It is the day after the Labor Day holiday week-end and the broad stock market is falling. Wall Street has lost the optimism of the holiday, but will this persist and lead to a bigger sell-off? Maybe...or maybe not.
We have been anticipating a final medium-term cycle bottom in all three of our market indices (DOW, S&P 500, NASDAQ). The lows of Aug. 25 in the DOW (34,029) and Aug. 18 in the S&P 500 and NASDAQ (4,336 and 13,162, respectively) may have already been the final bottoms (there was bullish divergence between the DOW and the other two indices), but if this market falls hard over the next several days, we could possibly get new lows. At the moment, this seems most possible in the DOW, but even that index would have to fall hard for a new low by Friday (the last day of our current reversal zone). I think it is more likely those August lows were the final cycle bottoms and we have already started new medium-term cycles in all three indices.
If these are new medium-term cycles, we should now be looking to go long as new cycles are usually bullish in their early phase. But where would be a good spot to buy? There is another general reversal zone coming up next Wednesday (Sept. 13 - 21). If these indices move lower into that time frame, it might be a good buy spot (even if prices stay above those Aug. lows). But these indices could also rally into next week's reversal. In that case, we would wait for another turn down and try to buy that low. If we miss our chance to buy close to the start of any new medium-term cycle, we will not chase any rallies as the next medium-term cycle top should be followed by a very steep correction, and we will want to sell short at that top, For now, we remain on the sidelines of the broad stock market.
Gold prices seem to be falling from last Friday's high at $1950. That high was on the last day of a reversal zone specifically for the precious metals. There was a weak potential "pivot point" for gold today, and there is another weak gold pivot point this Friday. Aside from these pivot points, the next strong reversal zone for both gold and silver is coming up next Wednesday (Sept.13 - 21 ; it overlaps exactly with the general reversal zone mentioned above for equities). Today gold broke below its 45-day moving average, but it is still above its 15-day moving average. Gold could turn up and/or down on this week's "pivot points", but we are more interested in how it moves into next week's reversal zone.
Gold rallied from a significant low ($1885) it made on Aug. 21, but we still don't know if that low was the start of a new medium-term cycle or if it was the mid-point sub-cycle correction of an older medium-term cycle that started on June 29 (at $1894). If the latter, the cycle has turned bearish (as it has broken below its starting point) and prices should be headed well below $1885 as the cycle moves to its final bottom. If Aug. 21 started a new cycle, then prices could be very bullish and headed back up to challenge or even break above the all-time high of $2070. Let's wait to see how prices move into next week's reversal zone. We will stay on the sidelines of gold until the cycle labeling becomes more clear.
Silver prices have been falling steeply from last Wednesday's high at $24.98, and prices are now back below both the 15-day and 45-day moving averages. In Thursday's blog on silver I wrote:
"We are still going with the labeling that silver's current medium-term cycle started with the low of $22.12 on June 23. From there, silver rallied strongly to a high of $25.26 on July 20. Prices then fell sharply back to $22.31 on August 21, very close - but not below - the start of the cycle. From that low, silver has been rising strongly again..."
But silver didn't get above Wednesday's High at $24,98, and it has been falling steeply from there.
I also wrote on Thursday:
"Even though this cycle's initial rally into July 20 was strong and steep (bullish), the fact that it turned back down and made a significant sub-cycle correction very close to the start of the cycle was bearish. (We note, however, that the cycle trend didn't technically turn bearish because that sub-cycle low did not break BELOW the start of the cycle.) So we are getting mixed signals about the trend of this cycle. If prices start closing above $25.26, the trend will be bullish with new highs ahead; but if prices roll over before exceeding $25.26, the trend will turn bearish with prices headed lower."
Well, it look like prices may be rolling over before hitting $25.26. But today could have been a "pivot point" for silver. If prices snap back up, they could still challenge and exceed $25.26. The bottom line here is that a close above $25.26 could turn silver's trend bullish, but a close below the Aug. 21 low of $22.31 would turn the cycle bearish. As with gold, it is probably best to remain on the sidelines until a more definitive trend is established.
It looks like crude oil may have started a new medium-term cycle with its low of $77.59 on Aug. 24 (October contract chart) based on its steep rise from that low. But we are now in the center of another reversal zone specifically for crude (Sept.1 - Sept. 11). We may have made a top today at $88.07. Prices could edge a bit higher over the next several days, but a top and corrective drop seems imminent. If this is a new medium-term cycle, we would expect only a modest correction, but it's still possible the older cycle is in place. If it is, prices could drop lower and finally touch or break below the 45-day moving average to satisfy the requirement of a medium-term cycle bottom. Either way, we are looking to buy the bottom of any correction as crude looks to be very bullish into the end of this year. Next week's general reversal zone (Sept. 13 - 21) would be a good place to look for a bottom. We are on the sidelines of crude for now.