MARKETS UPDATE (11:30 pm EDT)
Last Thursday's sharp fall in the broad stock market was followed by slightly lower prices into Friday. We are now at the center of a strong reversal zone for all the markets we follow, but technically that reversal period extends into Aug. 28. If the current medium-term cycle in equities is going to make its final bottom this week, then the DOW, S&P 500 and NASDAQ could fall steeply over the next five days. They don't have to, however, as an estimated target for a bottom in the DOW would be in the 18,000 -21,000 range; and for the S&P 500 it would be 2,300 - 2,400. We are already close to the upper part of these ranges. One sign of a final bottom would be intermarket bullish divergence where one or two (but not all three) of the market indices makes a new low next week. We will watch for this as a possible signal to take profits and cover our short position in this market.
On Friday, gold and silver prices surged (gold to $1,300 and silver to $17.30) early in the day before falling and closing well below their opening prices. This is very bearish behavior and suggests an imminent correction. As I wrote in Thursday's blog:
"We are now in the center of a strong reversal zone for the precious metals so we could still see new highs over the next several trading days that could signal a top and a significant (but short) correction back down. As I suggested in my last blog, our main strategy now will be to look to buy the bottom of such a correction..."
The overall trend in the precious metals still looks bullish so we will wait and see if we get a correction now and how far it goes. A good target to buy in gold would be in the $1,260 area. We don't want to see prices below $1,250 as that could mean the trend is turning bearish again. Still on the sidelines of gold and silver.
The U.S. Dollar Index is still testing strong support at 92 - 93. The Aug. 4 low of 92.77 made in a reversal zone specifically for currencies is holding up so we could still see the dollar bounce here and attempt at least a weak rally. Any such rally could send precious metal prices back down.
Our decision to go long in crude oil on Thursday seems to have been a good one. On Thursday I wrote:
"...prices have now moved into our target range for a sub-cycle correction ($45 - $47 -Sept. contract chart). The cycle timing is also right for this type of corrective bottom (it is due this week). We are thus at a good entry point to buy crude."
Crude prices bottomed on Thursday right in the middle of our target range then surged to $48.64 on Friday. We will hold this long position for now and see if it can clear the previous high of the current cycle which was $50.43 on August 1. If the trend in crude is turning bullish (it looks like it is) then prices will easily break that previous high.
Last Thursday's sharp fall in the broad stock market was followed by slightly lower prices into Friday. We are now at the center of a strong reversal zone for all the markets we follow, but technically that reversal period extends into Aug. 28. If the current medium-term cycle in equities is going to make its final bottom this week, then the DOW, S&P 500 and NASDAQ could fall steeply over the next five days. They don't have to, however, as an estimated target for a bottom in the DOW would be in the 18,000 -21,000 range; and for the S&P 500 it would be 2,300 - 2,400. We are already close to the upper part of these ranges. One sign of a final bottom would be intermarket bullish divergence where one or two (but not all three) of the market indices makes a new low next week. We will watch for this as a possible signal to take profits and cover our short position in this market.
On Friday, gold and silver prices surged (gold to $1,300 and silver to $17.30) early in the day before falling and closing well below their opening prices. This is very bearish behavior and suggests an imminent correction. As I wrote in Thursday's blog:
"We are now in the center of a strong reversal zone for the precious metals so we could still see new highs over the next several trading days that could signal a top and a significant (but short) correction back down. As I suggested in my last blog, our main strategy now will be to look to buy the bottom of such a correction..."
The overall trend in the precious metals still looks bullish so we will wait and see if we get a correction now and how far it goes. A good target to buy in gold would be in the $1,260 area. We don't want to see prices below $1,250 as that could mean the trend is turning bearish again. Still on the sidelines of gold and silver.
The U.S. Dollar Index is still testing strong support at 92 - 93. The Aug. 4 low of 92.77 made in a reversal zone specifically for currencies is holding up so we could still see the dollar bounce here and attempt at least a weak rally. Any such rally could send precious metal prices back down.
Our decision to go long in crude oil on Thursday seems to have been a good one. On Thursday I wrote:
"...prices have now moved into our target range for a sub-cycle correction ($45 - $47 -Sept. contract chart). The cycle timing is also right for this type of corrective bottom (it is due this week). We are thus at a good entry point to buy crude."
Crude prices bottomed on Thursday right in the middle of our target range then surged to $48.64 on Friday. We will hold this long position for now and see if it can clear the previous high of the current cycle which was $50.43 on August 1. If the trend in crude is turning bullish (it looks like it is) then prices will easily break that previous high.
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