The 2020 presidential election fraud controversy has created a very heated and divisive political environment as we move towards the Jan. 20th swearing in ceremony to usher in a new administration. There is a lot of speculation as to what is going to happen on that day (next Wednesday). Nothing unusual may happen, but as a precaution, a lot of military and National Guards are deploying to Washington DC as I write this. Theories are running the gamut as to what may happen (from more pro-Trump protests to conspiracy theories suggesting Mr. Trump will invoke the Insurrection Act to forcefully take back his power). My main point in mentioning this is to point out that volatile political events can lead to volatile financial markets.
The DOW is a nervous creature and does not respond well to political chaos. It is especially concerning that all of this is happening in one of our reversal zones (Jan. 12 - 21). We know that equity markets are now extremely overbought as they make new all-time highs. A dramatic political event affecting the entire country could be a catalyst for a significant downturn. Today the DOW and NASDAQ made new all-time highs while the S&P 500 did not (but it came VERY close). The Nasdaq 100 (E-Mini, March contract chart), however, did not make a new high. This gives us an intermarket bearish divergence signal in a reversal zone. All three indices closed with a loss, which is also a bearish sign. I am reluctant to trade any market at this time, but we could be seeing a good set-up here to short sell the broad stock market. We are still several days away from the Jan. 20th inauguration date, and we are moving into a holiday week-end (Martin Luther King Jr. day on Monday) which is often bullish for equities. If the S&P 500 breaks a bit higher tomorrow, that would negate our bearish divergence signal until next week. Let's stay on the sidelines for now and see how the week closes tomorrow.
Gold and silver seem reluctant to rally this week which confirms our view that they are both currently in a bearish correction down to their final medium-term cycle bottoms. In my last update I gave likely targets for this bottom:
"This could be around $1650 - $1750 in gold, and $22 - $25 in silver. If $22 breaks, silver might get down to $20 or even lower."
Because this correction is likely already underway, we will wait for the cycle bottoms for a potentially good spot to buy. Those bottoms are due sometime over the next several weeks and could easily end up in one or both of two overlapping reversal zones specifically for precious metals coming up Jan.19 - 28 and Jan. 27 -Feb. 5.
We will watch for those target prices in those time frames. We are on the sidelines of gold and silver for now.
Crude oil has become very bullish, perhaps taking its cues from a buoyant equity market, but it may be forming a sub-cycle top in this and next week's reversal zone (Jan. 12 - 21). There is yet another reversal zone specifically for crude at the end of this month (Jan.21 - 29). We could therefore see a significant top anytime over the next two weeks (or even a top followed by a significant bottom by the end of the month). Because I'm expecting all markets to be quite volatile through the end of January (maybe longer) due to the controversial U.S. election, I think it's best to stay on the sidelines of this market for now. Crude prices broke above some significant resistance levels recently, so it's possible we could see them up into the $61 - $63 range (Feb. contract chart) fairly soon. We may see a corrective dip from current prices, though, before crude pushes up to that level. If we get a sub-cycle correction into the end of the month, it may be a good spot to buy.
It looks like last week's low of 89.20 in the U.S. Dollar Index may have been the start of a new medium-term cycle. If that's the case, the dollar could be very bullish now. This supports our view that gold and silver prices are headed lower, because the precious metals usually move opposite the U.S. greenback.