Today the DOW finally made a new weekly and monthly high which negates its intermarket bearish divergence over the last week or two against the S&P 500 and NASDAQ (which had been consistently making new highs). The DOW still needs to exceed its all-time high from March 1 (21,169) to be fully bullish, but it is close to doing that. Directional momentum for all three indices is now nearly 100% (the DOW and S&P 500 were mixed bearish and bullish briefly last week). All of this bodes well for our preferred scenario of more rallying of the broad stock market into at least the first week of June. We are now out of the recent reversal zone for equities so we don't expect any major reversals until the next one (centered around June 2). Holding my long position in the broad stock market.
The precious metals market is a bit tricky to call right now, and several analysts that I follow seem to disagree on whether this market is turning bullish or bearish. From a cycles perspective, it appears that both gold and silver started new medium-term cycles on May 9. If so, then both metals should be at least short-term bullish. The other possibility is that either gold or silver (or both) are still completing older (overdue) cycles, in which case we could see prices drop sharply below those lows from May 9, probably by the first week of June. (In previous blogs I had mentioned the possibility of this happening with one metal making a new low and the other staying above its May 9th low for a case of intermarket bullish divergence and a good spot to buy). There is a reversal zone centered around June 2 for all markets and a specific one for the precious metals centered around June 7. If prices now fall into one of those dates, it will be a good buy spot (especially if we get a bullish divergence signal as stated above). If prices instead rise into early June (I think this is more likely) then we would likely unload and take profits in our long position in gold and maybe even sell short depending on how high prices get (we would like to see gold break and close above $1308 to remain bullish). We are still holding a long position in gold. Let's raise our stop loss for this trade on a close below $1,240 (unless that happens near June 2 or 7). We are out of silver but will look to buy again on any correction that stays above $16.07.
As usual, the movement of the U.S. dollar will likely influence the direction of the precious metals. The U.S. Dollar Index is finding support at 97, but can it start a new rally from there? Maybe, but directional momentum in this chart is still nearly 100% bearish. Also, there is a major reversal zone for currencies coming up in the first week of June. If the dollar is going to make a major bottom and reverse, it is more likely to happen then, not now. If the dollar does rally into that reversal date, it may be setting up for another major fall and a deeper correction. Because the dollar usually moves in a direction opposite the price of gold and silver, we will watch this index carefully over the next week or two.
Crude oil prices reached $51.88 (July contract chart) yesterday (the last day of the recent reversal zone) then plunged dramatically today. This looks like the start of a sub-cycle correction, and if so it could bottom as early as next week or possibly the following week. As long as prices stay above $44.13, we will be looking to buy the bottom of this correction. On the sidelines of crude oil for now.