MARKETS UPDATE (5:00 pm EDST)
In last Thursday's blog I wrote:
"The broad stock market MAY be stabilizing and finding a bottom this week or next as we remain in a general reversal zone through Oct. 6 (next Thursday). Although the DOW and S&P 500 have broken below the starting points of their current medium-term cycles, the NASDAQ is still just a tad above the start of its medium-term cycle, so we still have a bullish divergence signal here."
On Friday, the NASDAQ moved lower but still did not break below its medium-term cycle starting point (10,565 from June 16), and yesterday and today it is rallying strongly with the DOW and S&P 500. It looks like a significant cycle or sub-cycle bottom has formed in the center of our reversal zone. Now we watch to see how strong this rally will be. All three indices have already fallen significantly (over 20%) from their all-time highs in January (DOW and S&P 500) and November 2021 (NASDAQ), so the longer-term cycle trend is bearish. Their current medium-term cycles are also bearish as the DOW and S&P 500 have fallen below their starting points, and the NASDAQ got close. This means we shouldn't expect any rallies now to exceed the mid-August highs of these indices. In fact, I would expect resistance at much lower levels (say around 31,000 - 32,000 in the DOW, 3,800 - 4,000 in the S&P 500, and 11,500 - 12,000 in the NASDAQ). In other words, we may now see a bear market rally that won't get very far before turning down and resuming a serious correction that could take these indices much lower into next year. We are therefore on the lookout for a good point to short the market again from the top of a short-term relief rally. We are on the sidelines of this market for now.
In my blog on Monday last week for the precious metals, I suggested that both gold and silver prices might bounce up. After dipping a bit lower last Wednesday, they did do that, and that rally is accelerating this week. The cycle labeling of both metals is still ambiguous (that should be more clear next week). Silver broke strongly above resistance at $20, so it looks a bit more bullish than gold, which is now pushing through a heavy resistance band from $1700 - $1800. I'm not so sure these rallies will get very far, especially since we already have a bearish divergence signal as silver is breaking through its mid-August highs and gold is not. Let's see how far this rally can go. There is a reversal zone specifically for gold and silver coming up Oct. 18 - 26, and another general reversal zone coming up Oct.12 - 20. We might see a significant top to sell short in those time frames. We remain on the sidelines of gold and silver for now.
The sudden surge in precious metals over the last five trading days is not surprising as the U.S. Dollar Index has been falling. Last Wednesday, the U.S. dollar topped out a steep rally just a tad short of 115. It was entitled to take a corrective "breather". It's overall trend, though, still looks bullish, so I wouldn't be surprised to see it resume its rally soon. It already has fallen to a support level at 110. If that breaks, there's more strong support at 108 and 106. As I mentioned in last Wednesday's major update on all markets, the U.S. dollar has most likely moved into a long-term bullish "political" cycle that could see it challenging its 121 high from 2001 over the next few years. If that happens, it will put significant downward pressure on the precious metals in that time frame. This reinforces our prediction that gold is in the process of falling to its long-term (23 year) cycle bottom due around 2023 - 2024 close to $1000. A bullish dollar now also supports my belief that the U.S. dollar will be the preferred "safe-haven" investment if the broad stock market collapses (which it appears to be doing).
Crude oil prices have also been rallying strongly from last Monday's low at $76.25 (Nov. contract chart). As with all the other markets, this may be a bear market rally. Let's stay on the sidelines of crude for now and see if this rally can gain any legs. If it can't, we could see prices soon headed back down again to break below $76.25.
In last Thursday's blog I wrote:
"The broad stock market MAY be stabilizing and finding a bottom this week or next as we remain in a general reversal zone through Oct. 6 (next Thursday). Although the DOW and S&P 500 have broken below the starting points of their current medium-term cycles, the NASDAQ is still just a tad above the start of its medium-term cycle, so we still have a bullish divergence signal here."
On Friday, the NASDAQ moved lower but still did not break below its medium-term cycle starting point (10,565 from June 16), and yesterday and today it is rallying strongly with the DOW and S&P 500. It looks like a significant cycle or sub-cycle bottom has formed in the center of our reversal zone. Now we watch to see how strong this rally will be. All three indices have already fallen significantly (over 20%) from their all-time highs in January (DOW and S&P 500) and November 2021 (NASDAQ), so the longer-term cycle trend is bearish. Their current medium-term cycles are also bearish as the DOW and S&P 500 have fallen below their starting points, and the NASDAQ got close. This means we shouldn't expect any rallies now to exceed the mid-August highs of these indices. In fact, I would expect resistance at much lower levels (say around 31,000 - 32,000 in the DOW, 3,800 - 4,000 in the S&P 500, and 11,500 - 12,000 in the NASDAQ). In other words, we may now see a bear market rally that won't get very far before turning down and resuming a serious correction that could take these indices much lower into next year. We are therefore on the lookout for a good point to short the market again from the top of a short-term relief rally. We are on the sidelines of this market for now.
In my blog on Monday last week for the precious metals, I suggested that both gold and silver prices might bounce up. After dipping a bit lower last Wednesday, they did do that, and that rally is accelerating this week. The cycle labeling of both metals is still ambiguous (that should be more clear next week). Silver broke strongly above resistance at $20, so it looks a bit more bullish than gold, which is now pushing through a heavy resistance band from $1700 - $1800. I'm not so sure these rallies will get very far, especially since we already have a bearish divergence signal as silver is breaking through its mid-August highs and gold is not. Let's see how far this rally can go. There is a reversal zone specifically for gold and silver coming up Oct. 18 - 26, and another general reversal zone coming up Oct.12 - 20. We might see a significant top to sell short in those time frames. We remain on the sidelines of gold and silver for now.
The sudden surge in precious metals over the last five trading days is not surprising as the U.S. Dollar Index has been falling. Last Wednesday, the U.S. dollar topped out a steep rally just a tad short of 115. It was entitled to take a corrective "breather". It's overall trend, though, still looks bullish, so I wouldn't be surprised to see it resume its rally soon. It already has fallen to a support level at 110. If that breaks, there's more strong support at 108 and 106. As I mentioned in last Wednesday's major update on all markets, the U.S. dollar has most likely moved into a long-term bullish "political" cycle that could see it challenging its 121 high from 2001 over the next few years. If that happens, it will put significant downward pressure on the precious metals in that time frame. This reinforces our prediction that gold is in the process of falling to its long-term (23 year) cycle bottom due around 2023 - 2024 close to $1000. A bullish dollar now also supports my belief that the U.S. dollar will be the preferred "safe-haven" investment if the broad stock market collapses (which it appears to be doing).
Crude oil prices have also been rallying strongly from last Monday's low at $76.25 (Nov. contract chart). As with all the other markets, this may be a bear market rally. Let's stay on the sidelines of crude for now and see if this rally can gain any legs. If it can't, we could see prices soon headed back down again to break below $76.25.
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