It looks like I covered my short position in the broad stock market too early on Tuesday as today's equity plunge is taking the DOW back down to the 25,000 level and the S&P 500 a little below 2,700. We are now out of a (weak) reversal zone, but we enter another (stronger) one next week (Feb. 13 - 22). If this market continues to fall into the end of next week, that will be a good time to look for the bottom of the correction and go long. As I stated in an earlier blog, that correction could end up as low as 23,600 in the DOW or as high as the 15-day moving average (now around 24,800). We will look for a buy spot starting next Wednesday in this target range. Alternatively, If today's downturn doesn't gain any momentum and the market pushes higher into late next week, we may be looking for another top to sell short (especially if the rally is weak). Longer-term we are still viewing this new medium-term cycle (that started on Dec. 26) as bullish with the potential to rally for several more months. Now on the sidelines of the broad stock market.
Gold and silver prices have been falling steeply from last week's highs in both metals. If those highs were the final tops to the current medium-term cycles then prices could push lower into next week's reversal zone for precious metals (Feb. 12 - 21, almost the same as for the broad stock market). However, last week was a little too early for a normal cycle peak so it is possible for prices to push higher for a top in next week's reversal zone instead of a bottom. I am favoring the idea of a top for now. Good targets for a top would be around $1340 in gold and $17 in silver and would be areas to consider short selling. If instead we get a low in the reversal zone, we will look to go long as it may be the end to the current medium-term cycles (and the start of new ones). As long as these cycle bottoms don't go too low, the next cycles should be quite bullish. On the sidelines of precious metals for now.
This week's steep rally in the U.S. Dollar Index has been the force pushing gold and silver prices down, but the dollar is now up against a strong resistance line around 96.60 and is entitled to take a breather. If the greenback backs down here, it would help push precious metal prices back up and favor our scenario for a top next week.
Crude oil again seems to be taking its cues from the broad stock market as prices dropped significantly today. We are still looking to buy a low in crude around $50 (or lower) soon. A break below $45, however, might make me hesitate and delay buying as it could indicate the final cycle bottom isn't in yet. We are assuming for now that the final medium-term (and possibly longer term) cycle is in with the Dec. 24 low of $42.67 (March contract chart). On the sidelines of crude for now.