The broad stock market has been giving us an unusual array of mixed signals over the last week or two, and it seems to be indecisive in its movements. This is almost certainly due to the current debt ceiling crisis now being debated in Washington D.C. According to House Speaker Kevin McCarthy, Republicans and Democrats need to resolve this issue and agree on a deal by the end of this week to avoid the nation's first-ever default. Last week it looked like both parties were coming to an agreement before negotiations abruptly broke down again by the end of the day on Friday. So far, equity markets seem to be fairly stable and avoiding a panic sell-off, but that could change quickly if the crisis is not resolved soon (like this week).
Coincidentally (or maybe not) we are at the end of our very strong reversal zone for equities (May 11 -19), but because of this debt ceiling crisis I am going to extend this reversal zone two more weeks (into June 5). The S&P 500 and NASDAQ are peaking with new highs now, but the DOW is struggling to make new highs and remains below its 15-day and 45-day moving averages. This gives us a strong bearish divergence signal and increases the likelihood of an imminent turn down in this market. Any panic over failure to resolve the debt ceiling crisis could be just the catalyst needed to trigger a sell-off. For this reason, we are now out of all our long positions in the broad stock market, and we will stay there until this crisis is resolved (or not)..
If equities do panic and sell-off into early June, we may see Congress come to an agreement and raise the debt ceiling at the "11th hour" (as they have done in the past), and this could potentially halt any sell-off and reverse the markets back up. I am just speculating here, but should this scenario unfold, it could set up a stable sub-cycle correction that may be worth buying for more rallying into the summer. If markets continue to fall past June 5, however, it would most likely negate that bullish scenario.
Gold might have made a significant sub-cycle low last Thursday at $1954. That was in the center of a reversal zone specifically for the precious metals (May 15 - 24), and it was right on time for a sub-cycle bottom. However, there are still two more days left in the reversal zone, and Thursday-Friday this week may be a pivot point for silver and Friday-next Monday a strong pivot point for gold. This means prices might go lower and make another bottom in any one of these time frames. Gold prices were down a bit today, but they remained above last Thursday's low. Let's continue to hold our long position in gold for now.
Silver prices were also slightly down today but still above last week's low ($23.49). Silver's sub-cycle low was due last week. If prices go below $23.49, it could mean the cycle is turning bearish. Otherwise, prices could rally now from last week's low to new highs. An ideal situation right now would be to see gold make a new weekly low this week without silver for a case of bullish divergence. That would be a good signal to buy silver. For now, let's stay on the sidelines of silver.
Crude oil prices remain range-bound between $70 and $74 but seem to be stabilizing above the 15-day moving average. We are now in the center of a reversal zone specifically for crude that is in effect for the rest of this week. If crude makes a new weekly low, it may be a good spot to buy. On the other hand, a new high above $74 could end up being the top of a reversal back down. We will stay on the sidelines for now as we watch how prices move into the end of the week.