We are now reasonably confident that all three of our broad stock market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles back in August (the DOW with its low of 34,029 on Aug.25, and the S&P 500 and NASDAQ on AUG. 18 with their lows of 4,336 and 13,162, respectively). Because all three indices have now fallen below those lows, these cycles are technically bearish.
Last Tuesday I wrote:
" ...all three [indices] are headed lower, probably much lower, as they move down to their final cycle bottoms which aren't due for at least another two months. In the meantime, there is not much to curb this sell-off until we enter our next general reversal zone coming up at the end of next week (Oct. 5 - 16). I don't normally like to chase rallies or corrections that are already in progress, but any short-term bounce or relief rally over the next several days may be a good place to short sell this market as the trend has turned bearish and the current correction may be steep. If we don't get a bounce this week and this market continues to fall, we will wait for a significant sub-cycle low that will be due around the time of the upcoming reversal zone (Oct. 5 - 16). A likely bounce from there could give us a good shorting opportunity from the top of a modest rally."
Well, we did get a little bounce - last Thursday and Friday - but these indices are down again today. Unless they can edge back up to new highs into our new general reversal zone coming up Thursday (Oct. 5 - 16), we will not think about going short and instead wait for a sub-cycle low in this reversal zone and plan to sell short at the top of any bounce from there. The possibility of another move up from today is not far fetched as today the DOW made a new weekly low but the S&P 500 and NASDAQ did not (bullish divergence signal). Let's remain on the sidelines of this market for now and see how prices move into the end of the week.
Precious metal prices have been plummeting sharply which is something we were expecting as we approach our new general reversal zone - applicable to all markets (Oct. 5 - 16).
Gold is moving down to the final bottom of an older medium-term cycle that is due beginning next week. Not only is next week the center of our new reversal zone, but there is a potentially very strong "pivot point" for gold Oct. 10 -13 (Tuesday - Friday) which makes next week a good time for the final cycle bottom. We would like to see the bottom stay above $1800 or at least $1780. If prices go below there, our bullish longer-term trend in gold will be in jeopardy. For now, we will look to buy in next week's reversal zone at an ideal price somewhere between $1780 and $1855. We remain on the sidelines for now.
Silver prices took a big dive today which strongly suggests silver's medium-term cycle is an older one, and like gold, prices are headed to the final cycle bottom, due anytime now and probably near the center of next week's reversal zone. There is a potential "pivot point" for silver next week from Oct. 10 - 12 (Tuesday - Thursday) which is also a good time for a final bottom. As with gold, we think the longer-term cycle in silver is bullish, but if prices start to fall below $19.95, we will have to question that view. Let's wait and see how low silver prices go into next week where we will look for a buy spot above $20. For now, we stay on the sidelines.
Today's falling precious metal prices were not surprising as the U.S. Dollar Index surged up and closed a tad above 107. There really isn't much serious resistance now to a dollar rally until we approach the 110 level. But our upcoming reversal zone later this week and next week could put a damper on it and send the greenback back down. at least temporarily.
Last Wednesday I thought crude oil's sub-cycle correction was over with the previous day's low at $88.19 (November contract chart) and the subsequent strong rally, but I may have been wrong as prices have been falling very sharply from Thursday's high ($95.03). If prices continue to fall towards the 45-day moving average (around $84.63), we will have to go back to the idea that an older medium-term cycle is completing with a steep fall to the final cycle low somewhere below $83. Otherwise, we will wait for another 3-8 day correction for a sub-cycle bottom in a new medium-term cycle (that started on Aug.24) that could land anywhere between the 15-day and 45-day moving averages. Of course, our new reversal zone Oct. 5 - 16 will be a good time frame for any bottom, so we may be looking to buy soon. We are currently on the sidelines of crude oil.