The broad stock market continues to fall this week (although reluctantly) towards a final medium-term cycle bottom that is now due in all three of our market indices (DOW, S&P 500, NASDAQ), and the very strong reversal zone beginning on Wednesday next week (Aug. 23 - Sept. 8) seems to be the ideal time frame for it to happen. Today the DOW is finally testing its 45-day moving average (the S&P 500 and NASDAQ are already well below their 45-day moving averages), so all three indices have now fulfilled a minimum requirement for a corrective low. Could they now turn up from here? Yes, but we are not in any reversal zone, and we are still far away from our ideal targets (33,500 in the DOW and 4,200 in the S&P 500). I think these indices can drop closer to those targets by next week (or even the week after). Let's continue to hold our short positions in this market.
Our decision to sell our long position in gold early yesterday was a good one as prices are now falling and breaking below the June 29 low we thought was the start of a new medium-term cycle. That may still be the case, but if it is, it would mean the cycle has turned bearish with prices headed much lower. A second possibility is that June 29 was not the start of a new cycle and we are still in an older (expanded) cycle that is getting ready to make its final bottom - probably in the reversal zone for precious metals coming up Aug. 21 - Sept 5 (and overlapping with our previously mentioned general reversal zone for all markets). If this bottom can stay above $1800, the general trend in gold could still be bullish, and we could still see a new all-time by the end of this year. A close below $1800, however, would be a warning sign that a more serious sell-off could be imminent, and a break below $1600 would mean a serious corrective drop is in progress that could take prices down towards $1000 very quickly. But I'm getting ahead of myself here. For now, we are favoring a more bullish scenario in gold, and we may be looking to buy again in the upcoming reversal zones somewhere between $1800 and $1875.
Silver seems a bit more bullish than gold at the moment as its spot price has not yet dropped below the low on June 23 that likely started a new medium-term cycle. But in silver's nearby contract chart (September), the price HAS dropped below that June 23 bottom, so this is a warning that silver, like gold, may be turning at least short-term bearish. As with gold, we will wait to see how prices move into these upcoming reversal zones and then reevaluate our cycle labeling for both metals. For now, we remain on the sidelines of both gold and silver.
We note that the U.S. Dollar Index has been rising and is making a new high today on the last day of a reversal zone specifically for currencies (Aug. 8 - 17). This means the greenback could turn down now and that could give an upward push to gold and silver prices. But even if this happens, there is yet another reversal for currencies coming up next week (Aug. 24 - Sept. 8), so any relief rally in these metals could be short-lived.
Crude oil prices are falling steeply but may now be finding some support between $78 - $80 (Sept. contract chart). Today we entered a reversal zone for crude (Aug. 17 - 25), so we should be on the lookout for a possible final bottom to the current medium-term cycle. We want to see a 2 - 5 week corrective drop from the final cycle high before we declare a bottom, and it would also be nice to see the 45-day moving average at least tested. So far it has only been one week from crude's $84.89 high on Aug. 10, and prices are still well above the 45-day moving average (now at $76.12 and rising). Let's stay on the sidelines for now and wait to see if prices can go lower - at least into the end of next week - before we think about buying.