MARKETS UPDATE (3:30 pm EDST)
All three broad stock market indices are rallying strongly today and making new weekly highs. This negates the bearish divergence signal we had from last week. It seems that the Federal Reserve has decided to use the COVID-19 pandemic to justify the endless printing of money to arguably prevent a major collapse in equity markets. It's questionable how long they can keep this up; but for now the market's bullish energy has pushed us through our last reversal zone without a significant correction down. Our next reversal zone is coming up in June. (We actually have several reversal zones in June that overlap such that June 8 - 30 could be considered one big reversal zone. Two "high probability" reversal points in that time frame will be June 16 and June 22 so we will watch those areas carefully.) That gives this market at least two weeks to rally some more before making a top and correcting down. A rally in the DOW could easily get up to 27,000 or even a bit higher in that time frame. But since this market is most likely being propped up by the Fed's money printing (i.e. it is rising on forced or artificial - not natural - momentum), we can't rule out a top and a significant correction before getting to that June reversal zone. It's tempting to go long now in this bullish environment, but I would still prefer to wait for a corrective dip to buy rather than chase a rally in this volatile market. We will remain on the sidelines of the broad stock market for now.
The Fed's printing of money is certainly bullish for the precious metals, but gold and silver are a bit tricky to play right now. We are still looking for a corrective low to buy. Today gold is making a new weekly low while silver is not so we are getting a bullish divergence signal. Nevertheless, as with the broad stock market, we are not in a reversal zone. Unlike the broad stock market, however, there IS a reversal zone specifically for precious metals starting next Monday (June 1 - 9). This suggests that prices could edge lower into that time frame before reversing back up. Even if prices reverse up now, they would be rising into next week's reversal which could slow down or halt the rally in it's tracks. I am going to wait to see if prices can get a bit lower before buying. Staying on the sidelines of gold and silver today.
The U.S. Dollar Index certainly suffers when the Fed's rhetoric is "dovish". That would explain the dollar's recent reluctance to rally. Today the dollar broke below a support level around 99. This could be the start of at least a short-term downturn in the greenback. A falling dollar is obviously good for gold and silver prices, but we should keep in mind that both the dollar and the precious metals sometimes rise and fall together.
Crude oil prices are edging higher today. This is not surprising as crude often follows the broad stock market. And as with equity markets, this new weekly high is not happening in a reversal zone. Sure, crude could still be making a top now and start a significant correction down (the cycle timing is right), but it could also push higher before correcting. A sub-cycle top could get up to the $40 (June contract chart) level. If we see prices near there in next week's reversal zone for precious metals, I may consider selling short for a sharp correction down. Otherwise, we may just wait for the first sub-cycle corrective bottom to buy. Out of crude oil for now.
All three broad stock market indices are rallying strongly today and making new weekly highs. This negates the bearish divergence signal we had from last week. It seems that the Federal Reserve has decided to use the COVID-19 pandemic to justify the endless printing of money to arguably prevent a major collapse in equity markets. It's questionable how long they can keep this up; but for now the market's bullish energy has pushed us through our last reversal zone without a significant correction down. Our next reversal zone is coming up in June. (We actually have several reversal zones in June that overlap such that June 8 - 30 could be considered one big reversal zone. Two "high probability" reversal points in that time frame will be June 16 and June 22 so we will watch those areas carefully.) That gives this market at least two weeks to rally some more before making a top and correcting down. A rally in the DOW could easily get up to 27,000 or even a bit higher in that time frame. But since this market is most likely being propped up by the Fed's money printing (i.e. it is rising on forced or artificial - not natural - momentum), we can't rule out a top and a significant correction before getting to that June reversal zone. It's tempting to go long now in this bullish environment, but I would still prefer to wait for a corrective dip to buy rather than chase a rally in this volatile market. We will remain on the sidelines of the broad stock market for now.
The Fed's printing of money is certainly bullish for the precious metals, but gold and silver are a bit tricky to play right now. We are still looking for a corrective low to buy. Today gold is making a new weekly low while silver is not so we are getting a bullish divergence signal. Nevertheless, as with the broad stock market, we are not in a reversal zone. Unlike the broad stock market, however, there IS a reversal zone specifically for precious metals starting next Monday (June 1 - 9). This suggests that prices could edge lower into that time frame before reversing back up. Even if prices reverse up now, they would be rising into next week's reversal which could slow down or halt the rally in it's tracks. I am going to wait to see if prices can get a bit lower before buying. Staying on the sidelines of gold and silver today.
The U.S. Dollar Index certainly suffers when the Fed's rhetoric is "dovish". That would explain the dollar's recent reluctance to rally. Today the dollar broke below a support level around 99. This could be the start of at least a short-term downturn in the greenback. A falling dollar is obviously good for gold and silver prices, but we should keep in mind that both the dollar and the precious metals sometimes rise and fall together.
Crude oil prices are edging higher today. This is not surprising as crude often follows the broad stock market. And as with equity markets, this new weekly high is not happening in a reversal zone. Sure, crude could still be making a top now and start a significant correction down (the cycle timing is right), but it could also push higher before correcting. A sub-cycle top could get up to the $40 (June contract chart) level. If we see prices near there in next week's reversal zone for precious metals, I may consider selling short for a sharp correction down. Otherwise, we may just wait for the first sub-cycle corrective bottom to buy. Out of crude oil for now.
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