The DOW, S&P 500, and NASDAQ all made new weekly lows last Thursday then reversed up sharply on Friday. Those lows were two days past our reversal zone. While it is possible they were significant bottoms (even the final cycle bottoms for the S&P 500 and NASDAQ), it is more likely we will see a short rally into this week's reversal zone (July 4 - 17) and then another reversal down to the final cycle bottoms in late July/early August. A third possibility could see Friday's rally reverse back down early this week with the market making new lows into Wednesday-Friday (or even the following week). That would qualify as a cycle bottom and a good spot to buy. A strong rally into this upcoming reversal zone, however, might be an opportunity to sell short. The bottom line here (pun intended) is that we are looking for a final medium-term cycle bottom to buy soon. Even if those bottoms happened last week, this week's reversal zone should push down any incipient rally and give us another chance to buy close to those bottoms. But if we move below last week's lows, we may have to wait until the end of the month for a cycle bottom to buy. We need to carefully watch how the market moves next week. Longer-term, once the bottom is in I am still expecting another rally into the fall before a very serious correction can begin. Still on the sidelines of the broad stock market.
We finally bailed out of our gold long position last week (we had been out of silver since June 12) as prices moved below our $1264 stop loss. As I mentioned in my blogs on Tuesday and Wednesday, it is possible the precious metals are breaking down from their long-term inverted bullish "head and shoulders" chart patterns. Gold prices got as low as $1246 on Thursday. Next week's reversal zone (July 4 - 17) is also a strong one for the precious metals so we may see some sort of bottom soon and a rebound in prices. The cycle patterns look bearish, however, so I think any rally now would be short-term and followed by a movement back to lower lows. That said, a rally could bring gold back up to the $1280 area. If prices move down to $1240 near the end of the week, I will consider going long again for a short-term rally. Otherwise, we will just wait for a cycle bottom to buy, possibly near $1200 maybe five to eight weeks from now.
A silver bounce could go as high as the $16.60 - $16.80 area so we will watch for a buy spot in that metal too. Because silver's current medium-term cycle most likely started on May 1 at $16.07 and prices have now gone below there, silver's trend should be bearish until its cycle ends. That means any rally now should not get above $17.30 before moving below last week's low of $15.93. I realize this is all a bit confusing, but the bottom line here is the same as it is for the broad stock market: we are looking to buy at the bottom of any medium-term cycle. The trick is figuring out where that cycle bottom is. At the moment, gold's cycle is a little more ambiguous than silver's cycle. For those who are worried that gold and silver's inverted "head and shoulders" chart patterns are aborting (as I discussed in recent blogs), I should point out that it may take several more weeks (or even months) before that can be confirmed, and these metals could have some significant rallies before that happens (if it does). A possible severe correction in the broad stock market later this year might be the trigger for such a breakdown in metal prices, but for now this is just speculation. On the sidelines of gold and silver for now.