MARKETS UPDATE (11:30 pm EDST)
We entered a short position in the broad stock market last Thursday as we approached the center of our current reversal zone (April 22 - May 1) with a strong intermarket bearish divergence signal between the three major market indices (DOW, S&P 500 and NASDAQ) relative to their all-time highs (i.e. the DOW still well below its all-time high and the S&P 500 and NASDAQ making new highs). (Note, however, that we did not get a weekly bearish divergence signal as all three indices made new weekly highs.) The DOW gapped down dramatically on Thursday suggesting a significant correction had started, but on Friday equity markets rallied significantly and started to close that gap. We will watch this gap carefully this week. If the DOW edges up early this week and closes above that gap (i.e. closes above 26,583) then it's possible we could see a bullish trend push this index (and possibly the other two) up higher into the next reversal zone (May 1 - May 9) which is back to back with our current reversal zone (and overlaps one day - May 1). On the other hand, if this week the DOW stays below last week's high (26,696) while the S&P 500 and/or the NASDAQ make a new weekly high, it will reinforce our bearish divergence signal and point to a decline to the final cycle lows. What we can do here is hold our short position with a stop loss based on all three indices exceeding last week's highs (that would be DOW - 26,696; S&P 500 - 2,940; and NASDAQ - 8,152). As mentioned earlier, we also don't want to see the DOW closing above that gap from last Thursday (i.e. above 26,583). If that happens, we may also consider covering our short position. Stay tuned this week. Note that it is very late in the medium-term cycles of both the S&P 500 and NASDAQ (and possibly the DOW) so a final top is due in one of these two reversal zones (i.e. by May 9). Our goal here is to sell short at that top. Holding my short position for now.
I'm a bit more confident in our short position in crude oil also established last Thursday. Prices started falling from a high of $66.18 (June contract price) on Tuesday and then plummeted sharply on Friday to a low of $62.28, the day after we re-established a short position. It looks like crude is now falling to its final medium-term cycle low. That low could get down to $55, but a minimal correction might find support around $61. We enter another reversal zone specifically for crude this week (April 29 - May 8). A final cycle decline should last at least 2 weeks so we will watch for a low this week (the second week of the decline) between $55 -$61 to cover our short position and take profits. Holding my short position for now.
We are still watching for the final medium-term cycle bottoms in gold and silver to buy. As I wrote in last Tuesday's blog:
"Both gold and silver pushed down to new monthly lows today so we are not going to get a bullish divergence signal this week. We may get one next week, however, and next Tuesday we enter a reversal zone specifically targeted to precious metals (April 30 - May 9). That would be a good time for a bottom in gold and/or silver and a bullish divergence signal to buy. But this week is also a general reversal zone that can affect these metals so we can't rule out a bottom in one or both metals this week. We are already in our target range for a bottom in gold ($1251 - $1273). A good target range now for silver would be $14.10 - $14.57. Today's low at $14.76 is not quite there."
Well, we never got to our silver target last week. Both metal prices started rising from their Tuesday lows (especially gold). That could have been the low for gold, but maybe not silver. It would be nice to see silver make a new low this week in our target range ($14.10 - $14.57) with gold holding above its $1265 low from last week as we enter the new reversal zone for precious metals this week. That would be a good buy signal (bullish divergence) for both metals. One danger we need to be aware of now is the possibility that gold started a new medium-term cycle with its low of $1281 on March 7. If that's the case, then this market is headed significantly lower for many more weeks because prices have already moved below the start of the cycle (if it started on March 7). In that scenario, last week's rally was likely the start of a short sub-cycle rally that could easily peak around $1300 this week and then collapse. We need to see gold prices come down a bit early this week to maintain our bullish view (i.e. new cycle starting now - not on March 7). If we get that with the bullish divergence described above, we will look to buy. Otherwise we will remain on the sidelines. On the sidelines of gold and silver for now.
The U.S. Dollar Index made a new monthly high at 98.33 on Friday - at the dead center of our reversal zone specifically for currencies (April 23 - May 1). It could push higher, though, before we leave that reversal zone this Wednesday. Even if we get a reversal, we enter yet another reversal zone for currencies May 7 - 16 so the greenback might see some steep ups and downs over the next several weeks. Our main concern is how this will affect gold and silver prices. A significant top in the dollar will likely correlate with the cycle bottom in precious metals that we are waiting for. Ideally, I would like to see the dollar edge higher now to a top and push the precious metals down a bit more into this week's (or the following week's) reversal zone(s). We will watch for this. Needless to say, this market and the gold and silver market are tricky to call right now, and we need to be especially careful with our trading.
