We are about to enter a very important "reversal zone" in market timing during the last two weeks of this month which may be the strongest and most significant one of the entire year. During these two weeks there is a high probability for major financial markets to make significant reversals in directional trend. We therefore want to pay close attention to market directions moving into this period. The mid-point of this period, May 20-21, is especially significant and may turn out to be the turning point for several markets.
After finding support around 16,400 early last week, the DOW rallied into Friday but still could not break through the all-time April 4 high of 16,631. The S&P 500 also came close to exceeding its all-time high (1897 on April 4) but could not do so. There is a bearish possibility here of a double top formation that could lead to a steep correction in the broad stock market and a cycle bottom into the end of this month. I think it is more likely, however, that these markets will rally a bit more and make new highs close to that May 20 -21 date before taking a significant correction. My strategy now is to look for new highs by the third week of this month with plans to sell short.
We will have to wait and see if market movements this week will present us with the opportunity to do this. Momentum in the DOW and S&P 500 is now extremely bullish (the NASDAQ, however, remains very bearish).
Still on the sidelines.
Gold and silver (especially silver) continue to look short-term bearish. A significant bottom to buy into these markets may be setting up as early as the end of this week or the beginning of the following week. An alternate scenario (less likely) is for gold and silver to rally now into the third week of this month. If that happens, we would likely see another correction down into mid-June before considering a long position. On the sidelines of gold and silver for now.
In last Tuesday's blog I stated that, "...While we may be seeing the start of a dollar breakdown, it should be noted that there is a very strong support line for the dollar between 78 and 79, and this level could serve as a springboard for at least a temporary bounce." This turned out to be prophetic as the U.S. Dollar Index surged up into Friday making a new weekly high near 80. This helped push gold and silver prices down last week, but this rally may not last very long. There are several resistance levels on the way up to and including the 81 area, and directional momentum in the dollar chart is still strongly bearish. If the dollar continues to rise into the end of this week, we could see it turn back down again to test the 78-79 support. A clear break below that support could lead to a serious downturn in the dollar and kick-start a major rally in the precious metals.
I am still holding my short position in crude oil as prices seem reluctant to breach my $100 -$101 stop loss area and cycle analysis and timing factors point to a correction into the end of this month. If crude rises next week and we do get stopped out, another shorting opportunity might present itself in the following week if prices continue to rise.