MARKETS UPDATE (3:00 pm EST)
The broad stock market continues to rally like gangbusters, and so far this week we have not seen any New Year's "hangover" selloff. The optimistic spirit of the the holidays is lingering, and President Trump's early signing of the tax reform bill before Christmas seems to be keeping "Trumphoria" alive. This controversial bill will almost certainly benefit businesses and corporations so Wall Street is pleased. Despite this bullish euphoria, however, it is very late in the medium-term cycle of the DOW and S&P 500 which means that a top is due (overdue) and a final significant correction down to the bottom of the cycle is imminent. (The NASDAQ may have started a new cycle with its low of 6,734 on Dec. 6, but even if it did, it could turn bearish early and fall with the other two indices.) A strong reversal zone for equities ends today, and all three market indices are making new all-time highs. This could be the top, and a correction could start now, but we have no bearish divergence signal so these markets could push higher. I should mention here that because I did not have access last month to January's reversal zone data, I did not notice that there is another (slightly weaker) reversal zone (Jan. 3 - 11) adjacent to the one we are now ending. This means we could see intermarket bearish divergence (one or two, but not all three, market indices making new highs) next week and still be within a reversal zone. If we don't get a top this week, we will look for that next week. The correction we are waiting for will not necessarily be dramatic, but it should be substantial enough to be worth selling short (if we can pick the high). Whatever the correction turns out to be, we will be looking to buy at its bottom (start of a new cycle) because right now it looks like this market's next medium-term cycle could easily make new all-time highs. The correction from the top of that next cycle (later this year) might be very serious, and we will most likely want to sell short then. But I am getting way ahead of myself. For now, we are looking for a top to sell short this week or next and then a subsequent bottom to buy. Still on the sidelines of the broad stock market.
In last Friday's blog on the precious metals I wrote:
"Gold and silver prices are rallying strongly and supporting the idea of a new medium-term cycle beginning on Dec. 12. We are, however, right in the center of a strong reversal zone specifically for these metals so I'm still reluctant to go long as a turning point could be imminent at the top of this steep rally."
That reversal zone for precious metals ends today, but it could merge with the new reversal zone mentioned above (Jan. 3 - 11) and allow for a top to form as late as next week. Gold has now broken above its plateau of highs from November while silver has yet to breach its Nov. 20 high of $17.36 so we also have a case of intermarket bearish divergence to support a reversal now. Silver edged up a bit and made a new high today while gold backed off a bit from yesterday's $13.21 high (more bearish divergence). Let's see if these metals can edge lower before we consider long positions (say, gold closer to the $1300 level and silver closer to $16.70). Still on the sidelines of gold and silver but looking to go long soon as it appears new medium-term cycles started on Dec.12.
Crude oil prices are also rising into our next reversal zone (Jan. 3 -11) so a top could be forming in this market as well. A new medium-term cycle in crude could have started with the Dec. 7 low of $55.88 (Feb. contract chart), but it is still possible that this is an older cycle that is topping and will soon take a final corrective plunge to the cycle bottom. If this is a new cycle (my preferred scenario), then a correction from a top (forming any time through the end of next week) would likely go down to the $58 area. A correction in an older cycle would break below $55.88. We will look to buy crude if prices get back to $58 with a stop loss on a close below $55.88. Out of crude oil for now.
The broad stock market continues to rally like gangbusters, and so far this week we have not seen any New Year's "hangover" selloff. The optimistic spirit of the the holidays is lingering, and President Trump's early signing of the tax reform bill before Christmas seems to be keeping "Trumphoria" alive. This controversial bill will almost certainly benefit businesses and corporations so Wall Street is pleased. Despite this bullish euphoria, however, it is very late in the medium-term cycle of the DOW and S&P 500 which means that a top is due (overdue) and a final significant correction down to the bottom of the cycle is imminent. (The NASDAQ may have started a new cycle with its low of 6,734 on Dec. 6, but even if it did, it could turn bearish early and fall with the other two indices.) A strong reversal zone for equities ends today, and all three market indices are making new all-time highs. This could be the top, and a correction could start now, but we have no bearish divergence signal so these markets could push higher. I should mention here that because I did not have access last month to January's reversal zone data, I did not notice that there is another (slightly weaker) reversal zone (Jan. 3 - 11) adjacent to the one we are now ending. This means we could see intermarket bearish divergence (one or two, but not all three, market indices making new highs) next week and still be within a reversal zone. If we don't get a top this week, we will look for that next week. The correction we are waiting for will not necessarily be dramatic, but it should be substantial enough to be worth selling short (if we can pick the high). Whatever the correction turns out to be, we will be looking to buy at its bottom (start of a new cycle) because right now it looks like this market's next medium-term cycle could easily make new all-time highs. The correction from the top of that next cycle (later this year) might be very serious, and we will most likely want to sell short then. But I am getting way ahead of myself. For now, we are looking for a top to sell short this week or next and then a subsequent bottom to buy. Still on the sidelines of the broad stock market.
In last Friday's blog on the precious metals I wrote:
"Gold and silver prices are rallying strongly and supporting the idea of a new medium-term cycle beginning on Dec. 12. We are, however, right in the center of a strong reversal zone specifically for these metals so I'm still reluctant to go long as a turning point could be imminent at the top of this steep rally."
That reversal zone for precious metals ends today, but it could merge with the new reversal zone mentioned above (Jan. 3 - 11) and allow for a top to form as late as next week. Gold has now broken above its plateau of highs from November while silver has yet to breach its Nov. 20 high of $17.36 so we also have a case of intermarket bearish divergence to support a reversal now. Silver edged up a bit and made a new high today while gold backed off a bit from yesterday's $13.21 high (more bearish divergence). Let's see if these metals can edge lower before we consider long positions (say, gold closer to the $1300 level and silver closer to $16.70). Still on the sidelines of gold and silver but looking to go long soon as it appears new medium-term cycles started on Dec.12.
Crude oil prices are also rising into our next reversal zone (Jan. 3 -11) so a top could be forming in this market as well. A new medium-term cycle in crude could have started with the Dec. 7 low of $55.88 (Feb. contract chart), but it is still possible that this is an older cycle that is topping and will soon take a final corrective plunge to the cycle bottom. If this is a new cycle (my preferred scenario), then a correction from a top (forming any time through the end of next week) would likely go down to the $58 area. A correction in an older cycle would break below $55.88. We will look to buy crude if prices get back to $58 with a stop loss on a close below $55.88. Out of crude oil for now.
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