MARKETS UPDATE (4:30 pm EST)
It looks like our timing was good with our decision to enter a short position in the broad stock market on Monday. That was a high for the S&P 500 and NASDAQ (the DOW's high was last week), and all three indices have been falling. Our preference to trade (short) the NASDAQ this time was also good as that index is (so far) falling more steeply than the other two. We leave our current equity reversal zone today but enter another (stronger) one next week (March 12 - 21). Ideally, we now want to see this market continue to fall and make a sub-cycle bottom in this new reversal zone. We could see a bottom in the DOW near 24,200 (or even lower), but the correction may not be that steep and only test the 45-day moving average (now around 24,900). (The 45-day moving average for the NASDAQ Composite Index is currently around 7,200.) Steep or not, we will be looking to take profits and cover our short position and reverse to the long side near any bottom in this new reversal zone. If this market starts rallying significantly tomorrow and/or next week before touching the 45-day moving average, we could see a high in this next reversal zone instead of a low. I don't think that will happen, but it is a possibility. In that situation we would cover our short position (hopefully with a small profit, or at least breaking even) and wait for a new top to sell short. For now, let's hold our short position as we anticipate this market moving lower into next week's reversal zone.
Gold prices seem to be finding a line of support just above $1280 and silver prices just above $15. Today is the last day of our current reversal zone specifically for precious metals, but we enter another next week (March 13 - 20). Both metals could turn up now, but even though gold is in a good target range for a final cycle bottom, silver could fall a bit lower for its cycle bottom. An ideal scenario now would see silver dip lower (closer to $14.75) into next week's new reversal zone with gold staying above $1280 (intermarket bullish divergence). That would be a good signal to buy silver (we are already long in gold). Let's hold our long position in gold and stay on the sideline of silver for now.
Many analysts are blaming Wall Street's current drop on the European Central Bank (ECB) and its president Mario Draghi for his pessimistic comments on the global economy and for extending the ECB's ultra low interest rate policies into early 2020. This extremely dovish move caused a significant drop in the euro today and thus a surge in the U.S. Dollar Index. The greenback jumped up to 97.54 to make a double top with its Nov.- Dec. 2018 highs. This may be just a "flash in the pan" surge triggered by the ECB news, but we need to keep a sharp eye on this index. The dollar is now touching some critical resistance lines that if broken could change our short-term view of the greenback breaking down soon. Interestingly, today's steep dollar surge did not have much effect on gold and silver prices. This suggests a current strength in these metals and the strong likelihood that they are at or near their final cycle bottoms and ready to turn bullish.
We are now approaching the center of our current reversal zone specifically for crude oil (March 5 - 14), and it is still not clear if crude wants to make a top or bottom in this time period. Ideally, we would still like to see a sub-cycle bottom near $51 (April contract chart) to buy before the end of next week, but if prices push higher and break above last week's high of $57.88, we may get a top instead of a bottom in this reversal zone. If we do, it may be a good place to sell short. Still on the sideline of crude oil.
It looks like our timing was good with our decision to enter a short position in the broad stock market on Monday. That was a high for the S&P 500 and NASDAQ (the DOW's high was last week), and all three indices have been falling. Our preference to trade (short) the NASDAQ this time was also good as that index is (so far) falling more steeply than the other two. We leave our current equity reversal zone today but enter another (stronger) one next week (March 12 - 21). Ideally, we now want to see this market continue to fall and make a sub-cycle bottom in this new reversal zone. We could see a bottom in the DOW near 24,200 (or even lower), but the correction may not be that steep and only test the 45-day moving average (now around 24,900). (The 45-day moving average for the NASDAQ Composite Index is currently around 7,200.) Steep or not, we will be looking to take profits and cover our short position and reverse to the long side near any bottom in this new reversal zone. If this market starts rallying significantly tomorrow and/or next week before touching the 45-day moving average, we could see a high in this next reversal zone instead of a low. I don't think that will happen, but it is a possibility. In that situation we would cover our short position (hopefully with a small profit, or at least breaking even) and wait for a new top to sell short. For now, let's hold our short position as we anticipate this market moving lower into next week's reversal zone.
Gold prices seem to be finding a line of support just above $1280 and silver prices just above $15. Today is the last day of our current reversal zone specifically for precious metals, but we enter another next week (March 13 - 20). Both metals could turn up now, but even though gold is in a good target range for a final cycle bottom, silver could fall a bit lower for its cycle bottom. An ideal scenario now would see silver dip lower (closer to $14.75) into next week's new reversal zone with gold staying above $1280 (intermarket bullish divergence). That would be a good signal to buy silver (we are already long in gold). Let's hold our long position in gold and stay on the sideline of silver for now.
Many analysts are blaming Wall Street's current drop on the European Central Bank (ECB) and its president Mario Draghi for his pessimistic comments on the global economy and for extending the ECB's ultra low interest rate policies into early 2020. This extremely dovish move caused a significant drop in the euro today and thus a surge in the U.S. Dollar Index. The greenback jumped up to 97.54 to make a double top with its Nov.- Dec. 2018 highs. This may be just a "flash in the pan" surge triggered by the ECB news, but we need to keep a sharp eye on this index. The dollar is now touching some critical resistance lines that if broken could change our short-term view of the greenback breaking down soon. Interestingly, today's steep dollar surge did not have much effect on gold and silver prices. This suggests a current strength in these metals and the strong likelihood that they are at or near their final cycle bottoms and ready to turn bullish.
We are now approaching the center of our current reversal zone specifically for crude oil (March 5 - 14), and it is still not clear if crude wants to make a top or bottom in this time period. Ideally, we would still like to see a sub-cycle bottom near $51 (April contract chart) to buy before the end of next week, but if prices push higher and break above last week's high of $57.88, we may get a top instead of a bottom in this reversal zone. If we do, it may be a good place to sell short. Still on the sideline of crude oil.
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