Tomorrow is technically the end of the current reversal zone for the broad stock market. Unless this market plunges dramatically tomorrow, it looks like last Tuesday's low (May 29) was the turning point for the reversal, and the current rally in equities could continue for another week or two. Both the NASDAQ and S&P 500 are exceeding their May highs today while the DOW remains below its May 21 high of 25,087 so we do have a case of bearish divergence here which gives some support to the bearish view; however, I think the DOW can clear this high. Should we be going long in this market now? Well, I still don't think so. As I stated in my last blog, the medium-term cycles in the S&P 500 and NASDAQ are almost complete which means they should see their final tops soon, and this would be followed by a steep correction to their final cycle bottoms. The DOW would also likely fall with these two indices. The next reversal zone for this market is coming up soon (June 15 - 26). If this market continues to rally, that would likely be the time when we see the final tops for these cycles. An upside target for this rally could be around 25,800 in the DOW and 2,800 in the S&P 500. If we get a minor corrective dip over the next few days, we may attempt to go long for a short-term rally to those targets. Otherwise, we will wait for the cycle tops to sell short. On the sidelines of the broad stock market for now.
Gold may have started a new medium-term cycle with its low of $1282 on May 21. If true, gold should rally now and not go below that low for at least several more weeks. If gold is still completing an older cycle, however, then that cycle is due to bottom this week or next at or below $1282. Either way, we should be looking to buy gold soon. The current reversal zone for gold ends tomorrow, and today gold could be making a double bottom (around $1290) to its May 21 low. But prices could also go lower. It would be ideal to see gold dip below $1282 with silver prices remaining above their May 1 low of $16.06 as that would be a strong bullish divergence signal and buy spot for both metals.
As I've mentioned in previous blogs, silver may have started a new medium-term cycle with that May 1st $16.06 low, and if so, that's bullish for both metals. If silver breaks that low, however, it would be bearish and silver could move substantially lower and possibly take gold prices down with it. Let's stay on the sidelines for now and see how prices move over the next few days.
Crude oil prices dropped today and made a new monthly low at $64.57 (July contract chart). It is late in the medium-term cycle of crude, and we are expecting a final cycle bottom anytime over the next several weeks. It could be happening now in the current reversal zone for crude; however, we are leaving that reversal zone on Wednesday.
Unless we reverse back up over the next day or two, prices are probably headed lower into the next reversal zone for crude coming up June 15 - 26 (same as for equity markets). We are in the target range for a cycle bottom now, but that range extends down to $63 so prices could go lower over the next few weeks. If prices do reverse here and start rising accompanied by bullish technical signals, we will look to go long. Lower prices after Wednesday, however, will tell us to wait a few more weeks before buying. On the sidelines of crude oil.
I realize the above discussion of cycles can be confusing, but the markets are very difficult to call right now, and there are a lot of possible scenarios that could unfold. I am trying to keep things as simple as possible under the circumstances. Please note that as time passes, ambiguous cycle patterns always resolve themselves and clear patterns will emerge. When they do, trading decisions can be made with more decisiveness.