MARKETS UPDATE (11:30 pm EST)
The DOW did not close above its April high (24,879) on Friday, but it did close in the upper half of that day's range which is a little more bullish than bearish. As I mentioned in last week's blogs, there is a good chance that the DOW is forming an unusual "triple bottom" pattern with the lows of Feb. 9, April 2, and May 3. If so, it means a new medium-term cycle started on April 2 and this market will now be bullish into the summer. The S&P 500 and NASDAQ would most likely also be bullish now. There is still a chance that an older cycle in the DOW is completing its final low and the DOW will fall below its Feb. 9 low of 23,360, but the bullish "triple bottom" pattern appears more likely at the moment.
Even if the bullish scenario is correct, we are now in the center of a reversal zone so a top and at least a sub-cycle correction could happen starting early this week. If we do indeed have a "triple bottom" young cycle, this correction will be small and completed within a week. If the bearish older cycle scenario unfolds, the correction would be more significant and could last several weeks. We are favoring the bullish cycle, and a good target for a modest correction in this cycle would be around 24,100 in the DOW and 2,640 in the S&P 500. If the market corrects to these levels and stabilizes, we will look to buy.
I am still holding my short position in the broad stock market. Some traders may have been stopped out of their short positions last week as the S&P 500 and DOW both broke above their mid-April highs. Those traders may stay on the sidelines and wait to buy at the bottom of any modest correction as stated above. Traders still holding short positions can look to take profits and cover those positions if the market corrects to those targets stated above and then reverse position and buy. A good sign for a top this week would be a case of intermarket bearish divergence where one or two, but not all three market indices (DOW, S&P 500, NASDAQ) make a new weekly high. If all three indices rally strongly early in the week and make new highs, we will likely cover our short positions as it could mean that a cycle top will come in the next reversal zone (May 25 - June 5).
Gold and silver are tricky to call right now. Both metals rallied strongly last week and made new weekly highs into Thursday (the center of a reversal zone) and then pulled back into Friday. If we see prices edge a bit lower early next week, we may look to buy as it appears both metals could have started new medium-term cycles on March 1. If true, this would make them very bullish. On the sidelines of gold and silver for now.
Crude oil's high at $71.89 (June contract chart) last Thursday in the center of a reversal zone for crude could have been a significant top, but prices could edge higher as this reversal zone extends into Wednesday. If crude does move higher early this week, we will look to sell short.
The DOW did not close above its April high (24,879) on Friday, but it did close in the upper half of that day's range which is a little more bullish than bearish. As I mentioned in last week's blogs, there is a good chance that the DOW is forming an unusual "triple bottom" pattern with the lows of Feb. 9, April 2, and May 3. If so, it means a new medium-term cycle started on April 2 and this market will now be bullish into the summer. The S&P 500 and NASDAQ would most likely also be bullish now. There is still a chance that an older cycle in the DOW is completing its final low and the DOW will fall below its Feb. 9 low of 23,360, but the bullish "triple bottom" pattern appears more likely at the moment.
Even if the bullish scenario is correct, we are now in the center of a reversal zone so a top and at least a sub-cycle correction could happen starting early this week. If we do indeed have a "triple bottom" young cycle, this correction will be small and completed within a week. If the bearish older cycle scenario unfolds, the correction would be more significant and could last several weeks. We are favoring the bullish cycle, and a good target for a modest correction in this cycle would be around 24,100 in the DOW and 2,640 in the S&P 500. If the market corrects to these levels and stabilizes, we will look to buy.
I am still holding my short position in the broad stock market. Some traders may have been stopped out of their short positions last week as the S&P 500 and DOW both broke above their mid-April highs. Those traders may stay on the sidelines and wait to buy at the bottom of any modest correction as stated above. Traders still holding short positions can look to take profits and cover those positions if the market corrects to those targets stated above and then reverse position and buy. A good sign for a top this week would be a case of intermarket bearish divergence where one or two, but not all three market indices (DOW, S&P 500, NASDAQ) make a new weekly high. If all three indices rally strongly early in the week and make new highs, we will likely cover our short positions as it could mean that a cycle top will come in the next reversal zone (May 25 - June 5).
Gold and silver are tricky to call right now. Both metals rallied strongly last week and made new weekly highs into Thursday (the center of a reversal zone) and then pulled back into Friday. If we see prices edge a bit lower early next week, we may look to buy as it appears both metals could have started new medium-term cycles on March 1. If true, this would make them very bullish. On the sidelines of gold and silver for now.
Crude oil's high at $71.89 (June contract chart) last Thursday in the center of a reversal zone for crude could have been a significant top, but prices could edge higher as this reversal zone extends into Wednesday. If crude does move higher early this week, we will look to sell short.
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