The end of this week will lead us into the center of a minor reversal zone for equity markets as well as for the precious metals and possibly crude oil. Are there any upcoming events that could trigger market reversals? Yes.
On Wednesday the U.S. Federal Reserve will conclude another policy meeting with a statement release, Friday will see the release of the April jobs report, and Sunday/Monday will give us the results of the French presidential election. All of these events may influence financial markets (and be the potential trigger for reversals), but the selection of the new French president will likely have the strongest effect. According to polls, the centrist Macron still seems to be ahead of far-right Le Pen, but as we know from our own U.S. presidential election as well as from the Brexit vote in the U.K., polls are not always right. A surprise Le Pen victory could rattle all financial markets.
The DOW and S&P 500 were down a bit yesterday as the NASDAQ continued to rise. This is to be expected as the NASDAQ has already broken through resistance at its all-time high from early April while the DOW and S&P 500 are still encountering resistance as they test their all-time highs from March 1 (21,169 in the DOW and 2,401 in the S&P 500). We still need to see the DOW and S&P 500 break their all-time highs to confirm our bullish outlook, and if they don't do that by the end of the week, the resistance at those highs could act as the pivot point for another turn down. If that happens, it could turn out to be just a minor sub-cycle correction that we can ride out, but if the correction gets serious, we might have to abandon our bullish view. Our line in the sand for a correction would be the recent lows that started the new medium-term cycles in the DOW and S&P 500 ( 20,379 and 2,322, respectively). We have already established those lows as a stop loss for our long position in the broad stock market. If Macron wins the French election, we may not have to worry about breaking those lows, but a Le Pen victory could trigger a serious market sell-off and break our stop loss. (I am basing this on the fact that equity markets cheered the news of Macron's lead last week as Le Pen is seen as a threat to the stability of the European Union. We need to keep in mind, however, that in the recent U.S. presidential election, the markets also feared right-wing Donald Trump before he was elected but soared into "Trumphoria" immediately following the election.) We will have to wait and see how this election unfolds and how the markets will react to the new president. It is early in the new medium-term cycle for the DOW and S&P 500, and if these indices can stay above those lows mentioned above, we could see both make new all-time highs with the DOW reaching 23,000 - 24,000 and the S&P 500 reaching 2,500 - 2,700 sometime this summer. Holding my long position in the broad stock market for now.
Gold and silver prices continue to fall this week. Silver is falling especially hard, and its directional momentum turned 100% bearish yesterday (while gold remains nearly 100% bullish). Silver may be forming the bottom to its medium-term cycle now (it is in the target range for a bottom), but so far gold prices have not approached an acceptable target for a normal cycle bottom (we would like to see gold closer to 1,200, even 1,220 - 1,240). The events mentioned above (Fed meeting Wed,, jobs report Fri,, French election Sun.) could all influence the direction of gold and silver prices now. In particular, Macron's victory in the French presidential election would likely boost the euro, depress the U.S. dollar and kick up precious metal prices. This election might therefore coincide with a cycle bottom in silver (and possibly gold) and a subsequent rally. A surprise win by Le Pen, however, would have the opposite effect and could push these metal prices even lower. I am going to remain on the sidelines of gold and silver for now.
It appears that crude oil prices are continuing lower into crude's next reversal zone (May 9-17) which starts next week. Prices plunged today and broke slightly below the $47.58 level (June contract chart) that started this new medium-term cycle on March 22. Unless this low becomes a double bottom, the breach of that low more than likely means that the cycle is turning bearish, and prices could be headed significantly lower (although we could see a short sub-cycle relief rally start any time over the next two weeks within this upcoming reversal zone). Directional momentum in crude charts is currently 100% bearish. The best trading strategy now might be to wait and sell short the top of any sub-cycle rally, especially if that rally starts over the next week or two from a point lower than today's low. Still on the sidelines of crude oil.