Equity markets rallied (and gapped up) strongly on Friday and confirmed that all three major market indices (DOW, S&P 500, NASDAQ) most likely started new medium-term cycles from their lows on Oct. 3 (25,743 in the DOW, 2,855 in the S&P 500, and 7,700 in the NASDAQ). Now we watch to see if these indices can make new highs this week and especially new all-time highs. If all three can make new all-time highs then this new cycle will be bullish and could be up for at least eight more weeks. But if they cannot exceed their all-time highs (that would be 27,399 for the DOW, 3,028 for the S&P 500, and 8,340 in the NASDAQ) or if only one or two, but not all three, make new all-time highs then this market is likely turning bearish and is about to start a long and deep correction. Even If just last week's highs are challenged and not exceeded by all three indices, that could be a bearish signal that an early top is in and a steep correction is starting. Our reversal zone is in effect through Thursday so we will watch for these bearish divergence signals in this time frame for an opportunity to sell the market short. If instead all three all-time highs break, we will abandon our bearish view and look to buy any short-term corrective dips. This market could go either way right now, but the trend should be clear by the end of the week. Still on the sidelines of the broad stock market.
It looks like there's a good chance both gold and silver started new medium-term cycles with their recent lows on Oct. 1, but I don't see enough bullish signals to rule out another price dip by one or both metals to the final low of an older cycle. We need to see gold get at least above $1518 and silver above $17.90 to confirm the idea of bullish new cycles. Let's stay on the sidelines of the precious metals for now.
In last Thursday's blog on crude oil I wrote:
"Crude oil's medium-term cycle is presenting an interesting picture now. The cycle began on June 5 at $51.54 (Nov. contract chart). It made a double bottom to that low on Aug. 7 at $52.06, and yesterday and today made a triple bottom at $51.38. Prices closed today at the top of the day's range ($53.90), we are in the center of a reversal zone, and the end of this current medium-term cycle is due. We could easily be seeing the start of a new cycle here, and if so, prices could rally strongly now. We still can't rule out another plunge down tomorrow or early next week..."
Indeed, we are seeing crude prices diving today.They dropped to $52.77 intraday and are closing around $53.50 (Nov. contract chart). If prices continue to fall, we will have to abandon the idea of a new cycle starting last week and wait for a new low and final cycle bottom due within the next two weeks. That bottom could be around $50 or even lower. Let's stay on the sidelines of crude for now.