The broad stock market was up a bit today after last night's second presidential debate. Again, the polls today are showing mixed results as to who won the debate, but it seems that Trump and Clinton are still generally on equal ground, and we probably shouldn't expect any dramatic impact on financial markets. As I mentioned in an earlier blog, it is late in the medium-term cycles of the DOW, S&P 500 and NASDAQ so we should be watching for a correction down to the final cycle bottoms in all three indices which is due any time between now and early December. The next reversal zone for equity markets comes in the last week of this month so it is possible equities could rally into that time and then start to correct down to the final cycle bottom in November or December. Alternately, if this market can't muster a rally into the election, we could see equities fall into a cycle bottom at the end of October. I think that the Federal Reserve and the current political establishment would prefer to see a rally into early November, but nervous investors may have other ideas (especially if Trump starts to gain on Hillary) and create a panic selloff that the Fed may not be able to control. On the other hand, if the Fed hints that there will be no rate hike in December, this could help stimulate a rally. If we do get a rally into the election, our strategy will be to look for a top to sell short for the final correction into a cycle bottom. But if equities fall significantly over the next two weeks into a final cycle bottom, we will be looking to buy. Still on the sidelines of the broad stock market.
In last Wednesday's blog on precious metals I wrote:
"...it's also possible that Sept. 1 was not the start of a new cycle and that gold is now correcting to the bottom of an older cycle which is due over the next two weeks. Next week is another reversal zone for gold and silver so that would be a good time for this bottom in gold to happen."
This seems to be happening. The low of last Friday at $1,243 could be the cycle bottom, but it is more likely we will see the cycle bottom this week or early next week at a lower price. If that bottom stays above $1,200 then gold can still be bullish, but if prices break below $1,200, the medium-term trend could turn bearish. We will watch prices carefully for a potential buy spot. Last week's sudden price plunge in silver (and gold) forced us to relabel silver's chart pattern as an older medium-term cycle (instead of a newer one) that, like gold's, should make a final cycle bottom this week or next. To stay bullish, silver needs to stay above $15.83 (which was the start of the cycle on June 1). If silver or gold (not both) break below last week's low while the other stays above its low from last week (intermarket bullish divergence) then we may have a good signal to buy this week or next. On the sidelines of both gold and silver for now.
The U.S. Dollar Index surged dramatically last week on speculation that the Fed will raise interest rates in December. This is what tanked precious metal prices. It is not clear from the dollar index chart, however, whether or not this rally can be sustained. If the Fed decides to delay a rate hike into next year to keep stock markets strong into the election then the dollar could fall back.
Crude oil prices continue to rally strongly, and our long positions purchased on Sept. 26 are now up nearly 14%. Crude has exceeded its Aug. 19th high ($50) and directional momentum for the current cycle is now 100% bullish. We aren't expecting a significant correction in crude for at least another week or two so I'm going to hold my long position here for now as it looks like prices could still go higher and reach our $53 - $54 target.