It's getting a little late for the DOW and S&P 500 to make a double bottom to the lows that started their new medium-term cycles on Feb. 9 (23,360 in the DOW and 2,532 in the S&P 500), although that is still possible, but the cycle timing is just about right for these indices to be making their first significant sub-cycle high followed by a significant correction. If the DOW and S&P 500 cannot break above their Jan. 26 all-time highs (26,617 and 2,873, respectively) as the NASDAQ continues to soar above its Jan. 26 all-time high (7,501) this week then we will have a very strong intermarket bearish divergence signal and possibly that first sub-cycle top. We will watch for this and a possible opportunity to sell short. Should both the DOW and S&P 500 break their all-time highs this week, however, that bearish divergence signal would be negated, and equities could rally into the end of the month before making any correction. In the longer-term, if we do get a correction down from a top this week and it holds above those Feb. 9 lows then we will likely see it followed by another rally to new all-time highs over the next several months (we would go long then). If those Feb. 9 lows break, however, we could see the opposite happen, i.e. a mulit-month sell-off in equities (and we would stay short). I realize all of these possibilities are a bit confusing, but I will identify any appropriate trading opportunities when they arise. Still on the sidelines of the broad stock market.
The short-term picture for gold and silver is still hard to call right now (the longer-term trend is still bullish). Today is the last day of the reversal zone and neither metal has made a new weekly low so we are not getting the bullish divergence signal we were hoping for. But there are also no strong bearish signals. Gold seems to be finding a line of support around $1320 and silver around $16.40. Both metals could now rally from those supports. If those supports start to break, and especially if gold breaks below $1304 and silver breaks below $16.18, we could see prices move lower into the end of the month or even into the first two weeks of April. For now I'm going to bet on these supports holding and stay with my long position in gold. (Let's base our stop loss for this trade on a close below $1304). We will remain on the sidelines of silver for now.
Last Thursday and Friday the U.S. Dollar Index attempted another assault on that strong band of resistance in the 90 - 91 area and backed down again. Because Friday was the center of a reversal zone for currencies, that could be a significant peak and this index could turn bearish now. There is another currency reversal zone coming up in the last week of this month, however, so we can't rule out the dollar attempting another charge on that resistance. As I've said several times before on this blog, if the dollar can't break above 91 soon, it could go into a severe decline. This bearish view of the dollar is supporting our longer-term bullish view of gold and silver.
Like the precious metals, crude oil (black gold) has been finding a line of support over the last two weeks (around $60 - April contract chart). We are now leaving crude's reversal zone (it end's today) so if prices start breaking below this support (and especially if crude breaks below $57.90), this market could be turning bearish and prices could be down for another three to seven weeks. If the broad stock market turns south now, it could take crude down with it. Staying on the sidelines of crude for now.