversal zone so there is a good chance prices could go lower before a strong rally starts. If one metal breaks below its July 19 low but not the other this week or early next week, we will have a bullish divergence signal and may look to buy. On the other hand, a strong rally this week could give us a top to sell short. We'll stay on the sidelines for now.
Crude oil started a new medium-term cycle with its low of $63 on June 18 and then rallied strongly into early July. It's first sub-cycle correction is due to bottom anytime between now and the third week of August. That bottom could happen in this week's reversal zone for crude (July 27 - Aug. 6), but it could also fall into the next one (Aug 15 - 23). Crude made a new weekly high today so it looks like it wants to rally into the current reversal zone. We may look to sell short if prices stay below $73 (Sept. contract chart), but if they exceed that, we could see crude bypass a sub-cycle correction and go straight to the cycle top in late August. That could also be a good place to sell short. We will stay on the sidelines for now as we watch to see if crude rises or falls this week.
I realize all these markets are a bit confusing right now and are presenting us with a lot of different possibilities (that's why we're on the sidelines), but I will point out when a trading opportunity becomes clear, and we will be using tight stop losses on any trades during this period of high volatility through August and early September.