MARKETS UPDATE (5:30 pm EDST)
We are now three days inside our new general reversal zone (April 11 - 20) and the broad stock market is rising into it. (The FOMC minutes released yesterday describing committee member's concern about a recession spooked the market into a dip, but those fears seem to have abated with today's strong rally). All three of our market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles in mid-March and are in their 4th week. This means a sub-cycle top followed by a corrective dip can happen anytime now. We will therefore be looking for a top this week or next.
We already have a bearish divergence signal this week because the DOW and S&P 500 are making new weekly highs while the NASDAQ is still below its high from last week. Another bearish signal would be these indices closing the day in the lower part of that day's range. We will watch for that now as a cue to take profits and sell our current long position. If the NASDAQ manages to break last week's high tomorrow, we will look to next week for another possible bearish divergence signal and a good spot to take a profit. For now, we will continue to hold our long position in the broad stock market.
If equity markets stay bullish, we would expect any corrective drop to be modest - perhaps somewhere between the 15-day and 45-day moving averages (the NASDAQ is already testing this area). A more serious drop would concern us, and a drop below the lows that started these new medium-term cycles would mean the market is turning bearish. (Those lows would be 31,430 in the DOW, 3,809 in the S&P 500, and 10,983 in the NASDAQ.) My bias at the moment is that we will see a modest correction, and we may look to buy again at that corrective low.
Gold and silver continue to exhibit bullish momentum which is lending support to the idea that gold could be in a new long-term (23-year) cycle that started last year. As I wrote in my April 6 blog:
"...we are at a major crossroads in determining the longer-term direction of gold. If gold remains above $2000 and starts to break and close significantly above its all-time high of $2070, we will have to go with the idea that a NEW long-term 23-year cycle in gold started last year. If that's the case, gold would be VERY bullish now, and prices would be rising strongly for many more years. Alternatively, the current high in gold may be a "triple-top" to an older 23-year cycle (that began in 1999) and is ready to correct down to its final bottom with a potential 50% drop in price into the end of this year or next year. This scenario, of course, is very bearish..."
Well, gold prices are above $2000 again, and today they reached $2046 before backing down a bit. We are nearing the center of our general reversal zone, and it is applicable to the precious metals. A sub-cycle top in both gold and silver is also due anytime now, so it is likely that some sort of correction is imminent. Both metals are making new weekly highs today, so we don't have a bearish divergence signal this week (but we could get one next week). Although we like to see bearish divergence (one metal making a new high without the other) at a top, it is not required, especially in a bullish market. Traders who haven't been stopped out of their short gold positions can hold them for now (with a stop loss on a close above $2070 or $2050, depending on your risk tolerance) as a correction seems imminent. I'm starting to think that any correction now could be modest and would be followed by another rally to challenge the "triple-top". If that turns out to be the case, we will consider going long at the bottom of a corrective drop that stays above $1900.
Silver prices nearly touched $26 today, but as with gold, a sub-cycle top and correction down could be imminent. We will look to buy any corrective drop now that is not too severe. A good target would be around $23 - $24. If prices drop and stabilize around there, we will go long as we could see another rally get up to $30 - $35 (or even higher). We will remain on the sidelines of silver for now.
Unlike the precious metals and equities, the U.S. Dollar Index is falling (not rising) into our reversal zone. It is also approaching potential support around 101. A reversal back up now would support our idea of the precious metals turning down.
Crude oil has been rising steeply from its March 20 low at $64.36 (May contract chart) which can now be confirmed as the start of a new medium-term cycle (and possibly a new 3-year cycle). Prices are now testing the high of the previous medium-term cycle ($83.04), and a close above there would mean the new cycle's trend is bullish. But this steep price rise is peaking near the center of our current reversal zone, so a corrective drop may be imminent. We will now look to buy any corrective dip that doesn't go too low. A good target may be between $77 - $79. If crude is starting a new 3-year cycle (likely), then prices should be bullish now and pointed up for many months. A bullish close above $85 could lead to prices going up to the $98 area fairly quickly. We will stay on the sidelines for now as we wait for a corrective low to buy.
