IMPORTANT UPDATES ON GOLD, SILVER, AND THE BROAD STOCK MARKET (11:30 pm EDT)
The lows in the broad stock market indices on Aug. 5 (38,499 in the DOW, 5,119 in the S&P 500, and 15,713 in the NASDAQ) may have been the final bottoms to their medium-term cycles. From its all-time high on July 18, the DOW fell for 2 weeks and lost 7%. The S&P 500 fell from its all-time high on July 16 for 3 weeks and lost about 10%. The NASDAQ fell from its all-time high on July 11 almost 4 weeks before hitting its Aug. 5 bottom with a 15.8% loss.
Usually the move from the final top to the final bottom in a medium-term cycle lasts 2 - 5 weeks, so all three indices fit this requirement with their Aug. 5 lows. We note that we are also expecting a longer-term 4-year cycle bottom with a 16% - 26% drop. While the NASDAQ came close with a 15.8% drop, the other two indices fell short, so the 4-year bottom is still ahead, and most likely due by the end of the year.
If we assume Aug. 5 to be a medium-term cycle bottom, all three indices are now rallying to the next top of a new medium-term cycle. If this next cycle is going to be bullish, we can expect to see new all-time highs soon. But we note that this rally is now rising into a new strong general reversal zone (Aug. 13 - 22), and all three indices are still well below their mid-July all-time highs. This means there's a good chance this rally will turn back down this week or next before making new highs, and the new cycle will turn bearish.
The chance of one (or more) index (indices) making a new all-time high before the end of next week is small, but we can't completely rule out that possibility. However, even if that happens, we are still expecting a 4-year cycle high by the end of this month (if it did't already happen in July) and a subsequent fall of 16% - 26% to the 4-year cycle bottom by the end of the year.
I entered a short position in the DOW last Thursday. Based on the above analysis, I am holding this position. Today's rally pushes us a bit into the red, but there is some resistance at 40,000 as we move into the center of this new reversal zone. A weekly close above 40,000 may coax me out of my short trade, but unless the current rally starts to look like a "break-out" type that can overcome a strong reversal zone, I am more inclined to stay short. Holding my short position in the broad stock market for now.
Both gold and silver are also ready to take deep corrections into longer-term cycle bottoms. In the case of gold, we expect the end of the current medium-term cycle to also correspond to the end of a longer-term (50 week) cycle. This means the drop from the current medium-term cycle's top to its final bottom will be deeper than normal. We are now a little past the center of the current medium-term cycle in gold. The final top of this cycle could have been the July 17 high at $2481. Prices are challenging that top today, but as with the broad stock market, this rally is pushing into a new strong reversal zone for the metals (Aug. 13 - 22). A new top (or double-top) and a strong reversal back down could be imminent. Once the correction starts, we would expect prices to fall close to $2300 and maybe even $2250 for the final bottom sometime between September and October. That final bottom will most likely be a good spot to buy. For now, we remain on the sidelines of gold.
Silver's current cycle situation is a bit more dramatic than gold's because silver is nearing the end of a very long-term 4-year cycle. The end of that cycle could correspond to the end of the current medium-term cycle or possibly the next one. A general price target for the bottom of the 4-year cycle would be $20 - $24, and it would ideally be due by the end of this year. It is still fairly early in the current medium-term cycle in silver, which started with the June 26 low of $28.62, but the cycle has already turned bearish because prices have moved well below that low. This means prices should be moving lower until the final bottom is reached. I entered a short position in silver on Aug. 1 at $28.50. Prices fell sharply from there to a low last Thursday at $26.52. From that low, prices have bounced slightly, but they are encountering resistance around the 15-day moving average. We have just entered another strong reversal zone which should put a damper on any more rallying and turn prices back down. I am going to hold my short position in silver as we expect lower prices ahead based on the cycle analysis just discussed.
The lows in the broad stock market indices on Aug. 5 (38,499 in the DOW, 5,119 in the S&P 500, and 15,713 in the NASDAQ) may have been the final bottoms to their medium-term cycles. From its all-time high on July 18, the DOW fell for 2 weeks and lost 7%. The S&P 500 fell from its all-time high on July 16 for 3 weeks and lost about 10%. The NASDAQ fell from its all-time high on July 11 almost 4 weeks before hitting its Aug. 5 bottom with a 15.8% loss.
Usually the move from the final top to the final bottom in a medium-term cycle lasts 2 - 5 weeks, so all three indices fit this requirement with their Aug. 5 lows. We note that we are also expecting a longer-term 4-year cycle bottom with a 16% - 26% drop. While the NASDAQ came close with a 15.8% drop, the other two indices fell short, so the 4-year bottom is still ahead, and most likely due by the end of the year.
If we assume Aug. 5 to be a medium-term cycle bottom, all three indices are now rallying to the next top of a new medium-term cycle. If this next cycle is going to be bullish, we can expect to see new all-time highs soon. But we note that this rally is now rising into a new strong general reversal zone (Aug. 13 - 22), and all three indices are still well below their mid-July all-time highs. This means there's a good chance this rally will turn back down this week or next before making new highs, and the new cycle will turn bearish.
The chance of one (or more) index (indices) making a new all-time high before the end of next week is small, but we can't completely rule out that possibility. However, even if that happens, we are still expecting a 4-year cycle high by the end of this month (if it did't already happen in July) and a subsequent fall of 16% - 26% to the 4-year cycle bottom by the end of the year.
I entered a short position in the DOW last Thursday. Based on the above analysis, I am holding this position. Today's rally pushes us a bit into the red, but there is some resistance at 40,000 as we move into the center of this new reversal zone. A weekly close above 40,000 may coax me out of my short trade, but unless the current rally starts to look like a "break-out" type that can overcome a strong reversal zone, I am more inclined to stay short. Holding my short position in the broad stock market for now.
Both gold and silver are also ready to take deep corrections into longer-term cycle bottoms. In the case of gold, we expect the end of the current medium-term cycle to also correspond to the end of a longer-term (50 week) cycle. This means the drop from the current medium-term cycle's top to its final bottom will be deeper than normal. We are now a little past the center of the current medium-term cycle in gold. The final top of this cycle could have been the July 17 high at $2481. Prices are challenging that top today, but as with the broad stock market, this rally is pushing into a new strong reversal zone for the metals (Aug. 13 - 22). A new top (or double-top) and a strong reversal back down could be imminent. Once the correction starts, we would expect prices to fall close to $2300 and maybe even $2250 for the final bottom sometime between September and October. That final bottom will most likely be a good spot to buy. For now, we remain on the sidelines of gold.
Silver's current cycle situation is a bit more dramatic than gold's because silver is nearing the end of a very long-term 4-year cycle. The end of that cycle could correspond to the end of the current medium-term cycle or possibly the next one. A general price target for the bottom of the 4-year cycle would be $20 - $24, and it would ideally be due by the end of this year. It is still fairly early in the current medium-term cycle in silver, which started with the June 26 low of $28.62, but the cycle has already turned bearish because prices have moved well below that low. This means prices should be moving lower until the final bottom is reached. I entered a short position in silver on Aug. 1 at $28.50. Prices fell sharply from there to a low last Thursday at $26.52. From that low, prices have bounced slightly, but they are encountering resistance around the 15-day moving average. We have just entered another strong reversal zone which should put a damper on any more rallying and turn prices back down. I am going to hold my short position in silver as we expect lower prices ahead based on the cycle analysis just discussed.
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