MARKETS UPDATE (3:30 pm EDT)
The broad stock market is currently presenting us with a very challenging cycle pattern. We had been expecting final (overdue) bottoms to medium-term cycles in all three of our market indices (DOW, S&P 500, NASDAQ) inside our last strong reversal zone (April 22 - May 3). The S&P 500 and NASDAQ may have made slightly early bottoms on April 19 (at 4,953 and 15,223, respectively) just one trading day ahead of the the reversal zone, but the DOW's low on April 17 (37,611) was a bit too early. Nevertheless, because a final medium-term cycle bottom was (is) way overdue, those three lows could have been it as all three indices have rallied from those lows, broken above their 15-day and 45-day moving averages and are today making new weekly highs.
If those late April lows were the start of new medium-term cycles, this market should be bullish now; however, any rally is going to encounter another strong general reversal zone coming up next week (May 13 - 25). This could put a damper on the rally and quickly turn it back down. If that happens before we see a new all-time high in one, two, or even all three of our indices, it could turn the general trend of this new cycle bearish.
A second possible labeling of this market would place the end of the old medium-term cycles and the start of new ones on the lows of March 5 for the DOW and March 15 for the S&P 500 and NASDAQ. If that labeling is correct, then all three cycles have already turned bearish because they all dipped significantly below those lows in April.
Because of these bearish possibilities. we are going to refrain from any buying as we wait to see if these indices can make new all-time highs soon. If not, we may consider selling short instead of going long. We note that we've been anticipating a very big corrective drop in the second half of this year. If this market turns bearish now, it's possible that correction could come sooner. We remain on the sidelines of the broad stock market for now.
Our timing to buy gold and silver last Thursday at a significant sub-cycle low seems to be good (so far). Both metals are rallying today to challenge their 15-day moving averages. Once that resistance is cleared, we'll wait and see if these metals can exceed their April highs ($2,427 in gold and $29.68 in silver). That's possible as this market still appears to be bullish. As with the broad stock market, however, we need to be aware that any rally this week will encounter a new general reversal zone next week which is applicable to these metals. We also have a strong potential "pivot point" for gold coming up this Thursday and a strong "pivot point" for silver next week on Tuesday. If prices rally strongly into these time frames, we may consider taking early profits on our long positions in both metals. For now, we will hold our longs in gold and silver.
Crude oil prices made a low at $77.96 on Friday (June contract price) - the last day of our reversal zone. Today prices dipped a bit lower - to $77.91. We're only one day out of the reversal zone, so we could be seeing a bottom here, especially as there is strong support around $78. But final medium-term cycle bottoms can last 2-5 weeks, and this is week 4 from the cycle top of $86.97 on April 12. Prices could push lower, and next week starts another reversal zone which could be a good place for the final bottom. Below $78 there is strong support at $76. Let's stay on the sidelines until we see more evidence of a final bottom - this week or next.
The broad stock market is currently presenting us with a very challenging cycle pattern. We had been expecting final (overdue) bottoms to medium-term cycles in all three of our market indices (DOW, S&P 500, NASDAQ) inside our last strong reversal zone (April 22 - May 3). The S&P 500 and NASDAQ may have made slightly early bottoms on April 19 (at 4,953 and 15,223, respectively) just one trading day ahead of the the reversal zone, but the DOW's low on April 17 (37,611) was a bit too early. Nevertheless, because a final medium-term cycle bottom was (is) way overdue, those three lows could have been it as all three indices have rallied from those lows, broken above their 15-day and 45-day moving averages and are today making new weekly highs.
If those late April lows were the start of new medium-term cycles, this market should be bullish now; however, any rally is going to encounter another strong general reversal zone coming up next week (May 13 - 25). This could put a damper on the rally and quickly turn it back down. If that happens before we see a new all-time high in one, two, or even all three of our indices, it could turn the general trend of this new cycle bearish.
A second possible labeling of this market would place the end of the old medium-term cycles and the start of new ones on the lows of March 5 for the DOW and March 15 for the S&P 500 and NASDAQ. If that labeling is correct, then all three cycles have already turned bearish because they all dipped significantly below those lows in April.
Because of these bearish possibilities. we are going to refrain from any buying as we wait to see if these indices can make new all-time highs soon. If not, we may consider selling short instead of going long. We note that we've been anticipating a very big corrective drop in the second half of this year. If this market turns bearish now, it's possible that correction could come sooner. We remain on the sidelines of the broad stock market for now.
Our timing to buy gold and silver last Thursday at a significant sub-cycle low seems to be good (so far). Both metals are rallying today to challenge their 15-day moving averages. Once that resistance is cleared, we'll wait and see if these metals can exceed their April highs ($2,427 in gold and $29.68 in silver). That's possible as this market still appears to be bullish. As with the broad stock market, however, we need to be aware that any rally this week will encounter a new general reversal zone next week which is applicable to these metals. We also have a strong potential "pivot point" for gold coming up this Thursday and a strong "pivot point" for silver next week on Tuesday. If prices rally strongly into these time frames, we may consider taking early profits on our long positions in both metals. For now, we will hold our longs in gold and silver.
Crude oil prices made a low at $77.96 on Friday (June contract price) - the last day of our reversal zone. Today prices dipped a bit lower - to $77.91. We're only one day out of the reversal zone, so we could be seeing a bottom here, especially as there is strong support around $78. But final medium-term cycle bottoms can last 2-5 weeks, and this is week 4 from the cycle top of $86.97 on April 12. Prices could push lower, and next week starts another reversal zone which could be a good place for the final bottom. Below $78 there is strong support at $76. Let's stay on the sidelines until we see more evidence of a final bottom - this week or next.
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