MARKETS UPDATE (7:00 pm EDT)
All three of our broad stock market indices (DOW, S&P 500, NASDAQ) dropped sharply today, so it's pretty clear that the new medium-term cycles in these indices have turned bearish. If true, all three are headed lower, probably much lower, as they move down to their final cycle bottoms which aren't due for at least another two months. In the meantime, there is not much to curb this sell-off until we enter our next general reversal zone coming up at the end of next week (Oct. 5 - 16). I don't normally like to chase rallies or corrections that are already in progress, but any short-term bounce or relief rally over the next several days may be a good place to short sell this market as the trend has turned bearish and the current correction may be steep. If we don't get a bounce this week and this market continues to fall, we will wait for a significant sub-cycle low that will be due around the time of the upcoming reversal zone (Oct. 5 - 16). A likely bounce from there could give us a good shorting opportunity from the top of a modest rally. Unless something dramatically kicks this market back up soon, our trading strategy for equities is now bearish (i.e. selling short the tops of short-term rallies). We are on the sidelines of the broad stock market for now.
We're still not sure if gold started a new medium-term cycle on Aug. 21 (new cycle) or way back on June 29 (older cycle). But either way, it now looks like the cycle is turning bearish. Today's steep drop in prices suggests that gold could now drop below the Aug. 21 low of $1885. Even if that was the start of a new medium-term cycle, a break below there would turn the cycle bearish. The next major reversal zone for gold will be the upcoming general reversal zone that I mentioned for the broad stock market (Oct. 5 - 16), There is also a strong potential "pivot point" for gold Oct. 10-12 and Oct. 12-16 inside this reversal zone. We may see a significant bottom form in those time frames. If gold prices drop between $1855 and $1780, especially in that reversal zone, we will probably be looking to buy because we are expecting a strong rally in gold in October-November. For now, we remain on the sidelines of gold.
Silver prices also dropped strongly today. In last week's blog on silver I wrote:
"This [medium-term] cycle is old and its final bottom is due anytime between now and early October. Last week's low at $22.33 was a bit early but may have been the final low. If it was, silver could be very bullish now; however, as with gold, there is a potential "pivot point" for silver this week (Wed. - Fri.) inside the reversal zone for precious metals, so we could see a high followed by another downturn in price."
Well, silver did make a high on Friday's pivot point and it has fallen strongly from there. I think it's likely silver is still completing an older medium-term cycle and prices will move lower into next week's reversal zone. We will look for a low to buy in that time frame (Oct. 5 - 16) as it should be the end of the current medium-term cycle and the start of a new one. As with gold, there is a strong potential "pivot point" for silver Oct. 10-12, so we will pay close attention and look for a bottom on those days. We are on the sidelines of silver for now.
Not surprisingly, the U.S. Dollar Index has been rising (gold and silver usually move opposite the dollar) with this most likely due to the somewhat hawkish tone of last week's Fed statement which proposed a reduction in interest rate cuts for next year. The greenback usually gives a "thumbs up" to tight monetary policy as it perceives the Fed's hawkishness as being fiscally responsible. Interestingly, the dollar seems to be breaking above a strong resistance line around 106. Because there are no reversal zones until next week, the greenback could continue to push higher - especially if it can close above 106. If this happens, it will put more downward pressure on precious metal prices, which is what we are expecting to see.
Crude oil is a bit tricky to call right now. In last Wednesday's blog on crude I wrote:
"A correction may now be underway, but will it be a steep correction to the final bottom of an old medium-term cycle that started with the $64.58 low way back on May 4? Or will it be a modest sub-cycle correction in a new medium-term cycle that started with the low of $77.59 on Aug. 24? In the older cycle labeling, any correction would be steep and could last for 2-5 weeks with a low down to $83 or lower. A correction in a newer cycle would probably last just 3-8 days and only get down to $87 - $88."
The correction from the Sept. 19 high of $92.43 (Nov. contract chart) is now 5 days old. Today (the 5th day) a new low was made at $88.19 just below the 15-day moving average before prices snapped back up to close above $90. Today's low could easily be a significant sub-cycle low in a new medium-term cycle ready to rally some more. But there are no reversal zones now, and prices could also just as easily fall lower, maybe a lot lower into next week's general reversal zone for a final bottom in an older medium-term cycle. Let's stay on the sidelines for now and see how prices move over the next few days. If we do miss a good sub-cycle buy spot this week, we can wait for next week's reversal zone to curb any rally and possibly turn prices down for another buying opportunity.
