MARKETS UPDATE and CRUDE OIL TRADE ALERT (8:30 pm EDST)
It still looks likely that the S&P 500 and NASDAQ made their final medium-term cycle highs last week, but Friday's bullish rally is suggesting that one or both indices could push even higher this week. If they do this by Thursday, they will still be in a strong reversal zone for equities, and we should expect tops followed by a sharp turn down and steep corrections down to their final cycle bottoms. In other words, we will want to stay short. The only thing that would make me want to cover my short position here would be to see both these indices make new weekly highs AND see the DOW break above its April 3 high of 26,696 (and especially its all-time high of 26,952). Holding my short positions in the S&P 500 and NASDAQ for now.
Recall that we sold short the S&P 500 and/or NASDAQ, not the DOW, because there was (still is) a chance that the DOW started a new medium-term cycle with its low from March 25 at 25,372. If that is true, the DOW will not correct strongly down like the S&P 500 and NASDAQ, and, in fact, it could rally strongly from here as it would be in the bullish early stage of its cycle. But if the DOW is at the end of an older cycle (like the S&P 500 and NASDAQ) then it too should fall sharply (at least to the 26,000 area).
As I mentioned last week, gold and silver are very tricky to trade right now. We are trying to buy both metals at their final medium-term cycle bottoms and are therefore looking for signals that their bottoms are in. Last week we did see bullish divergence between the spot price charts of both metals with silver making a new weekly low without gold; however, the nearby contract charts saw both gold and silver making new lows which kind of negates the spot price bullish signal. We are currently right in the center of a reversal zone specifically for the precious metals (it ends Thursday) so we could still see prices dip lower this week and one metal making a new low without the other for another bullish divergence signal. That could be a good buy spot. But it's also possible that last week's lows were the cycle bottom(s). If that's the case, prices could rally (that rally may have already started late last week); but even if prices rise, there is very strong resistance for gold around $1300. That resistance could curb any rally, especially if that target is hit in another reversal zone for the precious metals coming up May 15 - 22.
Based on all of the above, our strategy is this: We will buy if we see prices dip next week with one metal making a new low without the other (bullish divergence). If instead prices rally, we will stay on the sidelines and wait to see how much resistance gold encounters at that $1300 level. That resistance could deflect prices back down and give us another opportunity to buy. Still on the sidelines of both metals.
Crude oil is now falling from its medium-term cycle high of $66.18 on April 23 (June contract chart) to its final cycle bottom. That decline could go as low as $55, but it doesn't have to, and we are now in the center of a reversal zone specifically for crude (it ends Thursday). This is a good time for the bottom. Today (Sunday) prices have edged down to $60.34, and there is some support at the $60 level. It looks like a good time to take profits and cover our short position (which we entered on April 25). I am going to place an order to unload my short position at tomorrow's market open (Monday). Traders may wait for the market to open tomorrow morning, but we are close to that support at $60 so I would try to cover as soon as possible.
NOTE: If crude stays above $55, we are looking to buy the bottom of this current medium-term cycle as it still looks like crude will rally strongly into the rest of the year. That is another reason to cover our shorts now as it will give us more flexibility to buy - possibly early next week.
It still looks likely that the S&P 500 and NASDAQ made their final medium-term cycle highs last week, but Friday's bullish rally is suggesting that one or both indices could push even higher this week. If they do this by Thursday, they will still be in a strong reversal zone for equities, and we should expect tops followed by a sharp turn down and steep corrections down to their final cycle bottoms. In other words, we will want to stay short. The only thing that would make me want to cover my short position here would be to see both these indices make new weekly highs AND see the DOW break above its April 3 high of 26,696 (and especially its all-time high of 26,952). Holding my short positions in the S&P 500 and NASDAQ for now.
Recall that we sold short the S&P 500 and/or NASDAQ, not the DOW, because there was (still is) a chance that the DOW started a new medium-term cycle with its low from March 25 at 25,372. If that is true, the DOW will not correct strongly down like the S&P 500 and NASDAQ, and, in fact, it could rally strongly from here as it would be in the bullish early stage of its cycle. But if the DOW is at the end of an older cycle (like the S&P 500 and NASDAQ) then it too should fall sharply (at least to the 26,000 area).
As I mentioned last week, gold and silver are very tricky to trade right now. We are trying to buy both metals at their final medium-term cycle bottoms and are therefore looking for signals that their bottoms are in. Last week we did see bullish divergence between the spot price charts of both metals with silver making a new weekly low without gold; however, the nearby contract charts saw both gold and silver making new lows which kind of negates the spot price bullish signal. We are currently right in the center of a reversal zone specifically for the precious metals (it ends Thursday) so we could still see prices dip lower this week and one metal making a new low without the other for another bullish divergence signal. That could be a good buy spot. But it's also possible that last week's lows were the cycle bottom(s). If that's the case, prices could rally (that rally may have already started late last week); but even if prices rise, there is very strong resistance for gold around $1300. That resistance could curb any rally, especially if that target is hit in another reversal zone for the precious metals coming up May 15 - 22.
Based on all of the above, our strategy is this: We will buy if we see prices dip next week with one metal making a new low without the other (bullish divergence). If instead prices rally, we will stay on the sidelines and wait to see how much resistance gold encounters at that $1300 level. That resistance could deflect prices back down and give us another opportunity to buy. Still on the sidelines of both metals.
Crude oil is now falling from its medium-term cycle high of $66.18 on April 23 (June contract chart) to its final cycle bottom. That decline could go as low as $55, but it doesn't have to, and we are now in the center of a reversal zone specifically for crude (it ends Thursday). This is a good time for the bottom. Today (Sunday) prices have edged down to $60.34, and there is some support at the $60 level. It looks like a good time to take profits and cover our short position (which we entered on April 25). I am going to place an order to unload my short position at tomorrow's market open (Monday). Traders may wait for the market to open tomorrow morning, but we are close to that support at $60 so I would try to cover as soon as possible.
NOTE: If crude stays above $55, we are looking to buy the bottom of this current medium-term cycle as it still looks like crude will rally strongly into the rest of the year. That is another reason to cover our shorts now as it will give us more flexibility to buy - possibly early next week.
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