Last week's rally in the broad stock market looked promising early in the week, but then it collapsed on Friday. The negative trend seems to be continuing this week as all three indices - DOW, S&P 500, NASDAQ - opened today with significant gap down losses. A deep correction could be underway. We note, however, that this market is falling steeply into the latter half of our strong reversal zone (Jan. 11 - 21), so a bottom could be imminent (by the end of this week). The alternative to a bottom would be a total "breakdown". (Usually reversal zones contain reversals - up from bottoms or down from tops - but sometimes they will correspond to "breakdowns", i.e. a continuation of a correction, or "breakouts", i.e. a continuation of a rally.) The chances of a breakdown here seems high as we now have many bearish technical signals in the charts of all three indices.
What we can do now is watch for signs of support that might indicate the correction is over and a new rally about to begin. Any such bottom would be due by the end of the week. If the market continues to fall next week, the window for a reversal would be over, and that would mean a deeper correction is in progress. The DOW might find support around 35,200 and the S&P 500 around 4,530. To be bearish, the NASDAQ now has to break below last week's low of 14,530. After that, there is strong support around 14,180. If any of these levels hold into the end of the week, we will have to consider the possibility that the correction is over. We are still holding our short position in the NASDAQ, but will consider covering and taking profits (we have a 7% profit so far since Jan. 1) on this trade if the support levels mentioned above can hold.
The cycles of gold and silver are still unclear (there are several possibilities), but regardless of their cycles, both metals have been rising into a strong precious metal reversal zone (Jan. 11 - 20, same as for equities). Gold prices made a high last Friday at $1828. Silver made a new weekly (and monthly) high today (without gold) at $23.58. This is setting up a strong case of intermarket bearish divergence within this reversal zone. A significant correction could therefore be imminent. We will watch for a corrective drop and a possible chance to buy (as long as the correction doesn't go too low). We are still on the sidelines of gold and silver.
The U.S. Dollar Index seems to be rallying from a low on Friday. While this rally could be short-lived, it could be enough to depress precious metal prices into a sub-cycle correction. We will watch this carefully now.
Crude oil continues its bullish rise despite the recent turn down in the broad stock market. It seems that crude started a new medium-term cycle (and possibly a longer-term cycle) from its low of $62.26 on Dec. 2 (Feb. contract chart). Its steep rise from there has been extremely bullish, but prices are now peaking in a reversal zone specifically for crude (Jan. 11 - 20, same as for gold and silver). It's certainly too late to chase this rally, so we will wait for a corrective drop to possibly buy. Some sort of correction could be imminent from a high between now and Thursday. We will watch for it. Still on the sidelines of crude oil.