MARKETS UPDATE (4:30 pm EDT)
In last Sunday's blog on the broad stock market I wrote:
"The next strong reversal zone for this market would be the last two weeks of this month, but there is also the possibility of a reversal at the end of this week. Let's watch how the market moves this week. If it continues to rally to a new top into Friday, we will consider selling short for a brief (but possibly steep) correction. If instead the markets fall into Friday, we may have a good spot to buy for some more rallying."
Well, equities are certainly falling this week, and tomorrow is Friday. We had been expecting a potentially sharp subcycle correction, and this could be it. Tomorrow is the center of a moderate reversal zone so this correction could be over soon, but it could also continue into the end of next week (which is the beginning of another much stronger reversal zone that runs through the end of the month). Minimal targets for this subcycle correction would be around 17,600 in the DOW and 2,050 in the S&P 500. Both indices have already broken below those levels, but it is possible for them to drop quite a bit lower. As I discussed in recent blogs, there now seems to be a contradiction between the desire of central banks and the Federal Reserve to keep equity markets buoyant into the U.S. presidential election and the sudden bearish position of Commercial traders (big money) in current COT charts. This is odd considering that these two groups- big banks and big money- contain many of the same people! Perhaps the Commercial traders, realizing that a short-term correction is overdue, are attempting to take advantage of it but will resume their long position in equities once it is over. Based on the timing I mentioned above, the end of this correction could be any time over the next three weeks. This is obviously a tricky market to call and we should wait for some stronger signals that a bottom is in before considering a long position. Still on the sidelines of the broad stock market.
Gold and silver prices continue to edge up this week, and this is challenging our short positions in the precious metals. The Fed's recent dovish comments (which have weakened the U.S. dollar) and this week's falling equity markets are likely frightening investors into the safe haven of gold (and silver). Despite these factors, the cycle and timing patterns in the charts of both these metals are strongly suggesting more downside before we see the final bottom to the current medium-term cycles. These bottoms are ideally due in the last two weeks of this month. The U.S. Dollar Index seems to be stabilizing around 94.5 and may start another rally from this level. If it does, this could kick gold and silver prices back down. We will watch this situation carefully. Once the cycle bottoms in gold and silver are in, we will take profits in our short positions and look to buy both metals. Holding my short positions in gold and silver for now.
It looks like crude oil prices made a subcycle bottom on Tuesday at $35.24 (May contract chart). This was close to our original target of $36 so we should now see a rally in prices. It is not clear at the moment on whether the current cycle in crude is bullish or bearish. If it is bullish, the rally starting now could exceed last month's high of $42.49. If bearish, however, this rally could be brief and could start turning back down well below last month's high. If we were more certain of a bullish cycle, we would buy now, but if this cycle is turning bearish, it would be better to sell short the top of any rally. If prices back down over the next several trading days and hold above Tuesday's low, I may consider going long. Out of crude oil for now.
In last Sunday's blog on the broad stock market I wrote:
"The next strong reversal zone for this market would be the last two weeks of this month, but there is also the possibility of a reversal at the end of this week. Let's watch how the market moves this week. If it continues to rally to a new top into Friday, we will consider selling short for a brief (but possibly steep) correction. If instead the markets fall into Friday, we may have a good spot to buy for some more rallying."
Well, equities are certainly falling this week, and tomorrow is Friday. We had been expecting a potentially sharp subcycle correction, and this could be it. Tomorrow is the center of a moderate reversal zone so this correction could be over soon, but it could also continue into the end of next week (which is the beginning of another much stronger reversal zone that runs through the end of the month). Minimal targets for this subcycle correction would be around 17,600 in the DOW and 2,050 in the S&P 500. Both indices have already broken below those levels, but it is possible for them to drop quite a bit lower. As I discussed in recent blogs, there now seems to be a contradiction between the desire of central banks and the Federal Reserve to keep equity markets buoyant into the U.S. presidential election and the sudden bearish position of Commercial traders (big money) in current COT charts. This is odd considering that these two groups- big banks and big money- contain many of the same people! Perhaps the Commercial traders, realizing that a short-term correction is overdue, are attempting to take advantage of it but will resume their long position in equities once it is over. Based on the timing I mentioned above, the end of this correction could be any time over the next three weeks. This is obviously a tricky market to call and we should wait for some stronger signals that a bottom is in before considering a long position. Still on the sidelines of the broad stock market.
Gold and silver prices continue to edge up this week, and this is challenging our short positions in the precious metals. The Fed's recent dovish comments (which have weakened the U.S. dollar) and this week's falling equity markets are likely frightening investors into the safe haven of gold (and silver). Despite these factors, the cycle and timing patterns in the charts of both these metals are strongly suggesting more downside before we see the final bottom to the current medium-term cycles. These bottoms are ideally due in the last two weeks of this month. The U.S. Dollar Index seems to be stabilizing around 94.5 and may start another rally from this level. If it does, this could kick gold and silver prices back down. We will watch this situation carefully. Once the cycle bottoms in gold and silver are in, we will take profits in our short positions and look to buy both metals. Holding my short positions in gold and silver for now.
It looks like crude oil prices made a subcycle bottom on Tuesday at $35.24 (May contract chart). This was close to our original target of $36 so we should now see a rally in prices. It is not clear at the moment on whether the current cycle in crude is bullish or bearish. If it is bullish, the rally starting now could exceed last month's high of $42.49. If bearish, however, this rally could be brief and could start turning back down well below last month's high. If we were more certain of a bullish cycle, we would buy now, but if this cycle is turning bearish, it would be better to sell short the top of any rally. If prices back down over the next several trading days and hold above Tuesday's low, I may consider going long. Out of crude oil for now.
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