Last Friday I commented on that day's 600 point drop in the DOW triggered by the Trump administration's announcement of more trade tariffs:
"Considering the roller coaster nature of this market right now, it's hard to tell if today's 600 point drop in the DOW is just another 'knee-jerk" reaction to the news. The DOW, S&P 500, and NASDAQ are not making new lows and are bouncing a bit at the day's close so it could very well be."
And it looks like it was a temporary "knee-jerk" reaction as yesterday's and today's DOW rally is negating that 600 point drop. We are now in the dead center of a strong reversal zone for equities. If this rally can edge higher and exceed last week's highs, it could make a top this week that would be a good point to sell short. The DOW, S&P 500, and NASDAQ are all close to breaking their highs from last week. If one or two of these indices, but not all three, make new highs, then we will have bearish divergence and a good signal for a short sell. A good target for the top of this current rally would be around 25,000 in the DOW and 2,700 in the S&P 500.
Our current view of the broad stock market (and the medium-term cycles that began Feb. 9 in all three indices) is bearish. In order to stay bearish, any rally now should not exceed 25,800 in the DOW or 2,802 in the S&P 500. As long as we stay below those highs, equities should be pointed down for at least another month and likely longer (possibly into July). Still on the sidelines of the broad stock market.
Gold and silver prices are also rallying today, but they are rising directly into the center (today) of another reversal zone that is specifically relevant to the precious metals. Gold and especially silver prices are now approaching last week's highs. If one metal (probably silver) breaks its high and not the other, we would have a bearish divergence (sell) signal in a reversal zone. Because of this, I am reluctant to buy silver now. If prices do back down with this reversal, it may give us a better spot to buy. (See yesterday's blog on the case for buying silver and gold soon). Holding my long position in gold but still out of silver.
Taking its cues from the broad stock market (and also from recent saber rattling between the U.S. and Syria), crude oil is rallying strongly today. Instability in the Middle East is always a wild card factor in oil price movements.
If tensions between the the U.S., Syria, and of course, Russia start to increase, it could drive a spike in crude prices.
In terms of crude's current medium-term cycle, there is still time for crude to make a final cycle high before falling steeply for a correction into the final cycle bottom. If this rally gains legs, it may do that, but it first has to clear the recent cycle high at $66.55 (May contract chart). There is also a possibility that crude completed its recent cycle with last week's low of $61.81. If that is the case, we are just starting a new medium-term cycle which could be very bullish. I am favoring the first scenario (older cycle that is ready to correct down from a top) right now because this week and next are strong reversal periods for crude. It would fit the cycle pattern better to have a cycle top (and/or bottom) in this time period. We will stay on the sidelines for now but will watch for a significant top or bottom this week or next.