Last week's strong rally in the broad stock market is supporting the idea that a new medium-term cycle started in the DOW from its Oct. 29 low of 24,122. New medium-term cycles may also have started in the S&P 500 (Oct. 29 at 2,603) and in the NASDAQ (Nov. 20 at 6,830). We are now in the center of a strong reversal zone for equities that technically ends this Wednesday (but let's extend that into Friday). There is a good chance we will see a top by the end of this week and then some sort of correction. If these indices have indeed started new cycles then the correction should not be great and we should look for a small dip to buy as it is early in these cycles and they are likely bullish. Such a scenario would line up well with a "Santa Claus" rally which is often seen at this time of year on Wall Street. What we don't want to see is a correction down that breaks below those lows stated above which (very likely) started the new cycles. If that happens, we could see these indices down for at least a few more weeks and possibly much longer. Our strategy now will be to buy any short-term correction that holds above those lows. If the DOW tops out early this week, a correction might go down to the 24,900 area, but if the market is still giddy from Jerome Powell's "dovish" comments about interest rate policy made last week then we could see "irrational exuberance" take these indices higher and further into the week. We will stay on the sidelines for now and watch for that top and then a corrective dip to buy this week or next.
It is starting to look like gold and silver are completing the final bottoms of older medium-term cycles. (I had recently introduced the possibility of gold starting a new cycle with its low of $1196 on Nov. 13, but that looks unlikely now). This means that we could see lower prices over the next several weeks as both metals complete their final cycle bottoms. Silver could easily break below its recent Nov. 13 low of $13.90, but gold might hold above the low that started its cycle ($1161 on Aug. 16). If that happens, it would be a strong bullish divergence signal and a good place to buy the start of new cycles in both metals. We will watch for this. In the meantime, both metals could rally some more before pushing down to their cycle bottoms. If we get a strong rally now, we may even consider selling short at a cycle top before the final descent down; otherwise, we will wait for the cycle bottoms to buy. Still on the sidelines of gold and silver.