MARKETS UPDATE (with important update on the BROAD STOCK MARKET) (10:00 pm EST)
Our decision to "bail out" of our short position in the broad stock market on Monday was a good one as equities staged a massive rally today. Our stop loss parameters served us well, and because the indices were down just a bit at Monday's market open, we were able to get out with very little loss.
Despite recent hawkish rhetoric from the Fed, equities are manifesting an unusual bullish vigor. The capacity of Wall Street for what former Fed Chairman Alan Greenspan would call "irrational exuberance" never ceases to surprise me. This market has plenty of reasons (technical and geopolitical) to be falling, but it is not (for now). Of course, we are now entering the big "holiday season" (Thanksgiving and Christmas) here in the U.S., and that sometimes produces a "Santa Claus" rally into the new year as investors and traders become more optimistic during the festive season.
This bullish market has forced us to relabel our medium-term cycles in the DOW, S&P 500, and NASDAQ. We will now label the deep lows of Oct. 26 (NASDAQ) and Oct. 27 (DOW and S&P 500) as the start of new medium-term cycles. Those lows were 32,327 (DOW), 4,104 (S&P 500), and 12.544 (NASDAQ). We are already off to a bullish start with a sharp rise from those lows, and today all three indices "gapped" up well above their recent October highs.
Our trading strategy now will be bullish as it's likely this market will be rallying strongly into the new year. This means we will wait for the first significant sub-cycle correction to buy. We may see one fairly soon as we just entered yet another general reversal zone today (Nov. 14 - 23). This one is not as strong as our last one, but it is not weak. If the market continues to rally this week and next, we could easily see a top inside this time frame followed by a downward correction that could give us a buying opportunity. We will watch for this now as we sit back on the sidelines of the broad stock market.
I should mention here that our long-term view of the broad stock market making a huge correction (possibly crash) sometime in 2024 is still valid, although the technical signals supporting this idea may be weakening a bit. If we look at a a 3-year chart of our market indices, it now does not seem so far-fetched that the DOW or even the S&P 500 could rally and exceed their all-time highs from January 2022 (i.e. 36,953 and 4,819, respectively), especially if the current bullish trend continues. The NASDAQ, however, would have a little more climbing to do before it could exceed its all-time high from November 2021 (16,212). If the DOW and S&P 500 manage to exceed their all-time highs without the NASDAQ, this would be a strong bearish divergence signal and a very severe correction could follow. On the other hand, if ALL THREE indices exceed their all-time highs, we may have to abandon the idea of an imminent severe correction next year, or at least post-pone it for several more years.
Gold and especially silver rallied strongly today which did not surprise us as yesterday's low in both metals was on the last day of a reversal zone specifically for precious metals, and it was a potential "pivot point" for gold. We now want to see gold break above its 15-day moving average (around $1973) as well as the $2009 high from Oct. 27 to confirm that the current medium-term cycle is bullish. Silver broke dramatically through both its 15-day and 45-day moving averages today, which is very bullish. We note, however, that we have now entered that new general reversal zone from Nov. 14 - 23, so its possible a top could form in any rally that continues this week or next. There is also a strong potential "pivot point" for silver coming up Nov. 24 - 29 which could also correspond to a top and a strong reversal back down. Silver tends to make a strong corrective dip around the middle of its medium-term cycle, so instead of chasing the current rally, let's wait for a corrective drop to buy as the cycle's trend seems bullish. We are holding our long position in gold and staying on the sidelines of silver for now.
In Saturday's blog on the U.S. Dollar Index I wrote:
"...the greenback is now coming up against a resistance line (formally support) around 106 where the 45-day and 15-day moving averages are converging. If this turns the dollar back down, it could send gold and silver prices back up."
This is exactly what happened today as the greenback plunged sharply to 104 and the precious metals rallied. There may be some support for the dollar at 104, and if it can bounce back up from there, we may lose upward momentum in the metals. We will watch this closely.
Crude oil prices are rising a bit this week from last week's low around $75 (Dec. contract chart), but we are standing aside this market for the time being as it seems like the current medium-term cycle has turned bearish. The longer-term cycle in crude still looks bullish, so we may be looking to buy at some point, but as long as the medium-term cycle is bearish, we will stay on the sidelines.
