MARKETS UPDATE (3:00 pm EST)
Our decision to short sell the broad stock market last Thursday was a good one. As I wrote in Thursday's blog:
"This week's rally could peak now and then head down sharply for several weeks to the final medium-term cycle bottoms of the DOW and S&P 500 (probably in our next strong reversal zone coming up March 14 - 23)."
After peaking last Tuesday (DOW and S&P 500) and last Wednesday (NASDAQ), all three market indices (DOW, S&P 500, NASDAQ) have been falling steeply. A weak general reversal zone ends today, so It's possible we could see a bottom here, but I think it's more likely this market will continue down lower into March as it moves down to the final medium-term cycle bottom for these indices. A good target range for the cycle bottoms would be around 30,500 - 32,500 for the DOW and 3,600 - 3,900 for the SP 500. Our next next reversal zone (a strong one) is coming up in mid-March (March 14 - 23). That would be a good time for the cycle bottoms. Let's hold our short position for now with the expectation of final bottoms next month in the above mentioned ranges. We already have a profit on this trade so we can keep our stop loss based on all three indices breaking back above last week's highs.
Gold's current medium-term cycle final bottom is due anytime now over the next 5 weeks and in the price range of $1770 - $1810. The bottom MAY have happened with last week's low at $1819, but that low was not in our target range, and we had no bearish divergence signal between gold and silver. I think gold prices can push lower and into our target range. If that happens this week without silver making a new weekly low, we may have a good spot to buy. There is a weak reversal zone for the precious metals this week (silver on Wednesday and gold on Friday), but there is a much stronger reversal zone for gold and silver coming up March 13 - 21. If gold prices don't bottom this week, we will look for the final medium-term cycle bottom in mid-March. We are currently on the sidelines of gold.
Unlike gold, silver's final medium-term cycle bottom is overdue (which means its cycle is expanding), and it may have already happened with last week's low at $21.19. That low was in our range for a final cycle bottom ($20- - $22), and it was inside a weak reversal zone. If that low can hold this week and if gold can make a new weekly low, we would have a bearish divergence signal and possibly a good spot to buy both metals. While gold's next rally may not get above $1959, silver has the potential to rally back up to $30, so we are definitely on the lookout to buy this metal. We are still on the sidelines of silver for now.
After breaking a tad above $80 last week, crude oil prices have been falling again, and today they are approaching a strong support line near $74. If this support holds and prices start to rally again, it will support the idea that a new medium-term cycle started with the low of $70.86 on Dec. 9. If that's the case, another rally could be bullish and finally break clear through the $80 level, but prices would also have to break and close above $83 to make the cycle truly bullish. This is my favored scenario now, but it would be negated if prices continue to fall and break below $70. In that case, we would likely be looking at an older medium-term cycle making its final bottom sometime in mid-March in a target range of $60 - $65. If that happens, that bottom would also likely be the end of a longer-term 3-year cycle (and start of a new one) and would be an excellent buy spot.
On the other hand, if our preferred bullish scenario (medium-term cycle starting on Dec. 9) plays out, we will assume the new 3-year cycle started on Dec. 9 and the market will be very bullish with prices soon getting back up to the $92 - $94 area. If crude can get past $100, it will verify that a new 3-year cycle is in progress, and we might see prices as high as $140 - $145 by the end of the year ! For now, however, we need to stay on the sidelines as we wait for confirmation of either an older cycle or a new, younger one.
Our decision to short sell the broad stock market last Thursday was a good one. As I wrote in Thursday's blog:
"This week's rally could peak now and then head down sharply for several weeks to the final medium-term cycle bottoms of the DOW and S&P 500 (probably in our next strong reversal zone coming up March 14 - 23)."
After peaking last Tuesday (DOW and S&P 500) and last Wednesday (NASDAQ), all three market indices (DOW, S&P 500, NASDAQ) have been falling steeply. A weak general reversal zone ends today, so It's possible we could see a bottom here, but I think it's more likely this market will continue down lower into March as it moves down to the final medium-term cycle bottom for these indices. A good target range for the cycle bottoms would be around 30,500 - 32,500 for the DOW and 3,600 - 3,900 for the SP 500. Our next next reversal zone (a strong one) is coming up in mid-March (March 14 - 23). That would be a good time for the cycle bottoms. Let's hold our short position for now with the expectation of final bottoms next month in the above mentioned ranges. We already have a profit on this trade so we can keep our stop loss based on all three indices breaking back above last week's highs.
Gold's current medium-term cycle final bottom is due anytime now over the next 5 weeks and in the price range of $1770 - $1810. The bottom MAY have happened with last week's low at $1819, but that low was not in our target range, and we had no bearish divergence signal between gold and silver. I think gold prices can push lower and into our target range. If that happens this week without silver making a new weekly low, we may have a good spot to buy. There is a weak reversal zone for the precious metals this week (silver on Wednesday and gold on Friday), but there is a much stronger reversal zone for gold and silver coming up March 13 - 21. If gold prices don't bottom this week, we will look for the final medium-term cycle bottom in mid-March. We are currently on the sidelines of gold.
Unlike gold, silver's final medium-term cycle bottom is overdue (which means its cycle is expanding), and it may have already happened with last week's low at $21.19. That low was in our range for a final cycle bottom ($20- - $22), and it was inside a weak reversal zone. If that low can hold this week and if gold can make a new weekly low, we would have a bearish divergence signal and possibly a good spot to buy both metals. While gold's next rally may not get above $1959, silver has the potential to rally back up to $30, so we are definitely on the lookout to buy this metal. We are still on the sidelines of silver for now.
After breaking a tad above $80 last week, crude oil prices have been falling again, and today they are approaching a strong support line near $74. If this support holds and prices start to rally again, it will support the idea that a new medium-term cycle started with the low of $70.86 on Dec. 9. If that's the case, another rally could be bullish and finally break clear through the $80 level, but prices would also have to break and close above $83 to make the cycle truly bullish. This is my favored scenario now, but it would be negated if prices continue to fall and break below $70. In that case, we would likely be looking at an older medium-term cycle making its final bottom sometime in mid-March in a target range of $60 - $65. If that happens, that bottom would also likely be the end of a longer-term 3-year cycle (and start of a new one) and would be an excellent buy spot.
On the other hand, if our preferred bullish scenario (medium-term cycle starting on Dec. 9) plays out, we will assume the new 3-year cycle started on Dec. 9 and the market will be very bullish with prices soon getting back up to the $92 - $94 area. If crude can get past $100, it will verify that a new 3-year cycle is in progress, and we might see prices as high as $140 - $145 by the end of the year ! For now, however, we need to stay on the sidelines as we wait for confirmation of either an older cycle or a new, younger one.
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