Last week the DOW and S&P 500 made new weekly highs but the NASDAQ did not. That gave us an intermarket bearish divergence signal. Today, the S&P 500 and NASDAQ are both making new weekly highs, but the DOW is not - another bearish divergence signal. We are still inside our new reversal zone (April 11- 21) through the end of this week, so all three indices have time to form a sub-cycle top in this time frame before correcting down. These two bearish divergence signals are a strong indicator of that correction being imminent. We will remain on the sidelines of the broad stock market and wait for that corrective drop for a possible spot to buy (which could come as early as next week).
Our corrective dips in gold and silver are finding some support near $2000 and $25, respectively. The rising 15-day moving average in both metals is also approaching these support lines and may strengthen them. Prices have been down for two days (from highs on Friday), and we like to see at least a three to eight day drop for a typical sub-cycle correction. We would also like to see the 15-day moving average broken and ideally silver down to at least $24 and gold to at least $1970. In terms of cycle timing, a sub-cycle bottom is due this week in gold and this week or next week in silver. Let's hold our short position in gold and stay on the sidelines of silver for now until we are closer to our target prices. We note that last week's highs did not manifest bearish divergence (i.e. both metals made new weekly and yearly highs), and bearish divergence is something we like to see before a significant correction. It's possible that one metal could pop up to another weekly high by the end of this week without the other doing so, and that could give us our bearish divergence signal. That is not, however, a necessary requirement for a sub-cycle correction.
Today is the 4th day of a corrective drop in crude oil prices (from last Wednesday's high at $83.53). Not surprisingly, crude is finding support at the recent "gap-up" top just above $80 (May contract chart). It's a bit early for a sub-cycle bottom, but if prices push lower into next week, we may get one then with a good spot to buy. If instead prices bounce from the current support ($80) and make a new high by the end of this week, that would be a better candidate for a sub-cycle top than last Wednesday's high. If that happens, we will wait for another corrective drop to buy.
As you can see, this market is a bit tricky to call at the moment. The bottom line here is that a new medium-term cycle began with the $64.36 low on March 20, and that was also most likely the bottom of a new long-term 3-year cycle in crude. This means that crude should be very bullish now with prices pointed up for many more months. We therefore want to go long on any significant corrective drops, and the first sub-cycle correction is imminent in our current medium-term cycle. Let's stay on the sidelines for now and see if we get a new high or new low by the end of the week.