UPDATES ON THE BROAD STOCK MARKET, PRECIOUS METALS, AND THE U.S. DOLLAR (4:00 pm EDST)
Today is technically the last day of our strong general reversal zone (May 3 - 12), but I'm going to extend this into Friday, and perhaps even Monday, as we enter s period of high volatility and possible false signals and breaking of normal technical boundaries from May 10 - June 2. (Financial astrologers identify this as a "Mercury retrograde" period.)
The broad stock market is falling steeply into the end of this reversal zone. Usually this means a bottom and reversal back up is imminent. But if downward momentum is strong (as it is here), reversal zones can sometimes correspond to a breakdown instead of a reversal. I am going to allow this market two more trading days to form a possible bottom. If we get a bullish divergence signal on Monday (i.e. one or two - but not all three - of our market indices - DOW, S&P 500, NASDAQ - making a new low), that might signal the formation of a bottom. If equities continue to fall past Monday, however, we will have to assume that the market is bypassing a reversal and is breaking down.
Even if a sub-cycle bottom forms by Monday, I would not be enthusiastic about going long. This market is starting to look very bearish, and the chances of another rally to challenge the all-time highs are starting to look slim (but not impossible). Today the U.S. senate confirmed Jerome Powell as Fed Chairman for a second term. Powell's aggressively hawkish plan to raise interest rates is certainly contributing to Wall Street's fears of a stock market sell-off.
I think our strategy now should be looking to sell short any short-term rallies, as a long-term correction in the broad stock market may already be in progress. We are staying on the sidelines of the broad stock market for now.
Gold and silver prices continued to push lower today. As with the broad stock market, I think I will expand the reversal zone for this market into next Monday. It's possible that one or both metals are now forming a bottom to an older medium-term cycle. If that's true, it would be nice to see a bullish divergence signal with one but not both metals making a new weekly low. We're not getting that this week, but it could happen next week on Monday, and it may be a good spot to buy. For now, we will remain on the sidelines of gold and silver.
Today the U.S. Dollar Index broke and closed above 104. Friday is the end of a reversal zone specifically for currencies (May 5 - 13), and it is also very late in the current medium-term cycle for the U.S. dollar. This index is either making a top here and is about to take a steep correction back down or it is "breaking out" and signaling that the political cycle in the U.S. dollar is going to override the normal long-term 15-16 year cycle (please see my discussion of the U.S. Dollar Index in blog posts from April 9 and April 27). As I mentioned at the start of this blog, we are now in a period of high volatility and possible false signals in the markets through June 2 (Mercury retrograde). It would not surprise me to see this dollar "breakout" turn into a "fake-out". On the other hand, if the broad stock market is breaking down, it would also not surprise me to see investors fleeing equity markets and investing in the U.S. dollar as a safe haven as they did during the 2008-2009 equity sell-off. A dollar breakout would likely be bearish for the precious metals.
Today is technically the last day of our strong general reversal zone (May 3 - 12), but I'm going to extend this into Friday, and perhaps even Monday, as we enter s period of high volatility and possible false signals and breaking of normal technical boundaries from May 10 - June 2. (Financial astrologers identify this as a "Mercury retrograde" period.)
The broad stock market is falling steeply into the end of this reversal zone. Usually this means a bottom and reversal back up is imminent. But if downward momentum is strong (as it is here), reversal zones can sometimes correspond to a breakdown instead of a reversal. I am going to allow this market two more trading days to form a possible bottom. If we get a bullish divergence signal on Monday (i.e. one or two - but not all three - of our market indices - DOW, S&P 500, NASDAQ - making a new low), that might signal the formation of a bottom. If equities continue to fall past Monday, however, we will have to assume that the market is bypassing a reversal and is breaking down.
Even if a sub-cycle bottom forms by Monday, I would not be enthusiastic about going long. This market is starting to look very bearish, and the chances of another rally to challenge the all-time highs are starting to look slim (but not impossible). Today the U.S. senate confirmed Jerome Powell as Fed Chairman for a second term. Powell's aggressively hawkish plan to raise interest rates is certainly contributing to Wall Street's fears of a stock market sell-off.
I think our strategy now should be looking to sell short any short-term rallies, as a long-term correction in the broad stock market may already be in progress. We are staying on the sidelines of the broad stock market for now.
Gold and silver prices continued to push lower today. As with the broad stock market, I think I will expand the reversal zone for this market into next Monday. It's possible that one or both metals are now forming a bottom to an older medium-term cycle. If that's true, it would be nice to see a bullish divergence signal with one but not both metals making a new weekly low. We're not getting that this week, but it could happen next week on Monday, and it may be a good spot to buy. For now, we will remain on the sidelines of gold and silver.
Today the U.S. Dollar Index broke and closed above 104. Friday is the end of a reversal zone specifically for currencies (May 5 - 13), and it is also very late in the current medium-term cycle for the U.S. dollar. This index is either making a top here and is about to take a steep correction back down or it is "breaking out" and signaling that the political cycle in the U.S. dollar is going to override the normal long-term 15-16 year cycle (please see my discussion of the U.S. Dollar Index in blog posts from April 9 and April 27). As I mentioned at the start of this blog, we are now in a period of high volatility and possible false signals in the markets through June 2 (Mercury retrograde). It would not surprise me to see this dollar "breakout" turn into a "fake-out". On the other hand, if the broad stock market is breaking down, it would also not surprise me to see investors fleeing equity markets and investing in the U.S. dollar as a safe haven as they did during the 2008-2009 equity sell-off. A dollar breakout would likely be bearish for the precious metals.
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