We are now in the last week of May. Technical, cycle, and timing studies indicated a strong potential for market reversals during this month, but so far it is not clear whether or not there have been any significant directional changes in the major markets. In fact, some markets, like gold and silver, have come to a virtual standstill (this may change shortly) while others, like the U.S. dollar, have fluctuated wildly (the dollar appeared to be breaking down earlier in the month but now seems to be in a "breakout rally"). This lack of directional trend makes it difficult to call the markets at the moment, but directional patterns may become more clear as we move into June.
In the broad stock market on May 13 both the DOW and S&P 500 made new all-time highs. It is possible that those highs were significant peaks and that these markets will continue to fall into the first half of June to the end of their current cycles before making further new highs. I think there is a stronger possibility, however, for these indices to make new highs into early June before falling significantly. These markets were rising last week, and there are currently several short-term technical indicators that support this latter scenario, including very bullish directional momentum, not only in the DOW and S&P 500, but in the NASDAQ as well. The contract chart of the S&P 500 did make a new high last week, but the cash DOW was well below its May 13 high. Any reluctance now by the DOW to make a new high would suggest a correction is imminent. I don't feel that patterns in these markets are clear enough to establish a trading position at the moment so I am remaining on the sidelines for now. The second week of June may present us with a shorting opportunity to catch a significant correction down (10% or more); however, after such a correction I think the broad stock market would likely resume its bullishness.
Precious metal prices have been nearly flat over the last few weeks, but technical indicators are suggesting that a break (upside or downside) is imminent. This market is really hard to call right now. One ominous sign is that directional momentum in the chart of the gold and silver mining company stock index XAU recently turned 100% bearish. As I've mentioned before on the site, the direction of precious metal mining company stocks often foreshadows the direction of gold and silver prices, so this is suggesting lower prices ahead. Directional momentum in the metals themselves is currently mixed bullish and bearish for both gold and silver (with gold being a little more bearish, short-term, than silver). There is support for gold at $1280 and resistance at $1300. A clear break through one of those levels would give us a clue as to where prices are headed. The next likely turning point for gold and silver is the second week of June, so if prices move lower into that time frame we may see a good bottom to buy into then. On the other hand, a moderate rally into mid-June could lead to another price correction with the final cycle bottoms in gold and silver being delayed further. It is too early to call a trade in this market. I will continue to watch for signs of a bottom to buy over the next several weeks. Still on the sidelines.
The abrupt surge of crude oil prices last Wednesday was apparently the result of a government report showing that U.S. inventories fell more than expected ( a drop of 7.2 million barrels instead of the expected decline of only 300,000 barrels). This fueled investor buying and pushed crude prices over the $104 mark. Two days earlier (in my May 19th blog) I covered my short position in crude and wrote, "...it is becoming too risky to "ride out" the current price surge
[in crude]..." This turned out to be good timing as the break above $104 suggests a bullish trend in crude's current cycle. As with other markets right now, cycles and technical indicators in crude's charts are ambiguous and a little confusing so we will stay on the sidelines of trading here as well until patterns are more clear.