The broad stock market is now edging its way up to challenge its highs from last week (25,520 in the DOW and 2,763 in the S&P 500) where there is some resistance. This could be a turning point. If all three market indices (DOW, S&P 500, NASDAQ) can make new weekly highs then we may have to label last week's lows in the DOW and S&P 500 as the start of new medium-term cycles and expect more rallying at least into the first week of March. On the other hand, if these indices cannot break through last week's highs or if only one or two do so (not all three), the broad stock market could resume its correction and plunge to new lows (and the final cycle bottom) in the first week of March (our next reversal zone). We are hoping for the latter scenario and a good spot to go long. Still on the sidelines of the broad stock market.
After rising steeply this week, gold and especially silver are taking a breather today and backing down a bit. As I said in Tuesday's blog, we will not worry too much unless both metals break below last week's lows. The next major reversal zone for the precious metals is coming up February 27 - March 8. Right now it looks like that will be a high for both gold and silver, but if prices suddenly turn south there is still a possibility of one or both metals forming a low then. We are keeping a close eye on this, especially as the U.S. Dollar Index has now dropped back to a support line it established in late January just above 88. We could see another bounce from here which could put downward pressure on gold and silver prices, but the U.S. dollar chart looks very weak right now, and short-term signals in this index are mostly bearish. A dollar breakdown could be imminent. Holding my long positions in gold and silver.
Our decision to go long in crude oil on Tuesday appears to be a good one as the price has been rallying from there. If last week's low at $58 (March contract price) was a sub-cycle bottom then we should see this rally continue for at least another week or two into the next reversal zone for crude which is February 26 - March 6. One bearish factor that I'm concerned with at the moment is the recent reporting of record highs in U.S. crude production and supply. This may have a dampening effect on any rally. We will maintain our stop loss for this trade on a close below that $58 low from last week. If that breaks, we would have to look for a new sub-cycle low in the next reversal zone (and possibly another opportunity to buy). I should point out here that we are going to watch closely any rally from a sub-cycle bottom now as the strength of that rally will determine our longer-term view of crude prices. It is highly likely that crude will exceed its recent Jan.26 high of $66.66 (March contract), and if it does, we could see prices get into the $72 - $76 range over the next several months or later this year. If crude prices can't exceed that $66.66 high, however, we may have to abandon our bullish view and focus on short selling strategies as the market would be turning bearish. Holding my long position in crude.