The DOW, S&P 500, and NASDAQ were fluctuating indecisively this morning near yesterday's closing levels, but all three ended up with slight gains at today's closing bell. The broad stock market appears to be topping out here, but it has to start falling now to avert the possibility of further rallying into our next reversal zone (Aug. 12 - 19). I mistakenly made the statement in yesterday's blog that the S&P 500 was still below our stop loss point of 3,280. In fact, it broke above there yesterday and is up a bit more today. The DOW, however, is still below 27,071, and both indices are still below their February all-time highs (29,568 in the DOW and 3,393 in the S&P 500) so there is still strong intermarket bearish divergence in this market. Let's hold our short position in the broad stock market for now and see if equities start turning down tomorrow. If not, we may have to cover our positions.
As I discussed in my July 27th blog last week, gold and silver are in a "breakout" mode and have been rallying strongly. The cycle labeling for both metals is a little ambiguous at the moment, but they are both rallying strongly into our current reversal zone specifically for gold and silver (July 28 - Aug. 4, same as for the broad stock market) which ends tomorrow. Gold is making a new weekly high today (just above 2,000) while silver is not getting above last Tuesday's high of $26.08 which gives us a bearish divergence signal. We could therefore be seeing a peak here to be followed by a sharp turn down. But because of the bullish energy of this current 'breakout", we could also see the rally continue. As I mentioned in the July 27th blog:
"So that $1920 high has now been broken, and we could indeed see a "blow-off" in gold prices to $2300 or even higher. Needless to say, we want to get long soon in this market. This precious metals market "breakout" may be altering our previous labeling of gold and silver's medium-term cycles. But regardless of the cycle labeling, there is still a good possibility of a corrective dip soon. We enter a new general reversal zone AND a reversal zone specifically for the precious metals this week (BOTH from July 28 to August 4). That would be a good time for prices to top out and start a corrective move down. Let's watch for that and a buying opportunity."
So we're still waiting for that buying opportunity. Despite the potential "blow-off", its' a bit late to be chasing this rally so we will remain on the sidelines of the precious metals for now.
The U.S. Dollar Index may be finding support around 93 and last week's low of 92.54 in the middle of our reversal zone. That low also looks like it could have been a significant medium-term sub-cycle in the dollar which means the dollar could rally now. Any rally, of course, would help push precious metal prices back down so we will watch for it. Note that any rally in the greenback would probably be short-term as it appears that the longer-term trend for the U.S. Dollar is now down.
Crude oil's medium-term cycle structure is a little ambiguous at the moment. In last Thursday's blog on crude I wrote:
" Crude seems to be taking a corrective sub-cycle dip from its high of $42.51 (Sept. contract chart) on July 21. If that's true, prices could get down to the $33 area, but if crude is bullish, the correction may just test the 45-day moving average (now around $39.50). In fact, it did test that moving average today and closed back above it. Before getting too bullish on crude, however, we have to keep in mind the huge plunge crude prices took back in April which could be indicative of a bearish longer-term trend. There are several other bearish patterns appearing in crude's longer-term charts that should make us cautious with this commodity. Needless to say, if the COVID-19 pandemic continues to weaken the global economy, and the broad stock market takes a severe correction then demand for oil will decrease and crude prices will suffer."
All of this still applies. It does look like a significant low was made last week near the 45-day moving average, but prices have to break above that $42.51 high to confirm this; otherwise crude could reverse back down to a deeper low. Let's stay out of crude oil for now.