MARKETS UPDATE (9:30 pm EST)
The strong momentum from last week's rally in the broad stock market has softened just a bit, but all three of our market indices (DOW, S&P 500, NASDAQ) continue to move higher. The strength of this rally from the Oct. 26 (NASDAQ) and Oct. 27 (DOW and S&P 500) deep lows is forcing me to re-evaluate the labeling of the current medium-term cycles. We had been assuming new medium-term cycles began from the Aug. lows in all three indices, but it's possible those Aug. lows were not the end of the previous cycle (and beginning of a new one). Instead, the older (previous) cycle could have extended into Oct. 26 and 27 and ended there, thus making these deep Oct. lows the starting points for new medium-term cycles. If this new labeling is correct, the market could be very bullish with strong rallying ahead
We are now at a critical juncture that will determine which labeling is correct. If our old labeling is correct (new medium-term cycles starting from the Aug. lows), the trend is definitely bearish. With this labeling, we expect any rally to top out this week, turn sharply down again and continue to decline into the end of the year. This scenario is being supported by the fact that the current strong rally is making new highs within our current strong reversal zone (Oct. 31 - Nov. 9), and we also see the DOW exceeding its mid-Oct. high without the S&P 500 and NASDAQ exceeding their mid-Oct. highs which gives us a bearish divergence signal (until the S&P 500 and NASDAQ break their highs - 4,394 and 13,714, respectively - they are close).
If our new labeling is correct (new medium-term cycles starting from the Oct. 26-27 lows), these indices should have no trouble exceeding their mid-Oct. highs and should rally strongly into the end of the year. Obviously, we don't want to have a short position in this market with this new labeling. Our current short trade (which we entered on Oct. 12) is at a break-even point or has a slight loss. Even if this new, bullish labeling is correct, our current reversal zone could produce at least a brief corrective dip that would give us a better spot to cover our short position. If that doesn't happen and the S&P 500 and NASDAQ break through their mid-Oct. highs (4,394 and 13,714), we will cover anyway. Let's hold our short position for now.
Gold's sharp rally from its deep low on Oct. 6 ($1812) confirmed that low as the start of a new medium-term cycle. There had been a strong possibility of this sharp rally accelerating higher into the first two weeks of November, but instead we saw a Halloween "trick" on Oct. 31 with a strong correction down that has continued through today. That "trick", however, may be giving us a "treat" (sorry, couldn't resist the puns). We missed out on the strong October rally and we have been waiting for a significant corrective dip to buy. The current correction is falling right into the center of a reversal zone specifically for the precious metals (Nov. 2 - 15) and it has already fallen below the 15-day moving average. A bottom could be imminent. Prices could go as low as $1900, but because this market looks bullish, they may not go that far down. A good target could be anywhere between the 15-day and 45-day moving averages, i.e. between $1920 - $1980 (today prices got to $1957). Thursday and Friday are strong potential "pivot points" for gold, so we may see a bottom then. We will watch for a buy spot this week from our current position on the sidelines. Gold's longer-term trend still looks to be bullish which means there's a good possibility it will make a new all-time high (above $2070) fairly soon. This is why we are looking to buy.
Silver prices have been pushing lower since Oct. 20 and they made a new low at $22.48 today beneath both the 15-day and 45-day moving averages. Silver started its current medium-term cycle with its low of $20.70 on Oct. 3, and so, like gold, its cycle is still young, although it doesn't look quite as bullish as gold. As with gold, we should be looking for a significant sub-cycle low in silver to buy, and this week looks like a good time for one. With the reversal zone for precious metals extending into next Wednesday, an ideal buy spot could happen if one metal makes a new weekly low without the other early next week (bullish divergence). But we don't always get "ideal" trading set-ups, and we could see lows forming in either (or both) metals anytime this week. We are on the sidelines of silver for now.
In last Thursday's blog on crude oil I wrote:
"That Oct. 6 low could be the start of a new medium-term cycle, but crude could also be in an older cycle that began with the $77.03 low on Aug. 24. In either case, the cycle's trend is in danger of turning bearish if it starts breaking below $80."
We still aren't sure which cycle labeling (old or new) is correct, but today prices plunged and closed well below $80 (December contract chart), and the overnight market is sending them even slightly below that Aug. 24 low of $77.03. This means that both are turning bearish; however, this new low is happening inside a strong reversal zone that ends on Thursday. A significant bottom and reversal back up could be imminent. Nevertheless, we won't be looking to buy that low as long as the trend bearish trend is in place. Given our current labeling of these cycles, it would take a close back above $90 to turn the trend bullish again. With the ongoing Israel-Hamas war getting worse, that is certainly possible. Let's remain on the sidelines of crude as prices seem very unstable right now.
