All three broad stock market indices (DOW, S&P 500 and NASDAQ) took a steep plunge last Wednesday (in the middle of our reversal zone) but then recovered Thursday and Friday to close the week at new weekly highs (with the NASDAQ making a new all-time high). This sudden bullish surge near the end of the week could be a warning that last week's reversal zone will be bypassed, and we could instead see the rally continuing into the next reversal zone coming up July 27 - August 6 (a stronger one). While this is now a strong possibility, the market could still turn down from a high early this week. We still have an intermarket bearish divergence signal as the S&P 500 and NASDAQ exceeded their June highs last week while the DOW still has not (it must break above 25,403 to do this). As long as the DOW stays below that high, a top and reversal down could be imminent. There is also a resistance area in the DOW around 25,200 - 25,280. Let's see if that will hold back the rally early next week. For now, we can use a break above that resistance as our stop loss parameter for our short DOW position.
It looks like the S&P 500 and especially the NASDAQ probably started new medium-term cycles with their lows on June 28. If that is the case then both indices could be very bullish now and easily rally into that July 27 - August 6 reversal zone. But there is also a chance that these indices are completing older cycles and could reverse down sharply next week to complete their final cycle bottoms. It could go either way, but the odds are slightly favoring the idea of newer (bullish) cycles. In contrast, the DOW also may have started a new cycle on June 28, but more likely it is still completing an older one (bearish). The main point here is that we'll have to watch this market carefully next week for a sudden reversal down. If we don't see that early in the week, we will go with the idea that a rally will continue for another two or three weeks in all three indices. Holding my short position in the DOW for now with a stop loss based on a break above 25,280.
The precious metals market is also at a turning point. We were expecting a bottom and a reversal up in both metals in last week's reversal zone. We may still get that, but if gold and silver move lower after Monday, we will have to assume these metals are breaking down instead of reversing. Both metals are finding support near their Dec. 2017 lows so ideally we will see some sort of rally now. Another good signal for a rally would be to see one metal break below last week's low but not the other (bullish divergence) early next week. If both break their lows from last week (i.e. $1237.92 in gold, $15.765 in silver), we may have to bail out of our long positions. Holding my long position in gold and silver for now.