MARKETS UPDATE (4:30 pm EDT)
The broad stock market continued edging higher today as all three market indices (DOW, S&P 500, NASDAQ) made new weekly highs. This rules out any intermarket bearish divergence signal for this week. Can these markets still correct down now? Yes, but if they do, the correction is likely to be short-lived and not severe. The next important reversal zone for equity markets is Oct. 25 - Nov. 2. (it starts next week on Wednesday). If these indices correct down into that time period and the correction is not too severe, we will look to buy. The other possibility is for this market to continue rising this week and next. If that happens and we get a bearish divergence signal in the reversal zone, it will be a good spot to sell short. At some point before the end of the year we will see a final top to the current medium-term cycle in this market followed by what could be a very severe correction to the end of the cycle. We will want to sell short at that top. Currently on the sidelines of the broad stock market.
In last Thursday's blog on gold and silver I wrote:
"COT charts are still bearish on the precious metals, and gold is still below $1,300 and silver below $17.47. Next week could be very volatile for these metals. That could mean a sudden break out, but it could also mean another correction down."
Well, gold broke above $1,300 on Friday, but today prices are closing at $1,293, and silver is still under $17.47. Both metals closed in the lower part of today's range. This and the fact that COT charts are still bearish on gold and silver suggests more downside for these metals. There are also some chart patterns in the U.S. Dollar Index suggesting that a strong rally in the dollar could be imminent. Such a rally could really take off if the dollar can break above resistance in the 94 area. Needless to say, this would put downward pressure on the precious metals if it happens. Right now the analysts that I follow seem to be divided on whether or not gold and silver are breaking out or moving lower short-term. There is a possibility that gold and silver could have started new medium-term cycles from their lows on Oct. 6. If that is the case, they could be very bullish now and ready to rally strongly. A break and close above $1,320 in gold and $17.50 in silver would suggest that is happening. A more bearish scenario could see gold and/or silver falling below their Oct. 6 lows ($1,262 in gold and $16.38 in silver) to make a final (older) cycle bottom probably in the last week of this month (the next reversal zone for precious metals). Precious metal prices could fluctuate strongly this week so we will remain on the sidelines until a directional trend becomes more defined. I should point out here that even if gold and silver prices correct down some more, the medium and long-term picture for both metals is still quite bullish, and we would be looking to buy the bottom of any correction.
It is getting late in the current medium-term cycle of crude oil. I had thought that the high of $52.86 (Nov. contract chart) on Sept. 28 was the cycle top, but it looks like that high may be challenged now as prices got to $52.37 today. Crude could make a new high or perhaps just a double top to Sept. 28. If that happens in the next reversal zone for crude (Oct. 25 - Nov. 2) then it will be a good opportunity to sell short as such a top would likely be followed by the final correction to the bottom of the current cycle. If prices start falling again we may just have to wait for the cycle bottom to buy near the end of this month. On the sidelines of crude oil for now.
The broad stock market continued edging higher today as all three market indices (DOW, S&P 500, NASDAQ) made new weekly highs. This rules out any intermarket bearish divergence signal for this week. Can these markets still correct down now? Yes, but if they do, the correction is likely to be short-lived and not severe. The next important reversal zone for equity markets is Oct. 25 - Nov. 2. (it starts next week on Wednesday). If these indices correct down into that time period and the correction is not too severe, we will look to buy. The other possibility is for this market to continue rising this week and next. If that happens and we get a bearish divergence signal in the reversal zone, it will be a good spot to sell short. At some point before the end of the year we will see a final top to the current medium-term cycle in this market followed by what could be a very severe correction to the end of the cycle. We will want to sell short at that top. Currently on the sidelines of the broad stock market.
In last Thursday's blog on gold and silver I wrote:
"COT charts are still bearish on the precious metals, and gold is still below $1,300 and silver below $17.47. Next week could be very volatile for these metals. That could mean a sudden break out, but it could also mean another correction down."
Well, gold broke above $1,300 on Friday, but today prices are closing at $1,293, and silver is still under $17.47. Both metals closed in the lower part of today's range. This and the fact that COT charts are still bearish on gold and silver suggests more downside for these metals. There are also some chart patterns in the U.S. Dollar Index suggesting that a strong rally in the dollar could be imminent. Such a rally could really take off if the dollar can break above resistance in the 94 area. Needless to say, this would put downward pressure on the precious metals if it happens. Right now the analysts that I follow seem to be divided on whether or not gold and silver are breaking out or moving lower short-term. There is a possibility that gold and silver could have started new medium-term cycles from their lows on Oct. 6. If that is the case, they could be very bullish now and ready to rally strongly. A break and close above $1,320 in gold and $17.50 in silver would suggest that is happening. A more bearish scenario could see gold and/or silver falling below their Oct. 6 lows ($1,262 in gold and $16.38 in silver) to make a final (older) cycle bottom probably in the last week of this month (the next reversal zone for precious metals). Precious metal prices could fluctuate strongly this week so we will remain on the sidelines until a directional trend becomes more defined. I should point out here that even if gold and silver prices correct down some more, the medium and long-term picture for both metals is still quite bullish, and we would be looking to buy the bottom of any correction.
It is getting late in the current medium-term cycle of crude oil. I had thought that the high of $52.86 (Nov. contract chart) on Sept. 28 was the cycle top, but it looks like that high may be challenged now as prices got to $52.37 today. Crude could make a new high or perhaps just a double top to Sept. 28. If that happens in the next reversal zone for crude (Oct. 25 - Nov. 2) then it will be a good opportunity to sell short as such a top would likely be followed by the final correction to the bottom of the current cycle. If prices start falling again we may just have to wait for the cycle bottom to buy near the end of this month. On the sidelines of crude oil for now.
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