All three of our broad stock market indices (DOW, S&P 500, NASDAQ) dropped sharply today, so it's pretty clear that the new medium-term cycles in these indices have turned bearish. If true, all three are headed lower, probably much lower, as they move down to their final cycle bottoms which aren't due for at least another two months. In the meantime, there is not much to curb this sell-off until we enter our next general reversal zone coming up at the end of next week (Oct. 5 - 16). I don't normally like to chase rallies or corrections that are already in progress, but any short-term bounce or relief rally over the next several days may be a good place to short sell this market as the trend has turned bearish and the current correction may be steep. If we don't get a bounce this week and this market continues to fall, we will wait for a significant sub-cycle low that will be due around the time of the upcoming reversal zone (Oct. 5 - 16). A likely bounce from there could give us a good shorting opportunity from the top of a modest rally. Unless something dramatically kicks this market back up soon, our trading strategy for equities is now bearish (i.e. selling short the tops of short-term rallies). We are on the sidelines of the broad stock market for now.
We're still not sure if gold started a new medium-term cycle on Aug. 21 (new cycle) or way back on June 29 (older cycle). But either way, it now looks like the cycle is turning bearish. Today's steep drop in prices suggests that gold could now drop below the Aug. 21 low of $1885. Even if that was the start of a new medium-term cycle, a break below there would turn the cycle bearish. The next major reversal zone for gold will be the upcoming general reversal zone that I mentioned for the broad stock market (Oct. 5 - 16), There is also a strong potential "pivot point" for gold Oct. 10-12 and Oct. 12-16 inside this reversal zone. We may see a significant bottom form in those time frames. If gold prices drop between $1855 and $1780, especially in that reversal zone, we will probably be looking to buy because we are expecting a strong rally in gold in October-November. For now, we remain on the sidelines of gold.
Silver prices also dropped strongly today. In last week's blog on silver I wrote:
"This [medium-term] cycle is old and its final bottom is due anytime between now and early October. Last week's low at $22.33 was a bit early but may have been the final low. If it was, silver could be very bullish now; however, as with gold, there is a potential "pivot point" for silver this week (Wed. - Fri.) inside the reversal zone for precious metals, so we could see a high followed by another downturn in price."
Well, silver did make a high on Friday's pivot point and it has fallen strongly from there. I think it's likely silver is still completing an older medium-term cycle and prices will move lower into next week's reversal zone. We will look for a low to buy in that time frame (Oct. 5 - 16) as it should be the end of the current medium-term cycle and the start of a new one. As with gold, there is a strong potential "pivot point" for silver Oct. 10-12, so we will pay close attention and look for a bottom on those days. We are on the sidelines of silver for now.
Not surprisingly, the U.S. Dollar Index has been rising (gold and silver usually move opposite the dollar) with this most likely due to the somewhat hawkish tone of last week's Fed statement which proposed a reduction in interest rate cuts for next year. The greenback usually gives a "thumbs up" to tight monetary policy as it perceives the Fed's hawkishness as being fiscally responsible. Interestingly, the dollar seems to be breaking above a strong resistance line around 106. Because there are no reversal zones until next week, the greenback could continue to push higher - especially if it can close above 106. If this happens, it will put more downward pressure on precious metal prices, which is what we are expecting to see.
Crude oil is a bit tricky to call right now. In last Wednesday's blog on crude I wrote:
"A correction may now be underway, but will it be a steep correction to the final bottom of an old medium-term cycle that started with the $64.58 low way back on May 4? Or will it be a modest sub-cycle correction in a new medium-term cycle that started with the low of $77.59 on Aug. 24? In the older cycle labeling, any correction would be steep and could last for 2-5 weeks with a low down to $83 or lower. A correction in a newer cycle would probably last just 3-8 days and only get down to $87 - $88."
The correction from the Sept. 19 high of $92.43 (Nov. contract chart) is now 5 days old. Today (the 5th day) a new low was made at $88.19 just below the 15-day moving average before prices snapped back up to close above $90. Today's low could easily be a significant sub-cycle low in a new medium-term cycle ready to rally some more. But there are no reversal zones now, and prices could also just as easily fall lower, maybe a lot lower into next week's general reversal zone for a final bottom in an older medium-term cycle. Let's stay on the sidelines for now and see how prices move over the next few days. If we do miss a good sub-cycle buy spot this week, we can wait for next week's reversal zone to curb any rally and possibly turn prices down for another buying opportunity.
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