Today the DOW, S&P 500 and NASDAQ are all making new weekly lows, and it is the last day of the current reversal zone. If these markets don't turn up from here and instead continue down into next week then we will have to assume that this reversal period's turn occurred back on August 23 from a top in all three indices on that day. If the markets continue down next week, we will likely see a bottom around Sept. 14 which is the center of the next reversal zone. Tomorrow's jobs report could determine whether we see equities rise or fall next week. Fed officials have been making hawkish statements in the news recently that seem to be suggesting that they could raise interest rates soon, perhaps even twice before the year is over, if economic data supports it. A positive jobs report on Friday might scare investors into selling in anticipation of rate hikes. If it looks like the markets are going to head south we may take profits in our long positions in the broad stock market (which we entered on July 6) and stand aside equities with the idea of going long again in mid-September at a corrective bottom. For now, however, I am going to remain long in this market as we could still see a reversal up from today's lows. Our overall trading strategy is still to be bullish into at least November as I feel that establishment politicians and other people in power wish to keep stock markets buoyant into the upcoming presidential election. The current cycle structures of the DOW, S&P 500 and NASDAQ also support this idea. Holding my long position in the broad stock market for now.
Lest I sound too optimistic about the broad stock market, I would like to point out that, overall, equity markets are extremely overbought and have been for some time now so it is possible for us to see a dramatic correction, even a crash, start at any time. I am betting that the Fed (and others) are working overtime right now to keep that from happening before the November election. Even though the cycle structure of the broad stock market allows for more rallying into the end of the year, it doesn't have to unfold that way if the trend abruptly turns bearish. There are, in fact, several long-term and some short-term technical patterns that have been forming in the S&P 500 that are quite alarming and could point to a severe correction soon. We will get early signals if this happens, however, and will not end up riding a severe correction down to the bottom.
Gold prices moved down a bit this week but are staying above our stop loss point of $1,300 for our long position in this metal. In contrast, silver prices have edged up from Sunday's low of $18.40. Gold made a new weekly low today at $1,303 while silver stayed well above that Sunday low. This may be a case of intermarket bullish divergence. Today is the last day of a general reversal zone so this could be signaling that both gold and silver are ready to rally significantly. We are already long in gold and have been waiting to buy silver's medium-term cycle bottom which is now due (overdue). A rally could start now, but we enter another reversal zone specifically relevant to gold and silver next week. Tuesday/Wednesday especially could be a strong turning point. For this reason I am still going to hold off buying silver to see how prices move into early next week. Tomorrow's jobs report could also cause a strong price movement in these metals. If the report is good it favors an interest rate hike soon, and that could push precious metals lower. The precious metals market is highly volatile right now and may continue to be so for the next three or four weeks. We therefore need to be especially cautious trading this market (actually all markets) through the end of September. Holding my long position in gold for now but still out of silver.
In Monday's blog I wrote:
"The U.S. Dollar Index surged up on Friday but is now pushing against resistance in the 95 -96 area so this rally may not go much further."
On Tuesday the U.S. Dollar Index pushed slightly above 96 but closed the day at 95.96 It fell a bit more on Wednesday and today closed even lower at 95.63. If the dollar continues to fall it will give a boost to any rally in gold and silver. A good jobs report tomorrow, however, could kick the greenback up again (at least temporarily).
Crude oil prices dropped steeply this week and today broke below a strong support level at $44 (October contract chart). We are now out of a reversal zone for crude, but another one is coming up near the end of next week so we should wait to see if prices move lower into that time. If prices get too low (i.e. below $40) this market's trend may be turning bearish. At the moment, however, crude still looks medium-term bullish as we are still in the early stages of a new cycle that started on Aug. 2. Directional momentum is currently mixed bullish and bearish. If bullish, we should see crude start to take out the $50 level fairly soon. On the sidelines of crude oil.