In last Wednesday's blog on the broad stock market I wrote:
"Although it's possible the DOW and S&P 500 started new medium-term cycles from their lows on Dec. 26, I am still favoring the alternative view that they are both in the middle of older cycles that started on Oct. 29 and are bearish and heading lower to their final cycle bottoms over the next 4 -13 weeks. In this bearish scenario, the current sub-cycle rally should end shortly. Our general target for the rally is around 24,500 in the DOW and 2,650 in the S&P 500. Let's see if we can get closer to those levels this week or next before attempting to sell short."
Well, we got a little closer on Friday as the DOW closed just a bit below 24,000 and the S&P 500 closed slightly below 2,600, but we're still below those targets. Next week there is resistance in the DOW around 24,300 and in the S&P 500 around 2,628. We are currently at the center of a strong reversal zone so a top can happen any time now, but this reversal zone is wide and can extend through this Friday. There is also a short-term technical signal on Monday that could correspond to a top. If we can edge up at least to those resistance levels early next week (maybe tomorrow), we will look to sell this market short. Our stop loss for any short position will be based on how high these indices go by the end of the week. We don't want to see the DOW above 25,150 or the S&P 500 above 2,700. On the sidelines but looking to sell short early next week.
We are also now at the center of a reversal zone for gold and silver. A double top to the $1298 high in gold on Jan. 3 may have happened with last Wednesday's high of $1297, but prices still have time to push higher this week. Silver also made a new high ($15.85) on Jan. 3. That may have been the sub-cycle top, but like gold, silver could also push higher this week. We are still waiting for a correction in both metals and a low to buy soon. We are going with the idea that new medium-term cycles started in both metals in mid-November. If so, good target areas for a correction to buy would be around $1245 in gold and $14.50 in silver. Still on the sidelines of gold and silver.
It is looking more and more like crude oil made a medium-term cycle bottom on Dec. 24 at $42.36 (Feb. contract chart). It is also very likely that was a longer-term 3 year cycle low. If it was, that means the crude cycle is bullish and is just starting a long-term rally that could be pointed up for at least the rest of this year (with corrective dips along the way). The new 3 year cycle could eventually see prices back to $90 or even higher. We should now be looking for a good buy spot in crude. While we could still see prices drop to form a double bottom near that $42.36 low, that may not happen. Let's try and go long in the $48 - $49 area if offered this week. IF THAT $42.36 LOW HOLDS, WE MAY NOW BE CLOSE TO AN EXCELLENT ENTRY POINT FOR LONGER-TERM INVESTORS IN CRUDE OIL. If prices push higher into the center of this week's reversal zone specifically for crude (around Friday) then we may have to wait a little longer for a corrective dip to buy. On the sidelines of crude oil but looking to go long soon.