MARKETS UPDATE (3:30 pm EDST)
Today's strong rally in the broad stock market confirms that this market is rising into the current reversal zone (today and tomorrow are the center of it), and we should be looking for a top to sell short this week. Ideally, we would like to see a case of bearish divergence where one or two of the three major indices (DOW, S&P 500, NASDAQ), but not all three, break above their June highs (that would be 25,403 in the DOW, 2,791 in the S&P 500, and 7,803 in the NASDAQ). The S&P 500 and NASDAQ are already very close to their highs, but the DOW is not so this bearish divergence signal could easily happen over the next day or two.
In terms of cycles, it is very possible that all three indices are making their final medium-term cycle tops now and that this will be followed by a sharp correction down to their final cycle bottoms which will happen most likely in our next reversal zone (July 27 - Aug. 6). Our trading strategy, therefore, will be to sell short the top this week for a corrective fall and then to reverse position and buy at the bottom (probably in late July/early August). There is also a possibility that the S&P 500 and NASDAQ (probably not the DOW) already made their final cycle bottoms on June 28. If true, they would both be very bullish now as they start a new cycle. Even if that is the case, however, this week's reversal should push them back down a bit where we could buy them close to their bottoms as we also buy the DOW at its final bottom in late July/early August. Considering all of this (yes, it's a little confusing), it will probably be best to focus on the DOW for any short selling this week as its fall will be steeper if the other two indices have already started new cycles. Still on the sidelines of the broad stock market but now looking to go short this week.
Right now we also have a mixed and somewhat ambiguous picture with the cycles of gold and silver. Silver's cycle is more clear than gold's cycle at the moment. Silver most likely started a new medium-term cycle on May 1 at $16.07. Because silver traded lower than $16.07 last week, prices will probably move even lower before the final cycle bottom is in (due in 3 - 11 weeks). Gold, on the other hand, could have made a very significant low last week at $1238. That could have been the end of a medium-term as well as a longer-term cycle, and if so gold could be very bullish now and about to embark on a very strong rally (new cycle). The alternative view is that, like silver, gold will move lower to complete a final cycle low later (due in 4 - 7 weeks).
So what can we do with this (rather confusing, I know) information? Well, we are now at the center of a reversal zone for precious metals (it ends Friday), and both gold and silver are rallying into it. We could see a pull back here. There also happens to be some strong technical signals this week that suggest a strong rally could commence from an isolated low in both metals sometime before Friday. If we get a modest pull back (say to the $1245 area in gold) before Friday, it may be worth going long in both metals for a brief but possibly strong rally. If gold is starting a new cycle as described above, then its rally could be very strong. Even if gold and silver are still completing older cycles, there is still the possibility of a strong short-term rally now before prices move down to their final lows. We will watch for this pullback to buy this week. On the sidelines of gold and silver.
As far as gold and silver aborting their massive bullish inverted "head and shoulders" chart formations, a subject I discussed recently on the blog (see June 17th blog), this is still a possibility, but it could take many more weeks (even months) to confirm this. If gold is starting a new long-term cycle now (as discussed above), we may see these bullish chart formations remain intact. Stay tuned for updates on this.
Last week's high in crude oil at $75.27 (Aug. contract chart) on Tuesday was a bit too early to fall into the current reversal zone for crude (July 4 - 13) so there's a good chance prices could push back up to that level or higher this week for a significant high. We will watch for that and a chance to take profits near $75 and sell our long position (which we bought near $65 on June 5). If last week was the high and prices fall, let's use a close below $72 as our stop loss for our longs. Holding my long position in crude oil for now.
Today's strong rally in the broad stock market confirms that this market is rising into the current reversal zone (today and tomorrow are the center of it), and we should be looking for a top to sell short this week. Ideally, we would like to see a case of bearish divergence where one or two of the three major indices (DOW, S&P 500, NASDAQ), but not all three, break above their June highs (that would be 25,403 in the DOW, 2,791 in the S&P 500, and 7,803 in the NASDAQ). The S&P 500 and NASDAQ are already very close to their highs, but the DOW is not so this bearish divergence signal could easily happen over the next day or two.
In terms of cycles, it is very possible that all three indices are making their final medium-term cycle tops now and that this will be followed by a sharp correction down to their final cycle bottoms which will happen most likely in our next reversal zone (July 27 - Aug. 6). Our trading strategy, therefore, will be to sell short the top this week for a corrective fall and then to reverse position and buy at the bottom (probably in late July/early August). There is also a possibility that the S&P 500 and NASDAQ (probably not the DOW) already made their final cycle bottoms on June 28. If true, they would both be very bullish now as they start a new cycle. Even if that is the case, however, this week's reversal should push them back down a bit where we could buy them close to their bottoms as we also buy the DOW at its final bottom in late July/early August. Considering all of this (yes, it's a little confusing), it will probably be best to focus on the DOW for any short selling this week as its fall will be steeper if the other two indices have already started new cycles. Still on the sidelines of the broad stock market but now looking to go short this week.
Right now we also have a mixed and somewhat ambiguous picture with the cycles of gold and silver. Silver's cycle is more clear than gold's cycle at the moment. Silver most likely started a new medium-term cycle on May 1 at $16.07. Because silver traded lower than $16.07 last week, prices will probably move even lower before the final cycle bottom is in (due in 3 - 11 weeks). Gold, on the other hand, could have made a very significant low last week at $1238. That could have been the end of a medium-term as well as a longer-term cycle, and if so gold could be very bullish now and about to embark on a very strong rally (new cycle). The alternative view is that, like silver, gold will move lower to complete a final cycle low later (due in 4 - 7 weeks).
So what can we do with this (rather confusing, I know) information? Well, we are now at the center of a reversal zone for precious metals (it ends Friday), and both gold and silver are rallying into it. We could see a pull back here. There also happens to be some strong technical signals this week that suggest a strong rally could commence from an isolated low in both metals sometime before Friday. If we get a modest pull back (say to the $1245 area in gold) before Friday, it may be worth going long in both metals for a brief but possibly strong rally. If gold is starting a new cycle as described above, then its rally could be very strong. Even if gold and silver are still completing older cycles, there is still the possibility of a strong short-term rally now before prices move down to their final lows. We will watch for this pullback to buy this week. On the sidelines of gold and silver.
As far as gold and silver aborting their massive bullish inverted "head and shoulders" chart formations, a subject I discussed recently on the blog (see June 17th blog), this is still a possibility, but it could take many more weeks (even months) to confirm this. If gold is starting a new long-term cycle now (as discussed above), we may see these bullish chart formations remain intact. Stay tuned for updates on this.
Last week's high in crude oil at $75.27 (Aug. contract chart) on Tuesday was a bit too early to fall into the current reversal zone for crude (July 4 - 13) so there's a good chance prices could push back up to that level or higher this week for a significant high. We will watch for that and a chance to take profits near $75 and sell our long position (which we bought near $65 on June 5). If last week was the high and prices fall, let's use a close below $72 as our stop loss for our longs. Holding my long position in crude oil for now.
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