I apologize for making no blog entries last week. I was dealing with some minor health issues that took up most of my time. Fortunately, there was no major drama in the markets last week, but this week is already showing us some action (especially in the precious metals).
Let's start our analysis with the broad stock market. In my last blog (Nov. 10), I wrote:
"It looks like our new reversal zone (Nov. 9 - 18) may correspond to a bottom instead of a top. Unless something happens to scare the markets into a major sell-off, I think this correction will be brief and modest, and we could see more rallying into December (perhaps a seasonal "Santa Claus rally") before a potentially VERY severe correction."
I also wrote:
"...a good downside target for the DOW would be around 35,000 - 35,500. We may consider going long if the correction stays above 35,000. (A break below there might lead to a bigger drop). In the S&P 500, 4,500 might be a good spot to buy. Somewhere between 15,000 and 15,500 could be a buying opportunity in the NASDAQ. We will watch for these targets within the time frame of our new reversal zone."
Well, that reversal zone did correspond with a bottom. Nov. 11 in the DOW and Nov. 10 in the S&P 500 and NASDAQ saw the bottom of a shallow sub-cycle dip that was followed by more rallying in all three indices. (Those dips, however, did not reach the targets mentioned above.)
This week started off with the S&P 500 and NASDAQ both making new all-time highs on Monday without the DOW (the DOW is still well below its all-time high of 36,566 from Nov. 8). This is another strong bearish divergence signal, so these indices could take another sub-cycle dip now - and maybe even get closer to those targets. Let's watch for that now. If we see those target lows into next week, we may then see those lows followed by another strong rally into late December (Santa Claus rally?) when one, two, but maybe not all three of these indices will make a new all-time high. If that happens, the high would likely be followed by a VERY severe corrective drop. We would want to sell short at that high. For now, we are still on the sidelines of the broad stock market.
In my last blog on crude oil (Nov. 10) I commented that crude was making a potential "double-top" to its $83.83 (Jan. 2022 contract chart) peak from Oct. 25. I wrote:
"This could be a double-top formation if prices can't exceed that Oct. high. This current medium-term cycle in crude is relatively young and could still rally towards the $90 mark, but if prices don't break to a new high soon or they start falling below $75, then the cycle high could be in, and the trend could be turning bearish..."
The bearish scenario is still possible. Prices fell briefly just below $75 on Monday, but seem to be rising from there. The peak to this current medium-term cycle could be in if prices can't get above that "double-top" area soon. In that case, we would probably wait for the cycle's final bottom and consider buying there. We will stay on the sidelines of crude oil for now.
I will analyze gold and silver tomorrow.