We are now approaching the center (June 30) of our current strong general reversal zone (June 26 - July 5). All three of our broad stock market indices (DOW, S&P 500, NASDAQ) made new weekly lows on Monday (which was the first day of the reversal zone). All of those lows were below the !5-day moving average but above the 45-day moving average and were not deep enough to qualify as a final medium-term cycle bottom. The market has been rallying from those Monday lows which is not surprising given we are approaching a holiday week-end (Fourth of July in the U.S.) and equity markets are often optimistic and rise into holidays. Although Monday was probably not the final medium-term cycle bottom for all three indices (the DOW may be an exception as it came close to testing the 45-day moving average), it was technically in our reversal zone and could be a significant sub-cycle low.
If equities continue a rally into early next week, and especially if we get a bearish divergence signal (i.e. one, two, but not all three indices making a new weekly high), we will probably be looking to sell short. The alternative would be to see the market fall from here and make new lows by July 5. That could give us a potential buy spot if all three indices test or break below their 45-day moving averages. Right now those moving averages are 33,593, 4,230, and 12,865 in the DOW, S&P 500 and NASDAQ, respectively. We note that because the Fourth of July falls on a Tuesday this year, markets will close early on Monday - around 1 pm EDT - and they will be completely closed on July 4th, so trading may be minimal from now through then. Trading should be back to normal on July 5, and that is technically the last day of our reversal zone. We will remain on the sidelines for now as we wait for a significant high or low to trade.
It looks like gold is completing its final correction down to the end of its current medium-term cycle. The cycle timing is right for this, and we are now in the dead center of not only a strong general reversal zone for all markets but also a reversal zone specifically for the precious metals. Tomorrow is also a potential strong pivot point for gold. Prices today got to $1894 before snapping back up above $1900. That was a new weekly low for gold, but silver hasn't yet gone below its low from last week so we have a case of intermarket bullish divergence between the metals. This looks like a good time to buy gold for the start of a new medium-term cycle. I am going to put in a buy order for tomorrow's market open. We can put a stop loss on this trade based on a close below $1850.
Silver is also most likely at the end of an old medium-term cycle as we come to the center of these strong reversal zones. It's possible that silver made its final cycle bottom last Friday at $22.12 (that was just one trading day outside the reversal zone), but prices are falling again and could easily make another low either tomorrow or early next week. If silver does make a new weekly low tomorrow, it would negate its bullish divergence with gold (see above), but next week could give us another bullish divergence signal if one metal makes a new low without the other. I am going to hold off buying silver for now and wait to see if it can make a new low within these current reversal zones (that end next Wednesday). If silver does go lower, we would like to see prices stay above $21 (even $22) to buy. We don't want to see prices drop below $20 as that would turn silver's general trend very bearish.
This week and next we also have a reversal zone specifically for currencies precisely overlapping our general and precious metal reversal zones (June 26 - July 5). This is significant because the U.S. Dollar Index has been rising into it and is now encountering a resistance area around 104. Thus a top and reversal back down in the greenback could be imminent. If this happens, it could trigger a rally in the precious metals.
Crude oil prices still seem to be stuck in a congestion zone between $67 and $75 (Aug. contract chart), and this week they seem to be having trouble breaking above the 15-day moving average (now at $70). Prices are also trending below the 45-day moving average. Prices made a top in last week's reversal zone specifically for crude and have been falling from there, but we are now in the center of a general reversal zone for all markets. We should be watching for a significant low. In last Thursday's blog on crude I wrote:
"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... If the medium-term cycle is bearish, prices could fall as low as the $53 - $58 area."
Yesterday crude made a new weekly low at $67.05. That could be it, but there is still time in this reversal zone (it ends next Wednesday) for prices to go lower. Let's stay on the sidelines for now and wait to see if that happens.