All three of our broad stock market indices (DOW, S&P 500, NASDAQ) have been rising strongly from last Friday's lows. Does this mean the final medium-term cycle lows (possibly Aug. 25 in the DOW and Aug. 18 in both the S&P 500 and NASDAQ) are in, and have we started new cycles? Possibly, but we note that our current strong reversal zone could extend into Sept.8, and any new highs through then could be a potential top for another reversal back down to an even lower medium-term cycle bottom. Either way, it was probably a good idea to take profits and cover our short positions early on Monday.
All three indices have now closed back above their 15-day and 45-day moving averages, which is a bullish sign. If these are new medium-term cycles, they will have to break above the highs of their last cycles to maintain a bullish trend. Those highs would be 35,679 in the DOW, 4,607 in the S&P 500, and 14,446 in the NASDAQ. Although we like to go long early in any new cycle, I am uncomfortable buying now as we are making new highs inside a strong reversal zone (and especially before we can confirm that any new cycle is bullish). This market's upward momentum this week may be due to the upcoming holiday week-end (Labor Day on Sept. 4). Equity markets tend to rally into major holidays, so we might have to wait until next week before we see a possible turn down. We are staying on the sidelines of the broad stock market for now.
We are still not sure if gold started a new medium-term cycle with its low of $1894 on June 29 or its low of $1885 on Aug. 21. If the cycle started on June 29, it has technically turned bearish because it has already moved below the start of the cycle. If Aug. 21 began the cycle, it could be bullish. Any break above $1987 would confirm the younger (Aug. 21) cycle. I think this could happen as the rally from the Aug. 21 low has been strong and has now broken above the 15-day and 45-day moving averages. Regardless of the cycle labeling, we are not going to chase this rally as it makes new highs in the current reversal zone for precious metals (Aug. 21 - Sept. 4) as well as the general reversal zone for all markets (Aug. 23 - Sept. 8). Let's stay on the sidelines and wait for another significant correction to clarify the cycle labeling before we make another trade in this metal.
The current medium-term cycle in silver is less ambiguous than gold's cycle. We are still going with the labeling that silver's current medium-term cycle started with the low of $22.12 on June 23. From there, silver rallied strongly to a high of $25.26 on July 20. Prices then fell sharply back to $22.31 on August 21, very close - but not below - the start of the cycle. From that low, silver has been rising strongly again and is now close to its $25.26 high from July 20. So what does all this mean?
Even though this cycle's initial rally into July 20 was strong and steep (bullish), the fact that it turned back down and made a significant sub-cycle correction very close to the start of the cycle was bearish. (We note, however, that the cycle trend didn't technically turn bearish because that sub-cycle low did not break BELOW the start of the cycle.) So we are getting mixed signals about the trend of this cycle. If prices start closing above $25.26, the trend will be bullish with new highs ahead; but if prices roll over before exceeding $25.26, the trend will turn bearish with prices headed lower. We are still in the reversal zone for precious metals (it ends next Tuesday), and Friday-Tuesday is also a very strong potential "pivot point" for silver. This means a top could be imminent. Prices are backing off today after touching a strong resistance line around $25 yesterday, so a turn down could already be starting. As with gold, it is best to remain on the sidelines of silver for now as we wait to see if this rally will top out and turn back down over the next several days.
It looks like the U.S. Dollar Index topped out last Friday within a reversal zone specifically for currencies (Aug. 24 - Sept. 4), and its fall this week has helped drive up gold and silver prices. We note, however, that this reversal zone may extend into Sept.8, so if the greenback can find a support level and stabilize between now and then, it may reverse back up, and this could put more downward pressure on the precious metals. The dollar may find support around 102, which is also close to the current 45-day moving average. We will watch this carefully over the several trading days.
Crude oil may have ended its old medium-term cycle and started a new one with last Thursday's low at $77.59 (Oct. contract chart). No, prices did not get down to the 45-day moving average which we like to see tested or broken at cycle bottoms, but they came close. We also like to see a 2 - 5 week fall in prices to confirm a cycle bottom, and last Thursday's low was exactly 2 weeks from the previous high of $84.16 on Aug. 10. So we have satisfied at least one requirement for a medium-term cycle bottom (and start of a new medium-term cycle). That may be enough because crude oil's general trend is looking VERY bullish.
Longer-term, we can now confirm that the deep low on May 4 ($64.58) was most likely the start of a new 3 year cycle in crude. That means crude prices should be rising steeply into the end of this year to at least to $100, and eventually they could go as high as $130. This is why we've been looking to buy the start of any new medium-term cycle. Did we miss it last week? Well, maybe, but prices are making new highs now and we are still within two reversal zones relevant to crude, and we enter another one specifically for crude tomorrow (Sept. 1 - 11). Prices could reverse back down again and form a lower low next week that could test or even break below the 45-day moving average and give us a better candidate for a medium-term cycle bottom. If that happens, we will be looking to buy. Otherwise, we may have to wait for the first corrective dip in a new cycle that could have started last week. We remain on the sidelines of crude for now.