The strong momentum from last week's rally in the broad stock market has softened just a bit, but all three of our market indices (DOW, S&P 500, NASDAQ) continue to move higher. The strength of this rally from the Oct. 26 (NASDAQ) and Oct. 27 (DOW and S&P 500) deep lows is forcing me to re-evaluate the labeling of the current medium-term cycles. We had been assuming new medium-term cycles began from the Aug. lows in all three indices, but it's possible those Aug. lows were not the end of the previous cycle (and beginning of a new one). Instead, the older (previous) cycle could have extended into Oct. 26 and 27 and ended there, thus making these deep Oct. lows the starting points for new medium-term cycles. If this new labeling is correct, the market could be very bullish with strong rallying ahead
We are now at a critical juncture that will determine which labeling is correct. If our old labeling is correct (new medium-term cycles starting from the Aug. lows), the trend is definitely bearish. With this labeling, we expect any rally to top out this week, turn sharply down again and continue to decline into the end of the year. This scenario is being supported by the fact that the current strong rally is making new highs within our current strong reversal zone (Oct. 31 - Nov. 9), and we also see the DOW exceeding its mid-Oct. high without the S&P 500 and NASDAQ exceeding their mid-Oct. highs which gives us a bearish divergence signal (until the S&P 500 and NASDAQ break their highs - 4,394 and 13,714, respectively - they are close).
If our new labeling is correct (new medium-term cycles starting from the Oct. 26-27 lows), these indices should have no trouble exceeding their mid-Oct. highs and should rally strongly into the end of the year. Obviously, we don't want to have a short position in this market with this new labeling. Our current short trade (which we entered on Oct. 12) is at a break-even point or has a slight loss. Even if this new, bullish labeling is correct, our current reversal zone could produce at least a brief corrective dip that would give us a better spot to cover our short position. If that doesn't happen and the S&P 500 and NASDAQ break through their mid-Oct. highs (4,394 and 13,714), we will cover anyway. Let's hold our short position for now.
Gold's sharp rally from its deep low on Oct. 6 ($1812) confirmed that low as the start of a new medium-term cycle. There had been a strong possibility of this sharp rally accelerating higher into the first two weeks of November, but instead we saw a Halloween "trick" on Oct. 31 with a strong correction down that has continued through today. That "trick", however, may be giving us a "treat" (sorry, couldn't resist the puns). We missed out on the strong October rally and we have been waiting for a significant corrective dip to buy. The current correction is falling right into the center of a reversal zone specifically for the precious metals (Nov. 2 - 15) and it has already fallen below the 15-day moving average. A bottom could be imminent. Prices could go as low as $1900, but because this market looks bullish, they may not go that far down. A good target could be anywhere between the 15-day and 45-day moving averages, i.e. between $1920 - $1980 (today prices got to $1957). Thursday and Friday are strong potential "pivot points" for gold, so we may see a bottom then. We will watch for a buy spot this week from our current position on the sidelines. Gold's longer-term trend still looks to be bullish which means there's a good possibility it will make a new all-time high (above $2070) fairly soon. This is why we are looking to buy.
Silver prices have been pushing lower since Oct. 20 and they made a new low at $22.48 today beneath both the 15-day and 45-day moving averages. Silver started its current medium-term cycle with its low of $20.70 on Oct. 3, and so, like gold, its cycle is still young, although it doesn't look quite as bullish as gold. As with gold, we should be looking for a significant sub-cycle low in silver to buy, and this week looks like a good time for one. With the reversal zone for precious metals extending into next Wednesday, an ideal buy spot could happen if one metal makes a new weekly low without the other early next week (bullish divergence). But we don't always get "ideal" trading set-ups, and we could see lows forming in either (or both) metals anytime this week. We are on the sidelines of silver for now.
In last Thursday's blog on crude oil I wrote:
"That Oct. 6 low could be the start of a new medium-term cycle, but crude could also be in an older cycle that began with the $77.03 low on Aug. 24. In either case, the cycle's trend is in danger of turning bearish if it starts breaking below $80."
We still aren't sure which cycle labeling (old or new) is correct, but today prices plunged and closed well below $80 (December contract chart), and the overnight market is sending them even slightly below that Aug. 24 low of $77.03. This means that both are turning bearish; however, this new low is happening inside a strong reversal zone that ends on Thursday. A significant bottom and reversal back up could be imminent. Nevertheless, we won't be looking to buy that low as long as the trend bearish trend is in place. Given our current labeling of these cycles, it would take a close back above $90 to turn the trend bullish again. With the ongoing Israel-Hamas war getting worse, that is certainly possible. Let's remain on the sidelines of crude as prices seem very unstable right now.
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