As I've been stating in recent blogs, the broad stock market is highly volatile right now as major technical signals and momentum indicators have been alternating between bullish and bearish within very short periods of time. Last week was no exception as the DOW plunged to a low of 17,037 on Monday triggering a major bearish momentum signal, and then rocketed up to close just over 17,800 on Friday as that signal turned bullish again. Needless to say, this kind of market is difficult and dangerous to trade and a cautious approach to trading is especially appropriate at the moment. According to cycle analysis, it looks like that low on Monday (17,037) was a double bottom to the DOW's low of Dec.16 (17,067) which means last Monday was likely the start of a new cycle. This new cycle should be bullish and the DOW should now start making new all-time highs above 18,103. If it doesn't (or if it does and the S&P 500 does not) then we may still get a strong signal to sell the market short (especially if one makes a high and the other does not on Monday or Tuesday). If both indices start to pull back next week before making new all-time highs, we could also get a good buy spot (possibly around 17,500 in the DOW and 2020 in the S&P 500) to go long and ride a rally into the first week of March (which is the next major reversal zone for several markets). The fact that major bullish momentum signals appeared in both these indices last week (the DOW is now mixed bullish and bearish and the S&P 500 is now 100% bullish) supports this short-term bullish scenario. Yes, I know all of these possibilities are a bit confusing, but our strategy should become more clear as we move into this week. The main development from last week was a shift in momentum from bearish to bullish. Still on the sidelines.
We can be certain now that gold and silver prices are falling into the current reversal zone (which ends Tuesday) and so a bottom and reversal may be imminent in both metals. In terms of cycles, this bottom could be the start of a new cycle which would be very bullish. There is strong support for gold in the $1200 - $1220 area so we may get a good buy spot in that range early this week. Any break below $1200, however, would negate this bullish strategy and could spell trouble for the precious metals. Silver's support is around $16 so a drop towards there would also be a good buy spot. Current directional momentum in both gold and silver is nearly 100% bullish now (despite last week's price plunge) and this supports the idea of a new cycle bottom now. On the sidelines and looking to go long.
Crude oil is a tricky call right now. It looks like the Jan. 29 low was a significant cycle bottom, but prices are now pushing against resistance around $55 and we are still in a reversal zone for oil. This means prices could still back down (to a double bottom, or even a new low). This could continue into the first week of March. With volatility still high in all markets now, I am not ready to go long in this market unless prices can drop closer to that January low (around $43). Remaining on the sidelines of this market for now,