As we start the first trading day of the new year and leave the "Santa Claus" rally of 2023 behind us, will equity markets now take a long overdue "breather" and give us a significant sub-cycle correction? At the time of this writing (around 2:30 pm EST), the DOW seems reluctant to fall, but the S&P 500 and especially the NASDAQ are taking significant dives. Perhaps the NASDAQ will lead this correction as it is already breaking below its 15-day moving average. Our minor reversal zone from last week extends through Friday this week, so it's possible we could see another top in the DOW, but most likely not in the NASDAQ or S&P 500. It seems like a correction has started, so we will wait to see how far it will go. Ideally, we want to see a correction fall at least between the 15-day and 45-day moving averages, but it could go lower - even below the 45-day moving average (now around 35,642 and 4,546 in the DOW and S&P 500, respectively) and still remain bullish. As long as it doesn't go too low, we will likely be looking to buy this sub-cycle bottom (if it happens) as this market still looks bullish - at least into the early part of this new year. For now we remain on the sidelines of the broad stock market.
Gold and silver prices still seem reluctant to rally, and both may be rolling over now. Last week's high in gold ($2088 on Dec. 28) and silver's high of $24.57 on Dec. 22 may have been sub-cycle tops. If so, prices are now headed lower to the final medium-term cycle bottoms in both metals. We note, however, that the U.S. Dollar Index is surging to a new weekly high inside a reversal zone specifically for currencies (Jan. 1 - 9). If the dollar reverses back down from a high this week or early next week, gold and silver prices could surge up and challenge those late December highs. Whatever happens, we will wait on the sidelines of both metals for their final medium-term cycle lows before we think about buying.
Our long position in crude oil is testing our first stop loss level at $70 (Feb. contract chart) today. Prices broke through the 15-day moving average last week but then closed below it, so that is now resistance. Prices are thus trapped between support around $70 and resistance around $72.50. For now, I am going to maintain my long position with the idea that this resistance line will break again with prices moving up for a second attempt to break the 45-day moving average. Again, our stop loss for this trade is based on a close below $70 or a close below $67.98 depending on your risk tolerance.