We are now in the late stages of the current medium-term cycle of the broad stock market which means that we should be watching for a top or peak to this cycle to be followed by a steep correction to the cycle bottom. For the DOW and S&P 500 that cycle bottom would normally be expected anytime between now and the end of January. A bottom in the NASDAQ, however, could come earlier, say within the next three weeks, but it could also bottom with the DOW and S&P 500 in January. This correction could be severe (the DOW could easily fall to the 22,000 area and maybe even as low as 20,000). The bottom line here (pun intended) is that we should now be looking for a good spot to sell short. But when will the peak occur?
Last Thursday (the middle of a reversal zone for equities) the NASDAQ made a new all-time high while the DOW and S&P 500 did not (and are not making new highs today). Thus we have an ongoing case of intermarket bearish divergence within the current reversal zone for equities (that ends on Wednesday). The cycle peak may therefore already be in (the NASDAQ on Nov. 16 and the DOW and S&P 500 on Nov. 7) with this market ready to fall. But, momentum from this year's "Trumphoria" and "irrational exuberance" is persisting, and this is a major holiday week in the U.S. (Thanksgiving on Thursday) when equities are usually bullish. I wouldn't be surprised to see this market push higher into the next reversal zone coming up next week (Nov. 28 - Dec. 6). A lot may depend on whether or not the U.S. Congress passes a controversial tax reform bill next week (Congress is on vacation this week). If they don't pass a bill by the end of next week, this could be the trigger for a market sell off. The market is up strongly today so I am going to resist the temptation to sell short and wait to see if the DOW and S&P 500 can make new highs into Thanksgiving. If they do, we will look to next week's reversal zone for a top. Staying on the sidelines of the broad stock market for now.
Last Tuesday I wrote about gold and silver:
"The precious metals market is giving us a lot of mixed signals right now. It is still not clear if gold and silver started new medium-term cycles with their lows on Oct. 6 ($1,262 in gold, $16.38 in silver) or if both metals are completing older cycles that will bottom below those lows over the next several weeks. If these are new cycles, gold and silver could be very bullish now and prices could be poised to take off strongly......If gold breaks below $1,262, we could easily see prices drop close to $1,200 for a final bottom and a good buy spot. If that $1,262 level holds, however, prices could be ready to rally strongly. A break above $1,290 would suggest that is happening."
Well, gold closed at $1,296 on Friday, but today prices plummeted back to $1,277 to negate Friday's bullish signal. Silver also dropped severely today and made a double bottom to last week's low at $16.85. These severe drops broke through some important technical lines of support so it appears that we may be back on track to make final bottoms in older gold and silver cycles over the next few weeks. If gold can break below $1,262 we might see prices approaching the $1,200 area by late next week which would be right on time for the next precious metals reversal zone (Nov. 28 - Dec. 6). We will watch for this as it could turn out to be an excellent spot to buy. On the sidelines of gold and silver.
Crude oil prices are still holding above $55 (Dec. contract chart) as we near the end of the current reversal zone for crude (on Wednesday). If prices can edge up towards $58 or higher by then, we may consider selling this market short. If not, we will wait for the next reversal zone (Nov. 28 - Dec. 6) which starts next week and could end up being another high (sell spot) or a new low (probably a good buy spot). We will have to wait and see how prices move over the next few days before deciding how to trade. Still on the sidelines of crude oil.