Federal Reserve Chairman Jerome Powell may have "scrooged" this year's "Santa Claus" rally with his hawkish tone at December's FOMC meeting (equities plummeted following his speech on Dec. 14), but the DOW and S&P 500 may now be finding support for another rally into the new year.
We were looking for a drop in the broad stock market to test or break below the 45-day moving average this week or next, and we are getting that now. All three of our market indices (DOW, S&P 500, NASDAQ) are well below their 45-day moving averages and could be stabilizing near some strong support levels. (The S&P 500 and NASDAQ are right at strong support lines at 3,800 and 10,500, respectively; however, the DOW needs to drop a bit more to get close to its strong support at 32,000). The bottom of this sub-cycle correction is due anytime now through the first week of January, but since we are so close to our target lows, it will likely be this week or next. It would be nice to see a bullish divergence signal at the bottom of this sub-cycle. We won't get that this week (unless the NASDAQ can break below it's Oct. 13 low of 10,092 - it is close), but it could happen next week if one or two indices (but not all three) make a new weekly low. I'm tempted to buy now, but I think at least the DOW could move lower before it bounces. Let's stay on the sidelines today and see if these indices can drop a bit more over the next few days. If they reverse and rally from here, we can buy when they close back above the 45-day moving averages.
Gold started a new medium-term cycle with its low of $1617 on November 3. From there it has rallied strongly, but a significant sub-cycle correction is now due no later than this week. Last week's drop to $1775 on Thursday could have been it as it briefly tested the 15-day moving average. But prices did not get into our target range of $1720 - $1750, so we did not buy. A rally towards $1900 may be starting now, but last week's corrective drop only lasted 2 days (a bit short). We could still see another corrective drop that might take us closer to our target and give us a better spot to buy. Let's stay on the sidelines of gold for now.
In last Wednesday's blog on silver I wrote:
"Silver's current medium-term cycle is much older than gold's. It started with the low of $17.59 on September 1 and is into its 15th week. Like gold, silver's general trend looks very bullish right now, but there are also some short-term bearish signals suggesting a corrective drop is imminent - possibly the final corrective drop to the final bottom of the current medium-term cycle (which is due anytime now over the next six weeks). A good target for this correction would be the strong support line around $22. If silver prices drop close to this price over the next several weeks, we may look to buy as the next medium-term cycle could rally as high as $30, and possibly a little more."
Silver did drop last week for three days but only tested the 15-day moving average, and prices did not get very close to our target of $22. It's highly unlikely that was the final medium-term cycle bottom. The question now is whether or not silver can shoot up to $30 before correcting down again to that final bottom which is due anytime over the next 5 weeks. It's possible, but that would be a very steep rise over a short period of time. I'm going to be cautious here and bet on another corrective drop to the final medium-term cycle bottom before hitting $30. That would give us a safer potential spot to buy. We remain on the sidelines of silver.
In last Thursday's update on crude oil I wrote:
"It's still not clear if the current medium-term cycle in crude started with crude's Aug. 16 low at $84.31 or with the Sept. 26 low at $74.98. The Aug. 16 labeling would make the cycle older than the Sept. 26 labeling, but we note that in both scenarios, the cycle has turned bearish."
This is still the case. We remain in a reversal zone specifically for crude through Friday. I would like to see prices drop below $70 by then for a possible bottom to buy. If prices rally instead, we might see a top in this reversal zone and a subsequent correction back down. If prices really take off now and rally past Friday into next week, it could mean that the low of $70.08 on Dec. 9 was the end of the old (Aug. 16) medium-term cycle and the start of a new one. As one can see, there are several possibilities here, so we will remain on the sidelines until cycle labeling becomes more clear. My preference at the moment is to see crude prices fall closer to $65 over the next few weeks for a potential spot to buy. The longer-term view of crude is till quite bullish.