In last Wednesday's blog on the broad stock market I wrote:
"...equity markets could be turning bullish now, and that is supporting the idea that a new medium-term cycle started with those lows in the DOW, S&P 500 and NASDAQ on Oct. 29. If that is the case, we could see strong rallying in this market for another 8-13 weeks. We mustn't forget, however, that we have potential reversal points coming up Nov. 8 (weak), Nov.16 (strong) and Nov. 30 (very strong). Any rally into these reversal zones could see a top followed by a significant correction. Our strategy will now be to buy any significant correction that stays above those Oct. 29 lows (that would be 24,122 in the DOW, 2,603 in the S&P 500 and 6,922 in the NASDAQ). Breaking below those lows would negate our bullish view of this market."
OK. It looks like the market topped out on our first reversal point (Nov. 8) and is now in a steep downward correction. As stated above, we now want to be looking for the bottom of this correction to buy, as long as that bottom doesn't break below the Oct. 29 lows that may have started new medium-term cycles in all three market indices. Because we are about to enter another reversal zone this week (Nov. 14 - 21 and centered on Nov. 16), it is highly likely the corrective bottom will occur then. A good target for this correction in the DOW would be around the 25,000 level (say between 24,800 and 25,200). This is our ideal scenario, and it is based on the DOW (and most likely the S&P 500 and possibly the NASDAQ) having started new medium-term cycles off their Oct. 29's lows. But, as usual, we need to be aware of some other possibilities that could play out.
If this current correction finds support before Wednesday and starts to rally again, we could possibly see a top into the Nov. 16 reversal zone and not a bottom. (I don't think that is going to happen, but if it does, we may look to sell short.) But what we really need to watch carefully are those Oct. 29 lows (24,122 in the DOW, 2,603 in the S&P 500 and 6,922 in the NASDAQ). We don't want to see all three indices break their lows. That could signal that this market is turning very bearish. However, if the DOW remains above its low while the S&P 500 and (or) especially the NASDAQ break their lows, we would have a strong bullish divergence signal to buy. (This is a very possible scenario because the NASDAQ may not have ended its previous cycle on Oct. 29 and could still be moving towards its final bottom sometime this month.)
Even if this analysis is a bit complicated, our strategy here is simple. We are looking to buy the DOW sometime this week or next week in that 25,000 area. A good buy target in the S&P 500 would be around 2,700. Any significant plunge below these levels would be viewed with caution, and any break below those Oct. 29 lows would negate our bullish view altogether. Still on the sidelines of the broad stock market.
After last week's down slide, gold and silver prices continued lower today with both metals making new weekly lows. Silver prices are nearly touching the low that started the current medium-term cycle on Sept. 11 ($13.95). If that low breaks, silver would be bearish and headed lower for at least several more weeks. If silver breaks that low and gold can stay above the low that started its current cycle( $1161 on Aug. 16), however, we would have a strong bullish divergence signal to buy (gold first, then silver near its final low). We don't want to see gold below $1161 and silver below $13.95 as that would be a sign the market is turning bearish. Let's remain on the sidelines of the precious metals for now and see how prices move into this week's Nov. 16 reversal zone.
The U.S. Dollar Index "broke out" above a strong resistance line around 97 today. This is a new high for the year, and if the greenback can stay above 97 it could move considerably higher. This week's reversal zone (Nov. 14 - 21) is a reversal zone specifically relevant to currencies so if the dollar continues to rise into the end of the week or next week, it could potentially get turned back down. The U.S. dollar's recent strength could be coming from frightened investors fleeing falling equity markets and moving into the perceived safety of the greenback. Some analysts are suggesting that we are now seeing the start of an all out sell-off in equities and commodities similar to 2008-2009 when panicking traders liquidated their stocks as well as precious metals (and crude oil) investments and fled to the U.S. dollar. While this scenario is possible, cycle and technical analysis is showing us that there could still be some bullish rallying left in these markets so we are not ready to throw in the towel (or sell short) just yet.
Crude oil prices continue to fall and today they closed below $60 (Dec. contract chart) for the first time since early February this year. This is confirming that we are approaching the end of a longer-term (3 year) cycle in crude that could bottom any time now and very likely in the upcoming reversal zone for oil (Nov. 19 - 28). Still on the sidelines of crude but looking to buy soon.