We are now just past the middle of the current reversal zone for the broad stock market (it ends next week on Monday). All three indices (DOW, S&P 500, NASDAQ) fell sharply this week on Monday but remained relatively flat Tuesday - Wednesday. Today the DOW dropped early in the morning but is now recovering sharply, the NASDAQ is continuing its rally from a its Monday low, and the S&P 500 is snapping back from its drop this morning. Of all three indices, only the NASDAQ has made a new weekly low so far so we may have a bullish divergence signal here. Could this be the start of a reversal back up? Yes, it could, and if so we will have to look to the next reversal zone (Aug. 20 - 28) for another top to sell short. But there are still two days left in the current reversal zone and time for one or two of these indices to make a new high and give us a bearish divergence signal to sell. So the ambiguity continues, and we shall remain on the sidelines for now.
In Monday's blog on the precious metals I wrote:
"The recent lows in both metals on July 19 ($1212 in gold, $15.18 in silver) could be significant bottoms, but July 19 was not in any reversal zone so there is a good chance prices could go lower before a strong rally starts. If one metal breaks below its July 19 low but not the other this week or early next week, we will have a bullish divergence signal and may look to buy."
Today gold is close to breaking its low, but silver is still a bit above its low. There are still three days left in the current reversal zone for precious metals (it ends next Tuesday). Let's see if gold breaks below $1212 with silver holding above $15.18 before next Wednesday. We should note here that we are also now in a reversal zone for currencies that continues through next Thursday, and the U.S. Dollar Index is rising into it. If the dollar makes a new top and reverses down, it would likely trigger a rally in the precious metals. Still on the sidelines of gold and silver.
Crude oil made a new weekly low today at $66.92 (Sept. contract chart). It is getting late in the reversal zone for crude (it also ends on Monday) but today's low is not a valid sub-cycle bottom because that low needs to be below $66.29. If prices can drop below there by next Tuesday (and stay above $63), we will consider going long in crude. Otherwise, we may have to consider Monday's high of $70.43 as the top in this reversal zone and look for a bottom in crude's next reversal zone (Aug. 15 -23). Out of crude oil for now.