On Tuesday I commented on that day's sharp drop in the broad stock market:
"Is this just another dip in the roller coaster ride or will it continue down? The drop seems to be finding support at the "gap up" point from last Wednesday/Thursday so a bounce back up is certainly possible."
We are getting that bounce today as all three major indices (DOW, S&P 500 and NASDAQ) are soaring up and making new weekly highs. We are in a reversal zone this week and next (Sept. 3 - 13). We will not see any bearish divergence signal this week so we will look to next week for one. This market's bullishness is being fueled by new hopes of trade talks with China. If this rally continues into next week, we could easily see all three indices challenge their all-time highs. We are at a critical juncture now. If all three indices break to new all-time highs, it suggests that the current medium-term cycle and most likely the next one are pointed up for at least a few more months. However, If these indices cannot exceed their all-time highs (or if only one or two indices exceed their high(s) but not all three) then this market could turn south and start a very serious longer-term correction. That's why we are looking to sell the market short on a strong bearish divergence signal. If we don't get that, we may hold off shorting and possibly go long on a significant corrective dip for more rallying into early next year. But I'm getting a bit ahead of myself here as the cycle patterns are not clearly defined yet. Hopes for a U.S./China trade deal may be driving this market up now, but if we don't get those trade talks or we do and they are unproductive then the market could drop hard. For now we will remain on the sidelines as we wait for a possible opportunity to sell short.
The bottom line here is that we are anticipating a very major correction in the broad stock market from a top that could happen anytime between now and the first half of 2020. We want to sell short near that top, however, significant rallying could happen before that top is in.
Both gold and silver made new weekly (and yearly) highs yesterday negating our bearish divergence signal. Nevertheless, both metal prices are dropping significantly today so we could be seeing a top and the start of the correction we've been waiting for (yesterday's top is in our reversal zone). If not, we could see still more rallying before the tops to the current medium-term cycles in both metals are in (they are due, even overdue now). The lack of a bearish divergence signal this week makes me think the tops are not in yet, but we shall see. We are still looking to buy the final corrective bottoms of the current medium-term cycles in both metals, and our price targets are still at $1450 and $17 for gold and silver, respectively. Still on the sidelines of gold and silver.