Our broad stock market indices (DOW, S$P 500, NASDAQ) are moving inconsistently relative to each other today. The DOW is down significantly, the S&P 500 not so much, and the NASDAQ is slightly up (at the time of this writing - i.e. early afternoon). We have now entered our very strong reversal zone (May 11 - 19), and its still not clear if this market is going to make a top or bottom (maybe both) within this time frame. The NASDAQ is suggesting a top, but the DOW is pointing more toward a bottom. The S&P 500 looks like it could go either way.
Some traders may already be stopped out of this market - especially those (like myself) who focused on the DOW in their trading. Unlike the other two indices, the DOW tested (broke briefly below) its 45-day moving average last week, and it is doing that again today. We have been holding our long position in the broad stock market on the premise of a strong rally into this new reversal zone, but so far only the NASDAQ has given us this. However, if the DOW starts making new weekly lows in this reversal time frame WITHOUT the S&P 500 and NASDAQ, we will have a strong bullish divergence signal and a different reason to stay long - an imminent bottom and reversal back up. I am going to suggest that traders stay long for now with stop losses based on closing below the 45-day moving average of whatever index one is trading. Right now, the DOW is close to doing this, but the S&P 500 and NASDAQ are still a healthy distance away. ALL THREE indices closing below their 45-day moving averages would be a VERY bearish development. We note that the NASDAQ made a new high for the year yesterday, and the DOW and S&P 500 are still below their January highs - a strong bearish divergence signal - so this bearish view is a strong possibility.
Today gold prices are down just a bit while silver prices are plunging dramatically. Gold seems to be holding above both its 15-day and 45-day moving average, but silver has crashed its 15-day as well as its 45-day moving average. Silver is clearly taking a dramatic sub-cycle correction which is due either this week or next week. Gold MAY be refraining from such a serious correction and only manifesting a moderate dip, but we can't be certain that it won't plunge lower. However, the fact that silver has broken its moving averages and is making a new weekly low while gold isn't doing either gives us a strong bullish divergence signal and supports the idea that a bottom is imminent in both metals, and gold may not fall very much. We went long in gold on April 19 around $1995, and we are still above that price. Coincidentally, gold's 45-day moving average is now closely approaching $1995. Let's stay long and maintain our stop loss based on prices closing below that moving average. If gold does break below the 45-day moving average, it will trigger our stop near a "break even" point with minimal loss.
As stated above, silver's sub-cycle corrective drop is due to bottom this week or next. We have just entered a very strong general reversal zone (May 11 - 19), but we also enter a reversal zone specifically for the precious metals next week May 15 - 29. If a bottom doesn't happen tomorrow (Friday), we will probably see it early next week. If prices don't go too low, it may be a good spot to buy. For now, we remain on the sidelines of silver.
Crude oil prices are falling today as they seem to be encountering resistance at the 15-day moving average. As I noted in previous blogs, we need to see a break above the 15-day and 45-day moving averages (and a close back above $75) to start confirming last week's deep low ($63.57) as a significant cycle bottom and the market turning bullish. We will remain on the sidelines for now.