We are now three days inside our new general reversal zone (April 11 - 20) and the broad stock market is rising into it. (The FOMC minutes released yesterday describing committee member's concern about a recession spooked the market into a dip, but those fears seem to have abated with today's strong rally). All three of our market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles in mid-March and are in their 4th week. This means a sub-cycle top followed by a corrective dip can happen anytime now. We will therefore be looking for a top this week or next.
We already have a bearish divergence signal this week because the DOW and S&P 500 are making new weekly highs while the NASDAQ is still below its high from last week. Another bearish signal would be these indices closing the day in the lower part of that day's range. We will watch for that now as a cue to take profits and sell our current long position. If the NASDAQ manages to break last week's high tomorrow, we will look to next week for another possible bearish divergence signal and a good spot to take a profit. For now, we will continue to hold our long position in the broad stock market.
If equity markets stay bullish, we would expect any corrective drop to be modest - perhaps somewhere between the 15-day and 45-day moving averages (the NASDAQ is already testing this area). A more serious drop would concern us, and a drop below the lows that started these new medium-term cycles would mean the market is turning bearish. (Those lows would be 31,430 in the DOW, 3,809 in the S&P 500, and 10,983 in the NASDAQ.) My bias at the moment is that we will see a modest correction, and we may look to buy again at that corrective low.
Gold and silver continue to exhibit bullish momentum which is lending support to the idea that gold could be in a new long-term (23-year) cycle that started last year. As I wrote in my April 6 blog:
"...we are at a major crossroads in determining the longer-term direction of gold. If gold remains above $2000 and starts to break and close significantly above its all-time high of $2070, we will have to go with the idea that a NEW long-term 23-year cycle in gold started last year. If that's the case, gold would be VERY bullish now, and prices would be rising strongly for many more years. Alternatively, the current high in gold may be a "triple-top" to an older 23-year cycle (that began in 1999) and is ready to correct down to its final bottom with a potential 50% drop in price into the end of this year or next year. This scenario, of course, is very bearish..."
Well, gold prices are above $2000 again, and today they reached $2046 before backing down a bit. We are nearing the center of our general reversal zone, and it is applicable to the precious metals. A sub-cycle top in both gold and silver is also due anytime now, so it is likely that some sort of correction is imminent. Both metals are making new weekly highs today, so we don't have a bearish divergence signal this week (but we could get one next week). Although we like to see bearish divergence (one metal making a new high without the other) at a top, it is not required, especially in a bullish market. Traders who haven't been stopped out of their short gold positions can hold them for now (with a stop loss on a close above $2070 or $2050, depending on your risk tolerance) as a correction seems imminent. I'm starting to think that any correction now could be modest and would be followed by another rally to challenge the "triple-top". If that turns out to be the case, we will consider going long at the bottom of a corrective drop that stays above $1900.
Silver prices nearly touched $26 today, but as with gold, a sub-cycle top and correction down could be imminent. We will look to buy any corrective drop now that is not too severe. A good target would be around $23 - $24. If prices drop and stabilize around there, we will go long as we could see another rally get up to $30 - $35 (or even higher). We will remain on the sidelines of silver for now.
Unlike the precious metals and equities, the U.S. Dollar Index is falling (not rising) into our reversal zone. It is also approaching potential support around 101. A reversal back up now would support our idea of the precious metals turning down.
Crude oil has been rising steeply from its March 20 low at $64.36 (May contract chart) which can now be confirmed as the start of a new medium-term cycle (and possibly a new 3-year cycle). Prices are now testing the high of the previous medium-term cycle ($83.04), and a close above there would mean the new cycle's trend is bullish. But this steep price rise is peaking near the center of our current reversal zone, so a corrective drop may be imminent. We will now look to buy any corrective dip that doesn't go too low. A good target may be between $77 - $79. If crude is starting a new 3-year cycle (likely), then prices should be bullish now and pointed up for many months. A bullish close above $85 could lead to prices going up to the $98 area fairly quickly. We will stay on the sidelines for now as we wait for a corrective low to buy.
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