I apologize for this late post. (On Friday I promised an update for Saturday or Sunday). I was not able to properly analyze the markets until late this morning.
It still looks like the broad stock market peaked on March 1st (the DOW, S&P 500, and NASDAQ all made record highs that day) within a major reversal zone. It is also late in the medium-term cycles of all three of these indices so a significant correction could now be underway. The only problem is that "Trumphoria" and fiscal year-end contributions to baby boomer retirement plans are likely exerting a bullish counterforce to this correction. If this bullish influence can push these indices back above their March 1st highs then we may see the current cycle distort in a parabolic acceleration towards a final cycle top in mid-April (the next strong reversal zone). On the bearish side, however, the Fed may announce another interest rate hike on Wednesday this week which could be the trigger for some heavy selling. We should also note that the NASDAQ made a new weekly high today while the DOW and S&P 500 did not. We thus have an intermarket bearish divergence signal (until the DOW and S&P 500 make new highs). I am going to hold my short position in this market for now. If we do see those March 1st highs exceeded this week, we may have to cover this short position and wait until mid-April for another opportunity to sell short.
In last Monday's gold and silver blog I wrote:
"The picture for precious metals is still a bit unclear although it looks like gold did make a significant sub-cycle high last Monday at $1,263 and is now falling to the bottom of that sub-cycle which is due this week or next. ... If gold can stay above $1,200 this week then we could see another rally to new highs (above $1,263) soon. If instead prices break below $1,200 (say, to the $1,180 - $1,190 area) then any subsequent rally may not make new highs, and this market could turn quite bearish."
Gold prices fell to $1,195 on Friday. It looks like the current cycle is turning bearish so we should probably be looking to sell short any short-term rallies now. A sub-cycle bottom may have formed on Friday, but we may see a lower bottom form this week. There is a small possibility that the bottom in gold last week (or this week) is the start of a new medium-term cycle. If that is the case, we could see prices exceed $1,240 soon and the market turn bullish. For now, however, the market looks bearish, and we may look to sell short the top of any rally to the $1,220 - $1,230 area in gold. We may also attempt to short sell the top of any modest rally in silver. On the sidelines of precious metals for now.
The U.S. Dollar Index has been trapped in a narrow range between 101-102 over the last several weeks. That may change on Wednesday if the Fed raises interest rates. This could strengthen the dollar and kick it above 102. On the other hand, if the Fed does the unexpected and holds back a rate hike, we could see the dollar fall. A stronger dollar would likely push precious metal prices lower. If the metals rally into Wednesday and the Fed does the expected (i.e. raises rates) then that may be a good top to sell short gold and silver.
In last Monday's blog on crude oil I wrote:
"Speaking of COT (Commitment of Traders) charts, those for crude oil are also looking strongly bearish (i,e. heavy short positions by Commercial traders). This is not a good sign and suggests an imminent and significant drop in price. We are still in a reversal zone for crude through most of this week so it is possible for prices to fall to new lows and then reverse back up ... A support area to watch is $51 - $52. If prices break below there, we could see a very steep drop follow. The COT charts are supporting this scenario."
This bearish scenario is unfolding as crude prices plunged in the second half of last week from $53 to $48 (April contract chart). Prices may bounce back a bit now as we move out of last week's reversal zone, but directional momentum in this market is now nearly 100% bearish as the cycle trend turns down. As with the precious metals, we will watch for a short-term rally and top to sell short in this market. On the sidelines of crude oil.