MARKETS UPDATE (11:30 pm EST)
We can now confirm that both the DOW and S&P 500 made significant sub-cycle lows on May 29 and will likely be rallying into next week's reversal zone (June 15 - 26). We will now be looking to sell short any top in that time frame as it could be the final top in the current medium-term cycles of both indices (but especially the S&P 500). A normal target range for a top could be around 25,500 - 26,200 in the DOW and 2,800 - 2,900 in the S&P 500. We are already close to the lower end of these ranges. As I've mentioned in previous blogs, the DOW seems to have started a new medium-term cycle with its April 2 low of 23,344 so it is relatively young (and potentially more bullish) while the S&P 500 and NASDAQ started their cycles on Feb. 9 and are older and ready to top out soon and take steep corrections down to their final cycle bottoms. We are going to focus more on the timing of the S&P 500 and NASDAQ now as the DOW will likely peak early and fall if and when the other two indices take their corrections. If equities take a minor dip this week, we may consider going long for a short-term rally into the target areas mentioned above. Otherwise, we will just wait to sell short near those targets. Still on the sidelines of the broad stock market.
Our decision to go long in the precious metals last Tuesday (June 5) seems to be a good one so far. Silver prices have really taken off, although gold's rally has been minimal. Gold's weak rally has me concerned as gold is often the leader of these two metals, and if gold starts heading down it could pull silver back down with it. We are hoping that gold's bottom of $1282 on May 21 was the start of a new medium-term cycle. If so, prices should be bullish and should rise into next week's reversal zone for the precious metals (June 18 - 27). If gold is still forming the bottom of an older cycle then it could instead make a new low into that time period (below $1282). In that situation we would still want to buy gold as long as silver prices hold above $16.13. Because silver's rally has been strong, it seems likely this metal started a new medium-term cycle recently with its low of $16.07 on May 1 and is now bullish. Let's hold our long positions in both metals for now with our stop loss based on gold breaking below $1282 AND silver breaking under $16.13 (and especially under $16.07).
In my June 5 blog last week I wrote about the U.S. Dollar Index:
"Last Tuesday the dollar "gapped up" dramatically and nearly touched 95 then "gapped down" the next day to 94 leaving behind what is called a "bearish island reversal" pattern. This happened at the top of a strong rally and could indicate an exhaustion of the rally to be followed by a significant correction. Support at the 94 level seems to be breaking today so that correction looks imminent."
Indeed, that 94 support did break and is now acting as resistance to any rallies. Today the dollar's directional momentum turned from 100% bullish to mixed bullish and bearish so it could be heading lower, at least into next week's reversal zone. If it does, it will encourage more rallying in gold and silver.
Crude oil has also been rallying from a low on June 5 (where we went long) but not very strongly. If June 5 was the start of a new medium-term cycle (very possible) then crude should be bullish now and will exceed $68 soon (July contract chart). But if prices fall again and break that June 5 low ($64.22), we will likely see the old cycle bottoming in next week's reversal zone. Let's continue to hold our long position here with a stop loss based on a close below $64.22
We can now confirm that both the DOW and S&P 500 made significant sub-cycle lows on May 29 and will likely be rallying into next week's reversal zone (June 15 - 26). We will now be looking to sell short any top in that time frame as it could be the final top in the current medium-term cycles of both indices (but especially the S&P 500). A normal target range for a top could be around 25,500 - 26,200 in the DOW and 2,800 - 2,900 in the S&P 500. We are already close to the lower end of these ranges. As I've mentioned in previous blogs, the DOW seems to have started a new medium-term cycle with its April 2 low of 23,344 so it is relatively young (and potentially more bullish) while the S&P 500 and NASDAQ started their cycles on Feb. 9 and are older and ready to top out soon and take steep corrections down to their final cycle bottoms. We are going to focus more on the timing of the S&P 500 and NASDAQ now as the DOW will likely peak early and fall if and when the other two indices take their corrections. If equities take a minor dip this week, we may consider going long for a short-term rally into the target areas mentioned above. Otherwise, we will just wait to sell short near those targets. Still on the sidelines of the broad stock market.
Our decision to go long in the precious metals last Tuesday (June 5) seems to be a good one so far. Silver prices have really taken off, although gold's rally has been minimal. Gold's weak rally has me concerned as gold is often the leader of these two metals, and if gold starts heading down it could pull silver back down with it. We are hoping that gold's bottom of $1282 on May 21 was the start of a new medium-term cycle. If so, prices should be bullish and should rise into next week's reversal zone for the precious metals (June 18 - 27). If gold is still forming the bottom of an older cycle then it could instead make a new low into that time period (below $1282). In that situation we would still want to buy gold as long as silver prices hold above $16.13. Because silver's rally has been strong, it seems likely this metal started a new medium-term cycle recently with its low of $16.07 on May 1 and is now bullish. Let's hold our long positions in both metals for now with our stop loss based on gold breaking below $1282 AND silver breaking under $16.13 (and especially under $16.07).
In my June 5 blog last week I wrote about the U.S. Dollar Index:
"Last Tuesday the dollar "gapped up" dramatically and nearly touched 95 then "gapped down" the next day to 94 leaving behind what is called a "bearish island reversal" pattern. This happened at the top of a strong rally and could indicate an exhaustion of the rally to be followed by a significant correction. Support at the 94 level seems to be breaking today so that correction looks imminent."
Indeed, that 94 support did break and is now acting as resistance to any rallies. Today the dollar's directional momentum turned from 100% bullish to mixed bullish and bearish so it could be heading lower, at least into next week's reversal zone. If it does, it will encourage more rallying in gold and silver.
Crude oil has also been rallying from a low on June 5 (where we went long) but not very strongly. If June 5 was the start of a new medium-term cycle (very possible) then crude should be bullish now and will exceed $68 soon (July contract chart). But if prices fall again and break that June 5 low ($64.22), we will likely see the old cycle bottoming in next week's reversal zone. Let's continue to hold our long position here with a stop loss based on a close below $64.22
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