In last Wednesday's blog I said that we might get a second chance to short the broad stock market and make back some of our loss from bailing out of our short positions on Nov. 3. Such an opportunity may be setting up now. Our trading here should be focused on the S&P 500 (rather than the DOW or NASDAQ) as its subcycle structure shows the strongest potential for a significant short-term correction.
Last Tuesday the S&P 500 made a new weekly high at 2116 and then fell into Friday, closing the week at 2099. Tuesday's high was within a major reversal zone. The next significant reversal zone is the last week of this month, but that will be too late for the peak of the subcycle we are analyzing here. In other words, it is highly likely that last week's 2116 high was the current subcycle peak and that the bottom to this subcycle will come at the end of this month. The minimum target for this correction would be around 2050, but it could go as low as 1950 - 2000. In my opinion these targets make it worth taking another shot at a short trade here, especially since we can place a close stop loss on any break above last Tuesday's high (2116) which is less than 1% away from the current level of the S&P 500. This is a very minimal risk for a potentially significant gain. I want to point out here that this is a short-term trade, and that we will likely be turning bullish at the bottom of any correction because the trend of this market has recently turned bullish. Any traders who are uncomfortable moving against the trend can just wait for this bottom and then buy. Entering a short position now in the S&P 500 for the opening of tomorrow's market with a tight stop loss on a break above 2116 - 2118.
As I discussed last Wednesday, gold and silver prices are breaking down, and last Friday's jobs report, which was much better than expected, accelerated this plunge. The dramatic increase in job numbers triggered more buzz about a possible December interest rate hike by the Fed, and this boosted the U.S. dollar as it kicked down precious metal prices. Despite this bearishness, there are some short-term technical signals now suggesting a brief relief rally this week that could give us a good spot to sell these metals short into a final medium-term cycle bottom that I expect at the end of this month or into December. We will watch for this relief rally and pay special attention to silver as it may be a better short sell than gold due to its slightly different cycle pattern at the moment. On the sidelines of both metals for now.
In my last blog on crude oil (Nov. 1), I stated : "A short-term technical bull signal was triggered in crude charts, but overall directional momentum remains bearish which suggests caution in going long." This situation has not changed. Crude's rally from the Oct. 27 low ($42.58) did not get very far before turning back down from a high of $48.36 on Nov. 3. That high was within a strong reversal zone so it is possible that was the current cycle peak. If so, crude could be headed down for at least another month to prices well below the $39 low that began the current cycle. Our trading strategy should thus be bearish now in this market, and we will be looking for a good spot to sell short as long as directional momentum remains bearish. Still on the sidelines of this market.