MARKETS UPDATE (7:00 pm EDT)
We are still waiting for the broad stock market indices (DOW, S&P 500, NASDAQ) to end their current medium-term cycles with corrections down to the final cycle bottoms. Technically, the DOW's final bottom is due this week, although it could expand a week or two. The S&P's bottom is due anytime over the next two weeks (but it could also expand). A typical final correction will fall 2-5 weeks from the final top and should at least test the 45-day moving average.
If we assume the DOW's top was last week (35,679 on Aug. 1), it has only been falling for one week, and it's still well above its 45-day moving average. But this week is the end of a relatively weak reversal zone and could correspond to a bottom. If the DOW is going to make a final medium-term cycle bottom by the end of this week, it has to drop sharply now to test the 45-day moving average (now at 34,543 and rising). Because the DOW seems reluctant to drop, another possibility could see the DOW breaking to a new high this week and then falling steeply to a final bottom at or below the 45-day moving average over the next several weeks. We note that there is a very strong reversal zone coming up at the end of this month (Aug. 23 - Sept. 4), so that would be a good time for the final medium-term cycle bottom.
The S&P 500 has now fallen two weeks from its high of 4,607 on July 27 and is quite close to its 45-day moving average, so technically it could also bottom this week. But like the DOW, it too could move lower into the end of this month. I am still holding hold my short position in the DOW. Traders holding short positions in the S&P 500 and NASDAQ can also stay short for now.
Gold and silver prices continued to fall today, and this is challenging our bullish view of these metals. We don't want to see gold prices below $1900. If prices move below $1894 (the start of the current medium-term cycle), it will mean the cycle is turning bearish. Silver is also getting close to the start of its current medium-term cycle (that was $22.11 on June 23). If that breaks, silver will also turn bearish. We note, however, that both metals are making new lows within a reversal zone specifically for the precious metals that ends Friday, so a reversal back up could be imminent. We are still holding our long position in gold (entered on June 30). Today gold prices are coming back to a break-even point in this trade. We will sell (unload) this position if gold starts closing below $1894. We are still on the sidelines of silver.
We just entered a reversal zone specifically for currencies (Aug. 8 -17), and yesterday the U.S. Dollar Index may have made a "double-top" to last week's high at 102.84. Yesterday's high or any new high this week or next could be a significant top to be followed by a significant correction down. If that happens, it could correlate with a reversal back up in the precious metals.
In Monday's blog on crude oil I wrote:
"It looks like a sub-cycle top could be forming here. A significant sub-cycle low is due this week, so a sharp correction down could be imminent. We will wait for that correction for a possible spot to buy. We would like to see that somewhere between the 15-day and 45-day moving averages (now at $79.81 and $74.36, respectively, and rising).
Crude's overall trend is currently very bullish. Because of this, there is a small possibility that last week's low at $78.69 was a sub-cycle bottom, and prices could continue to rally now without another correction. But that $78.69 low was just a one-day corrective dip. Most sub-cycle corrections drop for 3 - 8 days before bottoming, so last week's low doesn't really qualify as a legitimate sub-cycle. If we don't get another corrective drop this week, however, we may have to assume last week was it."
All of this still applies. Crude prices pushed higher today and are now approaching $85, but this price surge is looking very steep and overdue for a corrective "breather". We will stay on the sidelines of crude as we wait for a significant correction to buy.
We are still waiting for the broad stock market indices (DOW, S&P 500, NASDAQ) to end their current medium-term cycles with corrections down to the final cycle bottoms. Technically, the DOW's final bottom is due this week, although it could expand a week or two. The S&P's bottom is due anytime over the next two weeks (but it could also expand). A typical final correction will fall 2-5 weeks from the final top and should at least test the 45-day moving average.
If we assume the DOW's top was last week (35,679 on Aug. 1), it has only been falling for one week, and it's still well above its 45-day moving average. But this week is the end of a relatively weak reversal zone and could correspond to a bottom. If the DOW is going to make a final medium-term cycle bottom by the end of this week, it has to drop sharply now to test the 45-day moving average (now at 34,543 and rising). Because the DOW seems reluctant to drop, another possibility could see the DOW breaking to a new high this week and then falling steeply to a final bottom at or below the 45-day moving average over the next several weeks. We note that there is a very strong reversal zone coming up at the end of this month (Aug. 23 - Sept. 4), so that would be a good time for the final medium-term cycle bottom.
The S&P 500 has now fallen two weeks from its high of 4,607 on July 27 and is quite close to its 45-day moving average, so technically it could also bottom this week. But like the DOW, it too could move lower into the end of this month. I am still holding hold my short position in the DOW. Traders holding short positions in the S&P 500 and NASDAQ can also stay short for now.
Gold and silver prices continued to fall today, and this is challenging our bullish view of these metals. We don't want to see gold prices below $1900. If prices move below $1894 (the start of the current medium-term cycle), it will mean the cycle is turning bearish. Silver is also getting close to the start of its current medium-term cycle (that was $22.11 on June 23). If that breaks, silver will also turn bearish. We note, however, that both metals are making new lows within a reversal zone specifically for the precious metals that ends Friday, so a reversal back up could be imminent. We are still holding our long position in gold (entered on June 30). Today gold prices are coming back to a break-even point in this trade. We will sell (unload) this position if gold starts closing below $1894. We are still on the sidelines of silver.
We just entered a reversal zone specifically for currencies (Aug. 8 -17), and yesterday the U.S. Dollar Index may have made a "double-top" to last week's high at 102.84. Yesterday's high or any new high this week or next could be a significant top to be followed by a significant correction down. If that happens, it could correlate with a reversal back up in the precious metals.
In Monday's blog on crude oil I wrote:
"It looks like a sub-cycle top could be forming here. A significant sub-cycle low is due this week, so a sharp correction down could be imminent. We will wait for that correction for a possible spot to buy. We would like to see that somewhere between the 15-day and 45-day moving averages (now at $79.81 and $74.36, respectively, and rising).
Crude's overall trend is currently very bullish. Because of this, there is a small possibility that last week's low at $78.69 was a sub-cycle bottom, and prices could continue to rally now without another correction. But that $78.69 low was just a one-day corrective dip. Most sub-cycle corrections drop for 3 - 8 days before bottoming, so last week's low doesn't really qualify as a legitimate sub-cycle. If we don't get another corrective drop this week, however, we may have to assume last week was it."
All of this still applies. Crude prices pushed higher today and are now approaching $85, but this price surge is looking very steep and overdue for a corrective "breather". We will stay on the sidelines of crude as we wait for a significant correction to buy.
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