The broad stock market's dramatic upward surge today makes it most likely that Aug. 21 was the start of new medium-term cycles in both the DOW and S&P 500 (and maybe the NASDAQ as well). This clarifies our cycle labeling and gives us two possible scenarios going forward:
1) If the new cycle is going to be bullish, these indices could rally for at least eight more weeks before topping out.
2) On the other hand, we are now in the center of a significant reversal zone for equities, and there is another stronger one coming up at the end of this month into the first week of October (Sept. 27 - Oct. 6). This new cycle could top out early in either one of these time periods and start a major correction down that could be as much as 8 -10% (possibly more).
If this market is going to be very bullish (scenario 1), the DOW and S&P 500 both need to exceed their highs from Aug. 8 (22,179 in the DOW and 2,491 in the S&P 500) and the NASDAQ needs to exceed 6,461. All three indices are already close to breaking those levels. We will watch for this to happen before considering any long position. We need to remember that occasionally a "breakout" rally will occur in a reversal zone (instead of a reversal down). This might happen in the current reversal zone and could propel the market to a top in the next stronger reversal near the end of the month. On the sidelines of the broad stock market for now.
As we had hoped, gold and silver prices are falling from their highs on Friday (which was the center of a strong reversal zone for precious metals). Since the overall picture for both metals is still strongly bullish, we will now look for a spot to buy. A good target for gold would be near $1,300. Silver has the potential to drop severely (to $16.50 or even lower) but it may not do that (directional momentum is mostly bullish in both metals now). The reversal zone for precious metals ends on Thursday. On the sidelines of both metals but looking to buy soon.
The U.S. Dollar Index is bouncing from support at 91, and this is putting downward pressure on gold and silver prices. I don't expect the dollar rally to get very far, however, and we will look for a top in this rally to coincide with a bottom to buy in the precious metals.
After peaking last Wednesday at $49.42 (Oct. contract chart) in the dead center of a reversal zone specifically for crude oil, crude prices fell today to $47 into the center of our general reversal zone for all markets before closing around $48. With a support line at $47, this looks like a good spot to go long in crude. Let's do that today with a stop loss on a close below $47. We especially do not want to see prices drop below $45.58 as that would signal this market is turning bearish again.