After moving down late last week, equities were up a bit today, but all three indices (DOW, S&P 500 and NASDAQ) remain below their April highs. The next reversal zone for this market is early next week (May 9-10) so it's possible these indices could fall sharply into that time and then reverse back up. It's also possible for them to bounce this week and make another high before reversing down into their cycle lows. We will hold on to our short position in the broad stock market for now with a stop loss on both the DOW and S&P 500 exceeding their April 20 highs (18,168 in the DOW and 2,111 in the S&P 500). It may be OK if one exceeds its high but not the other as this would be a case of intermarket bearish divergence, especially if it happens early next week.
We covered our short position in gold last week just in time to avoid a price surge triggered by the Bank of Japan's announcement to not raise interest rates (at least for now). As I wrote in last Thursday's blog:
"The Bank of Japan surprised everyone today by leaving its monetary policy steady (most analysts had been expecting an aggressive loosening of policy) and this caused the U.S. dollar to take a plunge. Note that the U.S. Dollar Index is now near critical support around 93. If this drop is just a temporary knee-jerk reaction to the BOJ's announcement today, it may bounce from here, but if the dollar starts breaking below 93 it could be in big trouble."
That dollar plunge kicked gold and silver prices up and confirmed that both gold and silver started new medium-term cycles in late March/early April and could be turning very bullish. "Could" is the key word here because the precious metals market will likely be very volatile over the next three or four weeks, and what now looks like a breakout could turn out to be a "fake-out". The COT (Commitment of Traders) charts for gold and silver still show Commercial traders (smart money) to be very bearish on these metals, and because the Commercials are rarely wrong we need to be careful about getting too bullish. A significant correction could still be imminent. That might happen this week, but if prices move higher into early next week, we could see a reversal then. We will remain on the sidelines for now and watch how precious metal prices move into next week.
What happens to gold and silver now will depend on the U.S. dollar. Today the U.S. Dollar Index closed below important support at 93 which means that it is in danger of melting down. There is some support down to 92.5, and it is resting at that level now. Market volatility is high right now so this breakdown could also be a "fake-out". We have to see the dollar reverse back up soon to avert the danger of a more serious collapse. We will be watching this situation carefully.
Crude oil made a new high last week at $46.78 (June contract chart), but the target for the current rally is closer to $50 so prices could edge higher this week. If they do go higher into Friday or early next week, I may consider entering a short position for a short-term subcycle correction as next week's reversal zone is especially relevant to crude. Longer-term traders may wish to wait and buy the bottom of any correction because the long-term cycle in crude seems to be turning bullish. Currently out of crude oil.