All three of our broad stock market indices (DOW, S&P 500, NASDAQ) made deep lows last Thursday and have snapped back up from those lows. The cycle labeling of these indices is ambiguous at the moment - there are several possibilities. It's possible that last week's lows represent the final bottoms to old medium-term cycles. If that's the case, this market could be at least short-term bullish and starting a rally that could test the recent February highs. But it's also possible that the current medium-term cycles in these indices have NOT bottomed yet and are still headed lower. Several short-term technical indicators are supporting this idea, and we also note that last week's low was not in a significant reversal zone (we like to see major cycle bottoms in reversal zones). There is a significant reversal zone, however, starting this week (March 1 -10), and we entered it today. This leads me to think that we could get a deeper low in this new reversal zone. Even if the market rallies some more, it is now doing so in the reversal zone, and that could curb the rally early and push it back down. All three indices are down today. Let's hold on to our short position in the NASDAQ a bit longer.
As the broad stock market plunged last week and reached its nadir on Thursday, nervous investors seemed to jump into the "safe haven" of precious metals as gold and silver prices shot up dramatically Thursday morning. Gold got to $1972 and silver touched $25.56 before both fell back by the end of the day to previous day levels. The Russia/Ukraine crisis is increasing the volatility of all financial markets right now. Today, both metal prices are surging up again. We are going to stay on the sidelines of this volatile market for now.
Please see last week's blog for my comments about gold's 23-year long-term cycle. Gold is now challenging a strong resistance zone around $1900 - $1960. If it can break through that, we could see a "blow-off" top to the long-term cycle that could challenge and even exceed the all-time high of $2070. That's why we are keeping an eye out for a significant corrective low to buy. So far, we haven't gotten one, If gold OR silver can exceed last week's high without the other, we may get a bearish divergence signal in this new reversal zone this week or next week which could lead to a top and some sort of correction.
We note that recently the U.S. Dollar Index has been rising WITH gold and silver prices (usually the greenback and precious metals move in opposite directions). This is a sign that investors and traders are getting concerned and nervous about equity market stability, and they may be moving funds to both precious metals and the U.S. Dollar as perceived safe havens in these geopolitically unstable and financially volatile times.
Readers may recall that during the 2008 - 2009 stock market "crash", investors chose the greenback as their preferred "safe haven". The U.S. dollar surged in that time frame as gold and silver prices took a dive. Once the bottom to the crash stabilized in early 2009, however, precious metal prices rallied sharply to new all-time highs over the next 2 years as investors realized the intrinsic value of these metals over U.S. "fiat" currency.
If our current prediction of a possible long-term "crash" in the broad stock market unfolds now (it may already be underway), we may see a repeat of 2008 - 2009 with a quick and sharp drop in gold and silver prices - especially since a final sharp correction to a 23-year cycle bottom in gold is now due (see my GOLD Update on the Home Page). On the other hand, if savvy investors favor precious metals as a safe haven this time around, we could instead see a sharp surge and possible "blow-off" top form in gold before its final descent to the 23-year cycle bottom. We will be monitoring all of this very carefully over the next month or two.
The "wildcard" factor of geopolitical instability has always been a major influence on crude oil prices, and we are certainly seeing this now as crude skyrocketed to a new high of $108.97 today (April contract chart). As with the precious metals, we haven't had a significant correction to buy in to, but considering the potential volatility of this market now (it can go down as fast as it is going up), it's perhaps best to remain on the sidelines for now. A significant corrective drop in this market is overdue. We may see a top form in our new general reversal zone (March 1 - 10), or we could also see a top form in our next reversal zone specifically for crude coming up March 4 - 14. There is overlap between the two March 4 - 10. We may see a top or bottom (or both) in crude any time in this entire two week time period (March 1 - 14). This market looks very bullish now, but if the Russia/Ukraine crisis deescalates, we could see crude prices drop rapidly.