Last week's jobs report stated that 151,000 non-farm jobs were generated in January which was much less than the 180,000 that analysts had been expecting. Wages rose sharply, however, and the unemployment rate dropped below 5% (to 4.9%) for the first time since 2008. Thus the report contained both good news and bad news. Jittery Wall Street investors, however, seemed mostly focused on the bad news as the DOW lost 211 points on Friday, and that bearish sentiment may be continuing into this week.
We are now at the dead center of our current reversal zone (which ends on Friday), and the broad stock market has still not decisively declared a new high or new low. There is still time for the DOW to move below its 15,450 low from Jan. 20 and especially for the S&P 500 to move below its Jan. 20 low of 1812. If that happens this week, it could mean that an old cycle is bottoming, and we would probably look to buy the start of a new medium-term cycle. If instead this market rallies strongly over the next few days and exceeds last week's highs, we would go back to the idea of selling short a cycle peak. A third possibility now is that the new medium-term cycle began on Jan. 20 and already peaked on Feb. 1. If that is the case, this market is very bearish and is headed lower for at least ten more weeks. The argument against that idea is that Feb. 1st was not technically within a reversal period. We should remain on the sidelines until one of these patterns more clearly asserts itself. If we don't see a clear turning point this week, then Feb. 20 (+/- a few days) could be another date to watch for a definitive bottom to buy or a top to sell. Still on the sidelines of the broad stock market.
Yesterday we entered a short position in gold to take advantage of what could be a brief but sharp correction down from a strong peak forming in the center of our current reversal zone. Both gold and silver prices have been surging dramatically into what could be a "blow-off" top. Gold has already exceeded its high from last October, but silver has not so this could be a strong case of intermarket bearish divergence. The cycle pattern in gold and silver is a little complex right now, but based on several technical and timing parameters one likely scenario would be as follows: Gold and silver could take a sharp correction right now or push a bit higher into early next week and then take that correction (targets for the correction could be $1110 - $1120 in gold and $14.20 in silver). Both metals could then rally sharply again towards their previous highs or above and then turn down again for another major correction to the end of the current cycle. For now, we will use this as our outline for trading. The imminent correction and subsequent rally could happen quickly and will likely involve short-term trading. Longer-term traders may wish to wait for the second correction described above to sell short. I am avoiding trading silver for now because it is more volatile than gold and our current trade strategy is short-term. We may short sell both gold and silver if and when these metals take their second correction. Stay tuned. Holding my short position in gold but still out of silver.
Crude oil prices have broken below our first stop loss level at $30 so some traders may already be stopped out. I am still holding my long position and watching our second stop loss point at the Jan. 20 low of $27.56 (March contract). We are in the center of the current reversal zone so we could be making a double bottom to that Jan. 20 low before turning up. If not, and prices go lower past this week, we will have to step aside and wait a little longer (perhaps into early March) for the cycle bottom and then look to buy again. Holding my long position in crude for now.