Our decision to "bail out" of our short position in the broad stock market on Monday was a good one as equities staged a massive rally today. Our stop loss parameters served us well, and because the indices were down just a bit at Monday's market open, we were able to get out with very little loss.
Despite recent hawkish rhetoric from the Fed, equities are manifesting an unusual bullish vigor. The capacity of Wall Street for what former Fed Chairman Alan Greenspan would call "irrational exuberance" never ceases to surprise me. This market has plenty of reasons (technical and geopolitical) to be falling, but it is not (for now). Of course, we are now entering the big "holiday season" (Thanksgiving and Christmas) here in the U.S., and that sometimes produces a "Santa Claus" rally into the new year as investors and traders become more optimistic during the festive season.
This bullish market has forced us to relabel our medium-term cycles in the DOW, S&P 500, and NASDAQ. We will now label the deep lows of Oct. 26 (NASDAQ) and Oct. 27 (DOW and S&P 500) as the start of new medium-term cycles. Those lows were 32,327 (DOW), 4,104 (S&P 500), and 12.544 (NASDAQ). We are already off to a bullish start with a sharp rise from those lows, and today all three indices "gapped" up well above their recent October highs.
Our trading strategy now will be bullish as it's likely this market will be rallying strongly into the new year. This means we will wait for the first significant sub-cycle correction to buy. We may see one fairly soon as we just entered yet another general reversal zone today (Nov. 14 - 23). This one is not as strong as our last one, but it is not weak. If the market continues to rally this week and next, we could easily see a top inside this time frame followed by a downward correction that could give us a buying opportunity. We will watch for this now as we sit back on the sidelines of the broad stock market.
I should mention here that our long-term view of the broad stock market making a huge correction (possibly crash) sometime in 2024 is still valid, although the technical signals supporting this idea may be weakening a bit. If we look at a a 3-year chart of our market indices, it now does not seem so far-fetched that the DOW or even the S&P 500 could rally and exceed their all-time highs from January 2022 (i.e. 36,953 and 4,819, respectively), especially if the current bullish trend continues. The NASDAQ, however, would have a little more climbing to do before it could exceed its all-time high from November 2021 (16,212). If the DOW and S&P 500 manage to exceed their all-time highs without the NASDAQ, this would be a strong bearish divergence signal and a very severe correction could follow. On the other hand, if ALL THREE indices exceed their all-time highs, we may have to abandon the idea of an imminent severe correction next year, or at least post-pone it for several more years.
Gold and especially silver rallied strongly today which did not surprise us as yesterday's low in both metals was on the last day of a reversal zone specifically for precious metals, and it was a potential "pivot point" for gold. We now want to see gold break above its 15-day moving average (around $1973) as well as the $2009 high from Oct. 27 to confirm that the current medium-term cycle is bullish. Silver broke dramatically through both its 15-day and 45-day moving averages today, which is very bullish. We note, however, that we have now entered that new general reversal zone from Nov. 14 - 23, so its possible a top could form in any rally that continues this week or next. There is also a strong potential "pivot point" for silver coming up Nov. 24 - 29 which could also correspond to a top and a strong reversal back down. Silver tends to make a strong corrective dip around the middle of its medium-term cycle, so instead of chasing the current rally, let's wait for a corrective drop to buy as the cycle's trend seems bullish. We are holding our long position in gold and staying on the sidelines of silver for now.
In Saturday's blog on the U.S. Dollar Index I wrote:
"...the greenback is now coming up against a resistance line (formally support) around 106 where the 45-day and 15-day moving averages are converging. If this turns the dollar back down, it could send gold and silver prices back up."
This is exactly what happened today as the greenback plunged sharply to 104 and the precious metals rallied. There may be some support for the dollar at 104, and if it can bounce back up from there, we may lose upward momentum in the metals. We will watch this closely.
Crude oil prices are rising a bit this week from last week's low around $75 (Dec. contract chart), but we are standing aside this market for the time being as it seems like the current medium-term cycle has turned bearish. The longer-term cycle in crude still looks bullish, so we may be looking to buy at some point, but as long as the medium-term cycle is bearish, we will stay on the sidelines.
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