Right now it looks like the DOW could be either a young medium-term cycle or an older medium-term cycle ready to move down to its final bottom. If it is an older cycle, it most likely made its final top with last Monday's all-time high at 35,091 and has started its final descent to the cycle bottom (due sometime over the next several weeks). But the DOW's cycle could also be young (11 weeks). That would be more bullish, and we could see last Monday's high tested or even significantly exceeded before the final top is in. I am favoring this bullish view at the moment. Our next strong reversal zone is coming up at the end of this week (May 21 - June 1), so we probably won't have to wait long to see which scenario - bullish or bearish - is going to unfold. Let's watch for a rally into this time frame and also for intermarket bearish divergence signals (i.e. one or two of our major market indices - DOW, S&P 500, NASDAQ - making new all-time highs, but NOT ALL THREE), which could be another opportunity to sell short. If this does turn out to be an older cycle, however, we could instead see a final cycle bottom in this upcoming reversal zone (and a possible spot to buy).
Unlike the DOW, it seems fairly clear that the S&P 500 and NASDAQ are both young cycles (11 weeks). Both these indices made significant sub-cycle lows last Wednesday and are rallying from there. The S&P 500 is close to testing or exceeding its all-time high of 4,238 from May 7, but the NASDAQ has a lot more distance (and resistance) to overcome before exceeding its all-time high of 14,207 from April 29. Of course, if the S&P 500 and/or DOW exceed their highs without the NASDAQ in our upcoming reversal zone (May 21 - June 1), that would give us a very strong intermarket bearish divergence and another good opportunity to short this market.
It's important for us to remember that our main concern for the rest of this month and into June (and possibly July) is to identify a long-term cycle peak from which a potentially very severe correction in the broad stock market could follow. And yes, this could be the "big one". The minimal correction we are expecting would be about 10%, but there is a possibility of a much more severe drop of 70% or even more by 2023 - 2024. This is why we are focusing now on calling this top and selling short. Any traders uncomfortable with short selling should obviously be looking to get out of equity markets soon.
We are now on the sidelines of the broad stock market.
In my last post on precious metals (May 9) I wrote:
"There is a good chance that gold will rally strongly now to at least the $1900 level and possibly even to test or exceed the all-time high of $2070 from last year. This means we should be looking to buy any significant corrective lows. Prices are now approaching the $1850 level where there is considerable resistance. Perhaps we'll see a turn back from there with a corrective dip to buy....Silver is also looking very bullish right now, but there is still a chance prices could make a short-term corrective sub-cycle drop to the $25 area. That would be a good buy spot if it happens."
Well, both metals did drop down a bit last week, but not enough to make me want to buy. Prices are rising again and making new highs today. Did we miss an opportunity to buy? Maybe. But we are now entering a reversal zone specifically for precious metals (May 17 - 26), and this reversal zone also overlaps with our reversal zone for equities coming up Friday (May 21 - June 1). The point here is that if gold and silver rally strongly into either one of these reversal zones, there is a good chance of a significant top forming and then a subsequent correction down. That might give us another chance to buy. We will continue to watch both metals for significant corrections. Still on the sidelines of gold and silver.
As I mentioned in my last post on the longer-term situation of the the U.S. Dollar Index (see April 20), the greenback could turn very bearish if it breaks clearly and significantly below the 90 level. This index has been declining thorough April, and this month it is finding support at 90. We need to watch this carefully now. As we are now entering a reversal zone for the precious metals and later this week one for equities, there's a good chance this support will hold and the dollar could start rallying again. That would help push gold and silver prices back down if it happens. We will watch for this.
In my last post on crude oil (May 9) I wrote:
"Last week's low at $63.90 may have been it's first sub-cycle dip, but it only lasted two days, which is a bit short for a significant sub-cycle correction. That means it could push lower this week. If it does, we may look to buy as this cycle is young and looks to be quite bullish. An eventual price target of $75 is not out of the question."
Crude did push a bit lower last week (to $63.09 on Thursday - June contract chart), but we did not buy. Prices are rallying today, so it looks like Thursday was likely the sub-cycle low. I am reluctant to chase this rally now because there is some resistance around $67, and we will be entering a reversal zone specifically for crude on Friday (May 21 - June 1, same as for equities). This suggests that the rally may not get that far before turning back down again (unless it takes off strongly this week). Let's stay on the sidelines of crude for now.