Today was a holiday in the U.S. (Martin Luther King Jr. Day) and stock markets were closed. They will reopen tomorrow.
After rallying a bit early last week, the broad stock market plummeted into Friday with all three major indices (DOW, S&P 500, NASDAQ) making new monthly lows. Significantly, the S&P 500 on Friday broke briefly below its 2015 low (1,867 from Aug. 24) while the DOW and NASDAQ remained above their Aug. 24 lows. This could be a case of intermarket bullish divergence (as long as the DOW and NASDAQ don't crash their lows). Last week's lows were made in a strong reversal zone (which could extend into early this week), and a medium-term cycle bottom is due. Under normal circumstances this would be a good spot to go long. Markets are very nervous right now, however, and last week's plunge might be the start of a panic selloff. All three indices are breaking important support levels and are significantly below our original target areas for a "normal" correction. Furthermore, the DOW's chart turned significantly bearish on Friday, and directional momentum for all three indices is now 100% bearish. Is it possible to reconcile these conflicting bullish and bearish signals? After looking at all the chart patterns and cycle structures and reviewing the conclusions of several financial analysts that I follow, it appears that a likely scenario now could be a brief but possibly sharp relief rally (perhaps into the 1950-2000 range in the S&P 500) followed by another turn down to even deeper lows. If we do get a rally now, it could peak around the first or second week of February, and as long as that peak stays under 2100 in the S&P 500 and directional momentum remains bearish, we will be looking to sell short this market into a deeper low. For now, though, we will wait for a strong buy signal for that short-term rally which could come over the next day or two. If we don't get this and the market continues to fall this week, we will look for a bottom in early February instead of a top. Still on the sidelines of the broad stock market.
Gold continues to hold above $1070 (our stop loss price) and still looks poised for at least a short-term rally, possibly into the $1120 - $1150 range. Silver doesn't look quite as bullish as gold at the moment, perhaps because, unlike gold, silver can be seen as an industrial metal, and the plummeting stock market may be holding down its price. Silver may also still be in the process of completing its medium-term cycle bottom which is why we have avoided going long in this metal (while buying gold). If gold starts to rally, we could see prices into our target range over the next several weeks. If the price of silver drops below its December low while gold prices hold above $1070, we could see a strong rally follow in both metals. We will watch for this. Holding my long position in gold but still out of silver.
Crude oil is nearing the end of its current medium-term cycle and may have even made its cycle bottom on Sunday when the nearby contract price dipped to $ 28.36. We are still not seeing any technical buy signals or any bullish change in momentum in oil charts, however, and there is a possibility of prices dropping lower into the first or second week of February which is another reversal zone and is the deadline for a normal cycle bottom in crude. So this cycle's bottom could be forming now or will form then. I would like to see how crude prices move after today's market holiday before making any trade decisions here. Note that because of crude's very low value now, a small price movement can create a large loss very quickly so we need to be especially cautious trading this market. Out of crude for now.