In my last blog I stated: " If the DOW edges lower this week but can stay above 17,000, we may have a good entry point for a new rally into early March that may or may not make a new high (i.e. above 18,103). "
Well, the DOW plunged to 17,037 on Monday but by Tuesday had shot back up to over 17,600. Last week we also saw wild roller coaster movements with daily 200 point swings. This is indeed a wild and dangerous market right now and it is probably best to be on the sidelines until price movements stabilize a bit (this may not happen until the end of next week). My plan had been to buy a bottom near 17,000 and to ride a slower rally into early March for a possible top to sell. This market's high volatility, however, may be giving us a significant low and a significant high in the same week. So was Monday's 17,037 low an important bottom? Because it falls within our timing window for a reversal (this week), it might be, but we are now in the center of that window and the broad stock market is surging up into it. The highs we are seeing now could also be a turning point (unless they continue higher into late next week). If the DOW continues rising into Friday or early next week but stalls in the 17,800 area (or even the 18,000 area), it could still be a good setup to sell short (with a stop loss below the high achieved). This would be especially true if one or two of the three indices we follow (DOW, S&P 500, NASDAQ) makes a new monthly (or yearly) high but the other(s) doesn't (don't) for a case of intermarket bearish divergence in a reversal zone.
Supporting this bearish scenario now is the fact that the DOW's directional momentum turned 100% bearish on Monday (although momentum remains mixed bullish and bearish in the S&P 500 and NASDAQ). Still on the sidelines.
Gold barely made a new weekly high yesterday but silver did not, so we are in the middle of this week's reversal zone without a clear top or bottom (yet). Although directional momentum remains mostly bullish for the precious metals, there are still short-term technical signals now suggesting lower prices. This market still has three or four more days to make a significant high or low, and my bias is for a new weekly low in one or both metals for a good setup to buy. On the sidelines here.
Although crude oil's bottom on Jan. 29 at $43.58 was a bit early in terms of timing, it may have been the major cycle bottom we've been waiting for. This market has also been extremely volatile over the last several days as crude prices shot up to a little over $54 yesterday which triggered a bullish technical signal that now makes this market mixed bullish and bearish (it had been 100% bearish since August 2014). Because prices are rising into the center of the current reversal zone, however, we could see a pullback now. If this pullback is prolonged into late February, it is possible we could get a new low (or double bottom to $43.58) and an ideal spot to buy the new cycle bottom (probably above $40). Right now, though, it is looking more like the cycle bottom was last week (Jan. 29) and we should be looking to buy any minor corrections from any significant high (possibly yesterday's) this week. If last week was the cycle low, we can still expect a rally to $60 (possibly higher) before this market starts to turn down again. On the sidelines and looking to buy.