MARKETS UPDATE (9:30 pm EDST)
Last Wednesday Fed Chairman Jerome Powell gave a press conference following the announcement of a significant 1/2 point rise in benchmark interest rates. He tried to soften the blow of the hike with some dovish rhetoric, and this did boost equity markets into the closing bell on Wednesday. I commented in my blog that day:
"Powell's soothing rhetoric following the sharp rate increase boosted equity markets today, but will Wall Street's confidence last in the face of continuing inflation, rising oil prices and the ongoing Russia/Ukraine war? "
The answer to that question was "no". The broad stock market tumbled sharply on Thursday and Friday and continued lower yesterday (Monday). This sharp correction MAY be slowing down and leveling off today. After all, we are nearing the end of a strong general reversal zone (May 3 - 12), so some sort of bottom could be forming now. There are, however, currently some strong bearish signals in this market that we can't ignore.
It is most likely that all three of our stock market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles with their lows on Feb.24 (the NASDAQ actually made a "double" low/bottom on Feb. 24 and March 14). All three indices are now breaking below those lows. This means the medium-term cycles are likely turning bearish. Even if they form significant sub-cycle bottoms this week and start to rally, it is unlikely the rally will get very far before turning down again. If we do get a rally now, it would most likely top out in our NEXT significant reversal zone coming up May 26 - June 3. (If instead markets panic this week and sell off some more, that reversal zone could end up corresponding to a significant new low instead of a high.) Needless to say, I am not anxious to buy the potential bottom forming now. If these indices can start closing above their March 29 highs (35,370, 4,638, and 14,647 in the DOW, S&P 500, and NASDAQ, respectively), it's possible they could turn bullish again. But right now that doesn't look likely. Our strategy now will be to look for a significant top to sell short - possibly in that next reversal zone at the end of this month and first week of June. It is starting to look like a LONG-TERM top in equity markets formed in early January in the DOW and S&P 500 and in November 2021 in the NASDAQ. If true, that means a major long-term correction in equities has already started. We remain on the sidelines of this market for now.
There are two possible scenarios for both gold and silver right now. Both metals could be about to form their final bottoms to older medium-term cycles. But it is more likely that they both started new, younger medium-term cycles with their lows of $1892 (gold) and $24.02 (silver) on March 29. In this case, both gold and silver have turned bearish because they are now well below those starting points. We are now at the center of a reversal zone specifically for these metals (May 4-12) and prices are falling. A sub-cycle low could form by Thursday with a rally to follow. If these are young cycles (as I think), then that rally should not go far before turning down again. If any rally in either metal lasts over 8 days and starts to look strong and steep, we may have to assume an older cycle bottomed and that prices could be headed for new highs. I don't think that will happen, but we should be aware of the possibility. For now we'll assume that these cycles are bearish, and we may look for shorting opportunities at the top of any short-term rally. As with the broad stock market, a long-term correction in gold may already be underway from a potential "double-top" that formed in August 2020 and March 2022 around $2070. We are still on the sidelines of both gold and silver.
Speaking of "double-tops", we have previously identified a double-top high in the long-term 15-16 year cycle in the U.S. Dollar Index (103.82 from Jan. 2017 and 102.99 from March 2020). This index has been testing those highs again over the last two weeks, and it could be forming a 'triple-top" high here (very bearish). There seems to be a strong line of resistance at 104. On Monday, the greenback made a new high at 104.19 - right in the center of a reversal zone specifically for currencies (May 5-13). It is also very late in the current medium-term cycle of the dollar which means a final top is due (overdue) anytime now. The dollar could be ready to turn over now and start a steep correction down. If that happens, it could give a lift to gold and silver prices. As I've mentioned in recent updates on the U.S.Dollar Index, if the greenback can't rise significantly above 104, we may be back on track for the final correction to the final bottom in the long-term 15-16 year cycle due in 2023 - 2025, possibly in the 55 - 60 range.
Crude oil most likely started a new medium-term cycle with its low of $92.60 on April 11 (June contract chart). This new cycle will be bullish if it can break above $115. It made a high of $111.37 last week, but prices seem to be falling this week (so far). If this corrective dip goes too low, the cycle may turn bearish. (We don't want to see a close below $94.) Let's stay on the sidelines of crude for now. If prices don't go too low this week, we may consider going long. If prices can break above $115, we could see a rally go as high as $145 - $150.
