Today Fed Chairman Jerome Powell delivered testimony to the U.S. Congress in which he said that the Fed is prepared to speedup interest rate rises. Not surprisingly, this hawkish news is pushing down equity markets and precious metal prices as it simultaneously boosts the U.S. dollar. But as always, we need to question how long the effect of Powell's rhetoric will last.
Our cycle analysis of the broad stock market is telling us that the final bottoms of the current medium-term cycles in the DOW and S&P 500 are due anytime now - most likely by the end of this month. Furthermore, we have a strong general reversal zone coming up next week and the following week (March 13 - 23) which would be a very good time for these cycle bottoms to happen. This leads me to think that the sharp rally in these indices from last week through Monday was a temporary relief rally and that both the DOW and S&P 500 are now headed back down to make new lows in our target ranges within this new reversal zone time frame. Those ranges were 30,500 -32,500 for the DOW and 3,600 -3,900 in the S&P 500. Last week the DOW just touched 32,500, and the S&P 500 only got down to 3,928, so there is plenty of room for these indices to go lower. Powell's hawkish statements may be just the thing to send them lower and deeper into our targets. Even if the rally resumes, it would be rising into our new reversal zone next week and probably wouldn't get very far before being turned down again. Let's continue to hold our short position in this market with the expectation of deeper lows over the next two weeks.
As with the broad stock market, we are also anticipating the final medium-term cycle bottoms in both gold and silver at any time now. Gold's cycle bottom is due by the end of this month in a target range of $1770 - $1810. Last week's low got to $1807, but that low was not inside any reversal zone. This week, we have a potential "pivot point" for gold Wednesday - Friday, and a strong reversal zone specifically for gold and silver coming up next week (March 13 - 21). Prices are falling strongly today (after Powell's hawkish statements), so I think they could move lower into our target range either this week or next for a final cycle bottom and a good spot to buy.
Silver's medium-term cycle bottom is now overdue, and today prices are plunging close to $20, which is the lower end of our target range of $20 - $22. We should be on the look-out for silver's final bottom, especially since we have a potential "pivot point" for silver now (Monday - Wednesday) as well as a strong reversal zone for the precious metals next week. Note that the "pivot point" for silver could have been yesterday's high, and prices may bottom in next week's reversal zone. Nevertheless, a bottom could also form by Wednesday, especially since today silver is making a new weekly low and gold is not (yet) which gives us an intermarket bullish divergence signal.
Let's stay on the sidelines of both metals for the moment as we watch carefully for their final medium-term cycle bottoms and possible opportunities to go long.
Crude oil prices were also not immune to Powell's hawkish comments today. Although prices closed just above $80 yesterday, today they are plummeting and seem to be closing the day under $78. This is keeping us still in a congestion zone between $74 and $80, and so the trend in this market remains unclear. Next week's strong reversal zone also applies to crude, but it is unclear right now if it will correlate with a significant high or a significant low in crude's current medium-term cycle. It is also still not clear if crude's current cycle is old (bearish) or new (bullish). We will remain on the sidelines of crude until these issues are resolved.