We are now at the end of a major reversal period for equities with still no strong sell signal for this market. Yesterday we did have a case of bearish intermarket divergence as the DOW and NASDAQ made new weekly highs while the S&P 500 did not. That signal was negated today, however, as the S&P 500 broke above last week's high. Although we like to have a bearish divergence signal before a market turn down, it is not absolutely necessary. The broad stock market is very overbought and due for a correction, and that is supported by many other technical signals. We could still see a correction start any time now. Nevertheless, it is also possible to see this market continue its rally into the next reversal zone coming up in the last week of this month. I am not comfortable going long here without seeing some sort of correction first so I am am going to stay on the sidelines of the broad stock market for now.
In last Thursday's blog on gold and silver I wrote:
"Gold and silver both made new lows this week on Monday (gold at $1,268 and silver at $16.54) at the dead center of this current reversal zone, but prices have not really rallied much from there, and they are back down close to those lows today. Let's see if we can get a bullish divergence signal early next week with gold but not silver making a new weekly low. If silver moves lower next week, we may have to wait a few more weeks for a bottom to buy. Despite the short-term bearishness we are seeing now in this market, the medium and longer-term picture for gold and silver still looks quite positive and bullish."
On Friday (the last day of the reversal zone for precious metals), gold and silver both plunged to new lows (gold to $1,261.80 and silver to $16.39 - spot prices) and both metals have been rising sharply from those lows. This is a very tricky market to call right now. There is a possibility that last week's lows represent the start of new medium-term cycles in gold and silver. If so, that would be very bullish. However, we didn't get a bullish divergence signal with those lows. Also, COT ( Commitment Of Traders) charts, which are rarely wrong, are still rather bearish on gold and silver (although their bearishness has eased a bit over the last week or two). This is suggesting that prices could still go lower. The next major reversal zone for these precious metals is coming up in the first week of November, but next week could also be a turning point (both metals could be very volatile next week). I am reluctant to go long until we can be more certain new cycles have started. Let's wait and see how prices move this week and into next week. If silver can close above $17.47, that would be a strong bullish sign. Gold closing the week above $1,300 would also be bullish. Still on the sidelines of gold and silver.
It appears that the current medium-term cycle in crude oil peaked with that high of $52.86 on Sept, 28, and if so, prices should be falling to a cycle bottom over the next several weeks. The next reversal zone for crude is Oct. 25 - Nov. 2 which would be a good time for that bottom to happen. A good target price for the bottom would be around $47, but it could go as low as $45. On the sidelines of crude oil for now.