MARKETS UPDATE (3:00 pm EDST)
Our decision to hold our short position and "ride out" the relief rally in the broad stock market from the Oct. 11 lows has been a good one (so far). After three or four days of rallying off those lows, this market has resumed its plunge to new lows. Yesterday was the center point of a minor (weak) reversal zone this week, and all three major market indices (DOW, S&P 500, NASDAQ) made new lows below their lows from Oct. 11. Could this be the final bottom of the medium-term cycle in these indices? It's possible, but note that all three indices made new cycle lows. That means we do not have an intermarket bullish divergence signal to encourage us to take profits and cover our short positions. As I stated in my previous blog:
"The second week of November (around the 16th) looks like an ideal spot for the cycle bottoms, but it could also be earlier (say, around Nov. 7th). Note that both of these times are after the Nov. 6 elections in the U.S. which is significant as reactions to the election results could potentially reverse a trend in the market."
Today equities are rising sharply from yesterday's lows. Let's wait and see if this rally can gain any legs over the next few days before we consider covering our shorts. Holding my short position in the broad stock market.
Have powerful "anti-Trump" market manipulators succeeded in pushing down the stock market to help Democrats in the upcoming mid-term elections? Maybe, but technical and cycle analysis show that this market was ready for a significant drop anyway. If equities continue down into Nov. 6 (election day), or even Nov. 16 (a strong potential reversal point), we will be looking to cover our short positions and possibly go long at the final medium-term cycle bottom.
Gold is making new highs this week (near $1240) while silver remains below last week's high so we have a case of intermarket bearish divergence in this market, and it is happening in a (weak) reversal zone. This means we could see a short-term correction now. The cycle pattern in both metals at the moment also allows for a sharp correction either this week or next week. For this reason, I am staying on the sidelines of the precious metals for now. Aside from this possible short-term correction, both gold and silver are looking quite bullish, and we are waiting for an ideal spot to go long soon in both metals. A drop in gold prices close to the $1200 area would give us a good buying opportunity.
The U.S. Dollar index has been rallying, most likely due to fear of a crash in equity markets, but it is now approaching a strong resistance line near the August high of 96.79. Because we are in a reversal zone (although a very weak one), it's possible the dollar could turn down from here. If the U.S. dollar does turn down soon, it will support a rally in precious metals (perhaps after a short correction in one or both metals).
We are also watching for a medium-term (and maybe longer-term) cycle bottom to buy in crude oil. Tuesday's low at $65.74 (Dec. contract chart) in this week's reversal zone might be it, but I think prices could go lower as we move into November. Crude prices often follow the broad stock market so if equities continue down, crude may follow. We also need to keep in mind the upcoming sanctions on Iran that the Trump administration plans to impose in November. That could turn out to be a bullish trigger that could kick start a new medium-term cycle in crude (the start of a new cycle is almost always bullish). On the sidelines of crude for now, but looking to go long soon.
Our decision to hold our short position and "ride out" the relief rally in the broad stock market from the Oct. 11 lows has been a good one (so far). After three or four days of rallying off those lows, this market has resumed its plunge to new lows. Yesterday was the center point of a minor (weak) reversal zone this week, and all three major market indices (DOW, S&P 500, NASDAQ) made new lows below their lows from Oct. 11. Could this be the final bottom of the medium-term cycle in these indices? It's possible, but note that all three indices made new cycle lows. That means we do not have an intermarket bullish divergence signal to encourage us to take profits and cover our short positions. As I stated in my previous blog:
"The second week of November (around the 16th) looks like an ideal spot for the cycle bottoms, but it could also be earlier (say, around Nov. 7th). Note that both of these times are after the Nov. 6 elections in the U.S. which is significant as reactions to the election results could potentially reverse a trend in the market."
Today equities are rising sharply from yesterday's lows. Let's wait and see if this rally can gain any legs over the next few days before we consider covering our shorts. Holding my short position in the broad stock market.
Have powerful "anti-Trump" market manipulators succeeded in pushing down the stock market to help Democrats in the upcoming mid-term elections? Maybe, but technical and cycle analysis show that this market was ready for a significant drop anyway. If equities continue down into Nov. 6 (election day), or even Nov. 16 (a strong potential reversal point), we will be looking to cover our short positions and possibly go long at the final medium-term cycle bottom.
Gold is making new highs this week (near $1240) while silver remains below last week's high so we have a case of intermarket bearish divergence in this market, and it is happening in a (weak) reversal zone. This means we could see a short-term correction now. The cycle pattern in both metals at the moment also allows for a sharp correction either this week or next week. For this reason, I am staying on the sidelines of the precious metals for now. Aside from this possible short-term correction, both gold and silver are looking quite bullish, and we are waiting for an ideal spot to go long soon in both metals. A drop in gold prices close to the $1200 area would give us a good buying opportunity.
The U.S. Dollar index has been rallying, most likely due to fear of a crash in equity markets, but it is now approaching a strong resistance line near the August high of 96.79. Because we are in a reversal zone (although a very weak one), it's possible the dollar could turn down from here. If the U.S. dollar does turn down soon, it will support a rally in precious metals (perhaps after a short correction in one or both metals).
We are also watching for a medium-term (and maybe longer-term) cycle bottom to buy in crude oil. Tuesday's low at $65.74 (Dec. contract chart) in this week's reversal zone might be it, but I think prices could go lower as we move into November. Crude prices often follow the broad stock market so if equities continue down, crude may follow. We also need to keep in mind the upcoming sanctions on Iran that the Trump administration plans to impose in November. That could turn out to be a bullish trigger that could kick start a new medium-term cycle in crude (the start of a new cycle is almost always bullish). On the sidelines of crude for now, but looking to go long soon.
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