Last week the broad stock market fell sharply indicating that all three indices (DOW, S&P 500, NASDAQ) are taking their final steep corrective drops to the final lows in their current medium-term cycles. (There is still the possibility that the DOW already began a new medium-term cycle on March 25 and last week's drop was just a sub-cycle dip, but that is much less likely now.) After a sharp four day decline in these indices last week, I we took profits and coved our short positions in the market. I wrote in last Thursday's blog:
"Could the market fall lower? Yes, that's possible, but the cycle timing and other technical signals are strongly pointing to a bottom now. If it does fall lower after today, we would probably expect the final bottom either at the end of this month or in the first two weeks of June."
Well, all three indices did fall lower on Friday (although they snapped back up to close with a gain) which means we might see them push lower this week before reaching their final cycle bottoms. The end of this week or early the following week could be a very good spot for the final cycle bottoms (if they didn't happen last week). Seeing new lows in one or two but not all three of these indices would also be a good sign (bullish divergence) that the final bottoms are in and new cycles are starting. Even though we may have pulled out of our short position a little too early last week, the upside is that we are now ready to go long at what could be the start of a new bullish cycle by the end of this month (and possibly this week). On the sidelines now and looking to go long at the start of a new medium-term cycle.
The cycle patterns in gold and silver charts are still very ambiguous, and this makes the precious metals very difficult to call right now. It's possible gold began a new medium-term cycle with its spot price low of $1267 on May 3, especially as silver made a new weekly low last week without gold for a case of bullish divergence. But gold also made a new high last week and silver didn't so we also have a bearish divergence signal to cancel out the bullish one. Directional momentum in both metals is currently 100% bearish. The gold miners ETF index fund GDX is also 100% bearish at the moment. This is suggesting prices could go lower, perhaps into the next reversal zone for precious metals coming up this week (May 15 - 22). Let's stay on the sidelines for now and see how prices move into the end of this week.
Crude oil may have started a new medium-term cycle on May 5 at $60.04 (June contract chart), but the rally from there has not been that strong (new cycles usually start off very bullish). We took profits in our short position at that bottom, but it's possible the old medium-term cycle is not over and could still go lower. If that's the case, prices could continue down into the next reversal zone for crude in mid-June (June 7 - 22) which would be a good place to buy. (Any dip back down to $60 which holds may also be a "double bottom" low and an opportunity to buy.) If it is instead a new cycle starting from that May 5 low, prices should rally now, and we may have to wait for a dip in the new cycle to buy. On the sidelines of crude oil.