MARKETS UPDATE (11:30 pm EST)
The broad stock market is at a turning point right now, and there are two scenarios that could unfold. The first scenario is bearish and assumes we are at the end of a medium-term cycle that has topped out (or is about to top out) and start a major correction down to the final cycle bottom. This is our favored scenario and is the one we have been going with recently. In this scenario, either a top formed last week with all-time highs in all three major indices (DOW, S&P 500 and NASDAQ) or (more likely) a top will form this week (with intermarket bearish divergence - one or two but not all three indices making new highs) and we will start a major correction down into the end of this month.
But there is now almost an equal possibility that the DOW and S&P 500 could have ended their cycles with their Jan. 31 lows and are now starting new medium-term cycles. If this is the case, they could be very bullish and could rally strongly now and also pull the NASDAQ up with them.
One argument for the bearish (older cycle) scenario is the fact that the S&P 500 and especially the DOW seem to have made "double tops" to their January highs last week, which is a bearish sign. A bearish divergence signal this week would be another good bearish sign as we are still in our reversal zone for most of the week (Feb. 4 - 13 -esp. strong Wed./Thurs). I am still holding my short position in this market and will wait to see what happens early this week. If all three indices rally to new all-time highs, I will cover (unload) this position. Otherwise, I may stay short for a deeper correction. Those on the sidelines should remain there for now (a bearish divergence signal this week may be another opportunity to go short). We need to be very alert and nimble with our trading now.
Last Tuesday crude oil made a new bottom at $49.31 (March contract chart), which was significantly below the low that started the current medium-term cycle ($50.18 on Oct.3, 2019). This means the cycle has turned bearish and could go lower. The end of the cycle (and final bottom) is due at any time. Last week's low could have been it, but like the broad stock market, we can't be sure it won't go lower. Let's remain on the sidelines of crude for now.
The current cycle patterns in both gold and silver (but especially in gold) are very ambiguous and not clear at the moment. Both metals appear to be in a congestive trading pattern that started in early January. If gold prices get down to the $1500 area and hold, that may be a good place to buy. A break above $1610 would also be a bullish sign and would encourage us to find a good entry point to go long. The $17.28 low in sliver on Jan. 29 may have been a significant bottom, and if so, this metal could rally now. But there's also the possibility of silver falling back to the $16 level (or even lower). Let's remain on the sidelines of these metals for now.
The broad stock market is at a turning point right now, and there are two scenarios that could unfold. The first scenario is bearish and assumes we are at the end of a medium-term cycle that has topped out (or is about to top out) and start a major correction down to the final cycle bottom. This is our favored scenario and is the one we have been going with recently. In this scenario, either a top formed last week with all-time highs in all three major indices (DOW, S&P 500 and NASDAQ) or (more likely) a top will form this week (with intermarket bearish divergence - one or two but not all three indices making new highs) and we will start a major correction down into the end of this month.
But there is now almost an equal possibility that the DOW and S&P 500 could have ended their cycles with their Jan. 31 lows and are now starting new medium-term cycles. If this is the case, they could be very bullish and could rally strongly now and also pull the NASDAQ up with them.
One argument for the bearish (older cycle) scenario is the fact that the S&P 500 and especially the DOW seem to have made "double tops" to their January highs last week, which is a bearish sign. A bearish divergence signal this week would be another good bearish sign as we are still in our reversal zone for most of the week (Feb. 4 - 13 -esp. strong Wed./Thurs). I am still holding my short position in this market and will wait to see what happens early this week. If all three indices rally to new all-time highs, I will cover (unload) this position. Otherwise, I may stay short for a deeper correction. Those on the sidelines should remain there for now (a bearish divergence signal this week may be another opportunity to go short). We need to be very alert and nimble with our trading now.
Last Tuesday crude oil made a new bottom at $49.31 (March contract chart), which was significantly below the low that started the current medium-term cycle ($50.18 on Oct.3, 2019). This means the cycle has turned bearish and could go lower. The end of the cycle (and final bottom) is due at any time. Last week's low could have been it, but like the broad stock market, we can't be sure it won't go lower. Let's remain on the sidelines of crude for now.
The current cycle patterns in both gold and silver (but especially in gold) are very ambiguous and not clear at the moment. Both metals appear to be in a congestive trading pattern that started in early January. If gold prices get down to the $1500 area and hold, that may be a good place to buy. A break above $1610 would also be a bullish sign and would encourage us to find a good entry point to go long. The $17.28 low in sliver on Jan. 29 may have been a significant bottom, and if so, this metal could rally now. But there's also the possibility of silver falling back to the $16 level (or even lower). Let's remain on the sidelines of these metals for now.
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