We are now pretty certain that all three of our broad stock market indices (DOW, S&P 500, NASDAQ) are new (young) medium-term cycles that started with the Feb. 24 lows of the DOW and S&P 500, and the Feb. 24 and March 14 (double-bottom) lows in the NASDAQ. Because these cycles are in their early stage, they could be quite bullish now and ready to rally and test new all-time highs. But there's also a chance they could peak early and then turn down dramatically for a long bearish ride down to their final bottoms. We note that since last week this market has been correcting down a bit, and these indices are now falling into the center of our new strong reversal zone (April 4 -20). This means we could see a sub-cycle low and the start of a reversal back up this week or next (unless the market panics and starts to break down). We are still watching for support areas now around 34,000 in the DOW, 4,300 - 4,400 in the S&P 500, and 13,500 in the NASDAQ. We are getting close to those areas, and we may consider going long soon as this market is looking bullish - at least short-term. There may also be some support at the 45-day moving averages, which the DOW and NASDAQ are now testing.
Does all of this mean the danger of a major downturn in equities has been averted? No! We will only consider that possibility if and when ALL THREE of these indices start breaking clearly above their all-time highs (that would be 36,952 in the DOW, 4,819 in the S&P 500, and 16,212 in the NASDAQ). If this market turns back up this week or next, we will watch carefully to see if the rally can challenge those highs (possibly in late April/early May - unless our reversal zone coincides with a break-down instead of a turn back up - very possible in these volatile times). We will stay on the sidelines of the broad stock market for now.
The precious metals (especially gold) have been relatively stable and flat over the last two weeks (with the price of silver trending down just a bit). Unlike the broad stock market, it is late in the medium-term cycles of both gold and silver, so we are now anticipating a correction down to the final bottom of these cycles. There's a small chance that the final cycle lows were last Tuesday (gold at $1892 and silver at $24), but the very weak rally off of those lows and the fact that Tuesday was not in a reversal zone makes that unlikely. We ARE in a general reversal zone now, and next week we enter a reversal zone specifically for the precious metals (April 12 - 20). This means we could see a significant top OR bottom (or even both) anytime now through April 20. We have been watching for a final sub-cycle rally to targets of $2050 in gold and $26.50 in silver. These targets may be too high (assuming prices will rise at all), but If these metals can rally over the next nine trading days and test their highs from March 24 ($1965 in gold and $25.81 in silver) - especially if one metal breaks its high without the other (intermarket bearish divergence in a reversal zone) - we may consider a short sell in both gold and silver. If prices continue to fall, however, we may instead be looking for the final cycle bottoms to buy sometime by April 20. For now, we remain on the sidelines of the precious metals.
Like the precious metals, the U.S. Dollar Index is also approaching the end of its current medium-term cycle. The greenback has been rallying strongly and is today making a new high for the year. It is thus vulnerable to a significant correction in our current general reversal zone. If it can push higher into next week, it could also peak and start falling in another reversal zone specifically for currencies (April 12 - 20, same as for precious metals). Any fall in the dollar could of course trigger a rally in the precious metals. We will watch for this now. We should note, however, that in our current economic times, the normal relationship between the dollar and precious metals (i.e. moving opposite each other) may not apply.
After a brief rise early in the week, crude oil prices are falling again and making new weekly lows. As I stated in last Thursday's blog:
"...we are waiting for the final bottom in crude's current and old medium-term cycle with a target around $85 - $90. That bottom might be a good spot to buy."
Today we enter a reversal zone specifically for crude (April 7 - 15), so we may see the cycle bottom in this reversal zone between now and the end of next week. We will watch for that as a potential buy spot. We are still on the sidelines of crude.