MARKETS UPDATE (10:30 pm EST)
It is still possible that all three of our broad stock market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles with their lows on Jan. 24. But even if that's the case, the new cycles could still turn bearish. The rallies from those lows so far are still not giving us a definitive trend up or down. We are now inside a very wide reversal zone for all markets (Jan. 28 - Feb. 16) with two potential "pivot points" for likely reversals (Feb. 3 and Feb. 7). (The Jan. 24 bottoms were not in a reversal zone and there was no bullish divergence between these indices on that day. This is why I am reluctant to confirm that low as a new medium-term cycle bottom - although it is possible).
Last Wednesday's high in all three indices WAS in our reversal zone (and close to the Feb. 3 pivot point), so it could be a very significant turning point. The markets fell strongly from there. The markets are rallying today, but they may not be able to get back above last week's highs. Even if they do, we are near our second pivot point (Feb. 7) and are in this reversal zone through the middle of next week, so another top and reversal could be imminent to turn the trend bearish.
Let me repeat from last week:
"We note that currently the NASDAQ has dropped nearly 20% from its all-time high, the DOW about 10%, and the S&P 500 around 12%. These are big corrections, but if we are still completing a 90 year cycle in equities, these indices could go a lot lower. The behavior of stock markets in January is often a bellwether for how the markets will perform for the rest of the year. January's performance has been dismal. This doesn't bode well for the rest of 2022."
Right now the DOW seems to have the most bullish potential, and next would be the S&P 500. The NASDAQ seems the most bearish at the moment, which is good because we are still holding our short position there. I don't think we have to think about covering this position until last week's high (14,505) is exceeded. Similarly, we will maintain our bearish outlook in the DOW and S&P 500 until their highs from last week are broken (35,680 and 4,596. respectively). We will hold our short position in the NASDAQ for now.
Last week silver made a new weekly low but gold did not, and that gave us a bullish divergence signal within our reversal zone for the precious metals. We are now out of that reversal zone but still within our general reversal zone for all markets which ends next week on Wednesday. Another top could form by then, but it's also possible that last week's low in silver and the prior week's low in gold were significant sub-cycle bottoms. The trend here is still uncertain, but it may be turning bullish. We will stay on the sidelines of this market for now.
There was a reversal zone specifically related to currencies Jan. 27 - Feb. 4.
Last Friday (Feb. 4), the U.S. Dollar Index made an isolated low at 95.14, and it has been rising (weakly) from there. If that was a significant sub-cycle bottom, we could see more rallying. A strong rally in the dollar now could turn gold and silver prices back down and support a bearish view of the metals. Let's wait and see if this happens.
Last Friday crude oil prices made a top at $93.17 (March contract chart) in the center of a reversal zone specifically for crude. Prices have been falling from there, and today was the last day of that reversal zone. That high was likely a significant sub-cycle top. The only problem here is that it may be too early in this current sub-cycle (which started with the low of $81.90 on Jan. 24 for a significant correction. If prices drop into the $84 - $86 range, we may consider going long. Otherwise, we may have to wait for a higher top before we see a significant corrective drop to buy. We will stay on the sidelines of crude for now.
It is still possible that all three of our broad stock market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles with their lows on Jan. 24. But even if that's the case, the new cycles could still turn bearish. The rallies from those lows so far are still not giving us a definitive trend up or down. We are now inside a very wide reversal zone for all markets (Jan. 28 - Feb. 16) with two potential "pivot points" for likely reversals (Feb. 3 and Feb. 7). (The Jan. 24 bottoms were not in a reversal zone and there was no bullish divergence between these indices on that day. This is why I am reluctant to confirm that low as a new medium-term cycle bottom - although it is possible).
Last Wednesday's high in all three indices WAS in our reversal zone (and close to the Feb. 3 pivot point), so it could be a very significant turning point. The markets fell strongly from there. The markets are rallying today, but they may not be able to get back above last week's highs. Even if they do, we are near our second pivot point (Feb. 7) and are in this reversal zone through the middle of next week, so another top and reversal could be imminent to turn the trend bearish.
Let me repeat from last week:
"We note that currently the NASDAQ has dropped nearly 20% from its all-time high, the DOW about 10%, and the S&P 500 around 12%. These are big corrections, but if we are still completing a 90 year cycle in equities, these indices could go a lot lower. The behavior of stock markets in January is often a bellwether for how the markets will perform for the rest of the year. January's performance has been dismal. This doesn't bode well for the rest of 2022."
Right now the DOW seems to have the most bullish potential, and next would be the S&P 500. The NASDAQ seems the most bearish at the moment, which is good because we are still holding our short position there. I don't think we have to think about covering this position until last week's high (14,505) is exceeded. Similarly, we will maintain our bearish outlook in the DOW and S&P 500 until their highs from last week are broken (35,680 and 4,596. respectively). We will hold our short position in the NASDAQ for now.
Last week silver made a new weekly low but gold did not, and that gave us a bullish divergence signal within our reversal zone for the precious metals. We are now out of that reversal zone but still within our general reversal zone for all markets which ends next week on Wednesday. Another top could form by then, but it's also possible that last week's low in silver and the prior week's low in gold were significant sub-cycle bottoms. The trend here is still uncertain, but it may be turning bullish. We will stay on the sidelines of this market for now.
There was a reversal zone specifically related to currencies Jan. 27 - Feb. 4.
Last Friday (Feb. 4), the U.S. Dollar Index made an isolated low at 95.14, and it has been rising (weakly) from there. If that was a significant sub-cycle bottom, we could see more rallying. A strong rally in the dollar now could turn gold and silver prices back down and support a bearish view of the metals. Let's wait and see if this happens.
Last Friday crude oil prices made a top at $93.17 (March contract chart) in the center of a reversal zone specifically for crude. Prices have been falling from there, and today was the last day of that reversal zone. That high was likely a significant sub-cycle top. The only problem here is that it may be too early in this current sub-cycle (which started with the low of $81.90 on Jan. 24 for a significant correction. If prices drop into the $84 - $86 range, we may consider going long. Otherwise, we may have to wait for a higher top before we see a significant corrective drop to buy. We will stay on the sidelines of crude for now.
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