Last Wednesday Fed Chairman Jerome Powell gave a press conference following the announcement of a significant 1/2 point rise in benchmark interest rates. He tried to soften the blow of the hike with some dovish rhetoric, and this did boost equity markets into the closing bell on Wednesday. I commented in my blog that day:
"Powell's soothing rhetoric following the sharp rate increase boosted equity markets today, but will Wall Street's confidence last in the face of continuing inflation, rising oil prices and the ongoing Russia/Ukraine war? "
The answer to that question was "no". The broad stock market tumbled sharply on Thursday and Friday and continued lower yesterday (Monday). This sharp correction MAY be slowing down and leveling off today. After all, we are nearing the end of a strong general reversal zone (May 3 - 12), so some sort of bottom could be forming now. There are, however, currently some strong bearish signals in this market that we can't ignore.
It is most likely that all three of our stock market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles with their lows on Feb.24 (the NASDAQ actually made a "double" low/bottom on Feb. 24 and March 14). All three indices are now breaking below those lows. This means the medium-term cycles are likely turning bearish. Even if they form significant sub-cycle bottoms this week and start to rally, it is unlikely the rally will get very far before turning down again. If we do get a rally now, it would most likely top out in our NEXT significant reversal zone coming up May 26 - June 3. (If instead markets panic this week and sell off some more, that reversal zone could end up corresponding to a significant new low instead of a high.) Needless to say, I am not anxious to buy the potential bottom forming now. If these indices can start closing above their March 29 highs (35,370, 4,638, and 14,647 in the DOW, S&P 500, and NASDAQ, respectively), it's possible they could turn bullish again. But right now that doesn't look likely. Our strategy now will be to look for a significant top to sell short - possibly in that next reversal zone at the end of this month and first week of June. It is starting to look like a LONG-TERM top in equity markets formed in early January in the DOW and S&P 500 and in November 2021 in the NASDAQ. If true, that means a major long-term correction in equities has already started. We remain on the sidelines of this market for now.
There are two possible scenarios for both gold and silver right now. Both metals could be about to form their final bottoms to older medium-term cycles. But it is more likely that they both started new, younger medium-term cycles with their lows of $1892 (gold) and $24.02 (silver) on March 29. In this case, both gold and silver have turned bearish because they are now well below those starting points. We are now at the center of a reversal zone specifically for these metals (May 4-12) and prices are falling. A sub-cycle low could form by Thursday with a rally to follow. If these are young cycles (as I think), then that rally should not go far before turning down again. If any rally in either metal lasts over 8 days and starts to look strong and steep, we may have to assume an older cycle bottomed and that prices could be headed for new highs. I don't think that will happen, but we should be aware of the possibility. For now we'll assume that these cycles are bearish, and we may look for shorting opportunities at the top of any short-term rally. As with the broad stock market, a long-term correction in gold may already be underway from a potential "double-top" that formed in August 2020 and March 2022 around $2070. We are still on the sidelines of both gold and silver.
Speaking of "double-tops", we have previously identified a double-top high in the long-term 15-16 year cycle in the U.S. Dollar Index (103.82 from Jan. 2017 and 102.99 from March 2020). This index has been testing those highs again over the last two weeks, and it could be forming a 'triple-top" high here (very bearish). There seems to be a strong line of resistance at 104. On Monday, the greenback made a new high at 104.19 - right in the center of a reversal zone specifically for currencies (May 5-13). It is also very late in the current medium-term cycle of the dollar which means a final top is due (overdue) anytime now. The dollar could be ready to turn over now and start a steep correction down. If that happens, it could give a lift to gold and silver prices. As I've mentioned in recent updates on the U.S.Dollar Index, if the greenback can't rise significantly above 104, we may be back on track for the final correction to the final bottom in the long-term 15-16 year cycle due in 2023 - 2025, possibly in the 55 - 60 range.
Crude oil most likely started a new medium-term cycle with its low of $92.60 on April 11 (June contract chart). This new cycle will be bullish if it can break above $115. It made a high of $111.37 last week, but prices seem to be falling this week (so far). If this corrective dip goes too low, the cycle may turn bearish. (We don't want to see a close below $94.) Let's stay on the sidelines of crude for now. If prices don't go too low this week, we may consider going long. If prices can break above $115, we could see a rally go as high as $145 - $150.
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