The broad stock market clearly made a significant high last Friday in the center of our current somewhat weak reversal zone (June 13 - 22), which ends today. All three indices (DOW, S&P 500, NASDAQ) have been falling sharply from Friday's high as they now approach potential support at their 15-day moving averages. Below that, there is more support at their 45-day moving averages.
We enter a considerably stronger general reversal zone next week (June 26 - July 5). If this market continues to drop and these indices break below their 45-day moving averages by the the Fourth of July holiday (U.S.), then we will probably look to buy as we could be seeing the final bottom in the medium-term cycle. A good price target for that bottom would be around 32,500 in the DOW and 4,100 in the S&P 500. That would be a long drop from here, so I think it is more likely these indices will find some support above the 45-day moving average and rally some more.before we see that final medium-term cycle bottom. If we get an isolated low well above the 45-day moving average near the end of next week, we may also look to buy for a final rally up (the current medium-term cycle has a very bullish trend). However, holiday week-ends tend to produce optimistic rallies the week before, so we could see a rally into next Friday and even new highs. In that situation, we would probably want to sell short. I realize there are a lot of possibilities here and this may be a bit confusing, but the bottom line is we want to buy or sell according to what we see happening around the center (June 30) of this new reversal zone. If its a rise to a top, we sell short, if a fall to a bottom, we buy. For now, we remain on the sidelines of this market.
In Monday's blog on gold I wrote:
"...Gold's current medium-term cycle (which began with the low of $1807 on Feb. 28) has recently developed a slightly bearish trend. It is also getting old. This means it likely peaked with its $2059 high on May 4 and is now moving down to its final corrective bottom due anytime now over the next 5 weeks...If last week wasn't the bottom, prices could continue lower into our next reversal zone for these metals coming up June 26 - July 5. That would also be a good time frame for the final cycle bottom. If prices do go lower, we don't want to see them go below $1807 as that would turn gold's general trend very bearish."
Well, last week's low ($1928) wasn't the bottom as gold prices got down to $1914 today. It looks like gold is headed lower into next week's reversal zone, so we will watch for a significant bottom to buy in that time frame. A good price target could be around $1870. We would like to see prices remain above $1850. Any price drop below $1807 would probably keep us on the sidelines, which is our position at the moment.
Silver prices have also been falling steeply, and they have now gone below the May 26 sub-cycle low of $22.69. This means the medium-term cycle has turned bearish and is now headed to it's final cycle bottom. As I wrote in Monday's blog:
" ...it's more likely that we are still in an older cycle that is due to bottom anytime over the next six weeks. As with gold, next week's new reversal zone for the precious metals would be a good time for the final bottom, and that could turn out to be a good spot to buy (as long as prices remain above $20."
So we will look for a final bottom in silver between now and July 5 at a price above $20. We remain on the sidelines for now.
Our reversal zone for crude oil ends today. Yesterday crude prices rallied to a new weekly high ($72.72 - July contract chart) just above the 45-day moving average, but today they fell dramatically and closed at $69.51 - below both the 45-day and 15-day moving averages. Yesterday's high was within the reversal zone so it is likely that was a significant top. Prices should move lower from here, but how low will they go? We enter a new general reversal zone for all markets next week, so we could see a significant bottom in that time frame (i.e. through July 5). The labeling of crude's medium-term cycle is still ambiguous, but if we start making new lows in this new reversal zone, it may be a good time to enter a long position in crude, regardless of the cycle labeling. As I mentioned in Monday's blog, if the medium-term cycle is bearish, prices could fall as low as the $53 - $58 area. For now, we will remain on the sidelines and wait to see how low crude can fall into next week.