We entered a short position in the broad stock market last Thursday as we approached the center of our current reversal zone (April 22 - May 1) with a strong intermarket bearish divergence signal between the three major market indices (DOW, S&P 500 and NASDAQ) relative to their all-time highs (i.e. the DOW still well below its all-time high and the S&P 500 and NASDAQ making new highs). (Note, however, that we did not get a weekly bearish divergence signal as all three indices made new weekly highs.) The DOW gapped down dramatically on Thursday suggesting a significant correction had started, but on Friday equity markets rallied significantly and started to close that gap. We will watch this gap carefully this week. If the DOW edges up early this week and closes above that gap (i.e. closes above 26,583) then it's possible we could see a bullish trend push this index (and possibly the other two) up higher into the next reversal zone (May 1 - May 9) which is back to back with our current reversal zone (and overlaps one day - May 1). On the other hand, if this week the DOW stays below last week's high (26,696) while the S&P 500 and/or the NASDAQ make a new weekly high, it will reinforce our bearish divergence signal and point to a decline to the final cycle lows. What we can do here is hold our short position with a stop loss based on all three indices exceeding last week's highs (that would be DOW - 26,696; S&P 500 - 2,940; and NASDAQ - 8,152). As mentioned earlier, we also don't want to see the DOW closing above that gap from last Thursday (i.e. above 26,583). If that happens, we may also consider covering our short position. Stay tuned this week. Note that it is very late in the medium-term cycles of both the S&P 500 and NASDAQ (and possibly the DOW) so a final top is due in one of these two reversal zones (i.e. by May 9). Our goal here is to sell short at that top. Holding my short position for now.
I'm a bit more confident in our short position in crude oil also established last Thursday. Prices started falling from a high of $66.18 (June contract price) on Tuesday and then plummeted sharply on Friday to a low of $62.28, the day after we re-established a short position. It looks like crude is now falling to its final medium-term cycle low. That low could get down to $55, but a minimal correction might find support around $61. We enter another reversal zone specifically for crude this week (April 29 - May 8). A final cycle decline should last at least 2 weeks so we will watch for a low this week (the second week of the decline) between $55 -$61 to cover our short position and take profits. Holding my short position for now.
We are still watching for the final medium-term cycle bottoms in gold and silver to buy. As I wrote in last Tuesday's blog:
"Both gold and silver pushed down to new monthly lows today so we are not going to get a bullish divergence signal this week. We may get one next week, however, and next Tuesday we enter a reversal zone specifically targeted to precious metals (April 30 - May 9). That would be a good time for a bottom in gold and/or silver and a bullish divergence signal to buy. But this week is also a general reversal zone that can affect these metals so we can't rule out a bottom in one or both metals this week. We are already in our target range for a bottom in gold ($1251 - $1273). A good target range now for silver would be $14.10 - $14.57. Today's low at $14.76 is not quite there."
Well, we never got to our silver target last week. Both metal prices started rising from their Tuesday lows (especially gold). That could have been the low for gold, but maybe not silver. It would be nice to see silver make a new low this week in our target range ($14.10 - $14.57) with gold holding above its $1265 low from last week as we enter the new reversal zone for precious metals this week. That would be a good buy signal (bullish divergence) for both metals. One danger we need to be aware of now is the possibility that gold started a new medium-term cycle with its low of $1281 on March 7. If that's the case, then this market is headed significantly lower for many more weeks because prices have already moved below the start of the cycle (if it started on March 7). In that scenario, last week's rally was likely the start of a short sub-cycle rally that could easily peak around $1300 this week and then collapse. We need to see gold prices come down a bit early this week to maintain our bullish view (i.e. new cycle starting now - not on March 7). If we get that with the bullish divergence described above, we will look to buy. Otherwise we will remain on the sidelines. On the sidelines of gold and silver for now.
The U.S. Dollar Index made a new monthly high at 98.33 on Friday - at the dead center of our reversal zone specifically for currencies (April 23 - May 1). It could push higher, though, before we leave that reversal zone this Wednesday. Even if we get a reversal, we enter yet another reversal zone for currencies May 7 - 16 so the greenback might see some steep ups and downs over the next several weeks. Our main concern is how this will affect gold and silver prices. A significant top in the dollar will likely correlate with the cycle bottom in precious metals that we are waiting for. Ideally, I would like to see the dollar edge higher now to a top and push the precious metals down a bit more into this week's (or the following week's) reversal zone(s). We will watch for this. Needless to say, this market and the gold and silver market are tricky to call right now, and we need to be especially careful with our trading.
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