In its typical roller coaster fashion, the broad stock market dropped significantly on Monday and Tuesday but shot back up today with a significant rally (the DOW closed up 434 points). Today's rally was driven by an anticipated "dovish" tone from today's Fed meeting wrap up and policy statement. The Fed did not disappoint as it left interest rates unchanged and stated that it will be "patient" now with any further rate hikes. This was music to the ears of Wall Street which has not been appreciative of the Fed's recent aggressive attitude in rate hiking.
Monday's drop did not reach our target areas (23,600 - 24,000 in the DOW and 2,500 - 2,600 in the S&P 500) and was not deep enough to qualify as a normal sub-cycle correction. This means that the cycle is either going to bypass a correction now or we are still forming a top in the current (weak) reversal zone (Jan. 29 - Feb. 6) that will reverse down any day (now through next Wednesday) to touch or break below our targets. Today all three indices (DOW, S&P 500 and NASDAQ) made new weekly highs so last week's bearish divergence signal is now negated. We still have not exceeded our stop loss points for our short position (25,100 in the DOW and 2,700 in the S&P 500). There is some resistance at those levels so there's a reasonable chance they will hold. It all depends on whether or not today's dovish cooing from the Fed has the power to sustain and propel a rally from here. I am going to hold my short position for now with a close eye on those stop loss points.
It looks like last week's lows in the precious metals ($1277 in gold and $15.12 in silver) were probably significant sub-cycle corrections. Because they were well above our target prices for buying, we did not go long. What this means is that both metals are now in the process of rallying to their final peaks before they correct down to their final medium-term cycle bottoms. Gold might get to the $1340 area and silver as high as $17.20. Does this mean we should look to buy now? Probably not. We would be chasing a rally already well in progress (we like to buy closer to a bottom), and there is no guarantee prices will get to those levels just mentioned. Furthermore, short-term technical studies show that this week could be a turning point for gold, and early next week could see a strong sell-off in silver.
Our main trading strategy now will be to wait for the final medium-term cycle bottom in both metals to buy, but even before that we might try to sell short at the the final cycle top (perhaps near those targets mentioned above) as the final corrective move down could be substantial. As long as the final cycle bottom doesn't go too low, this market looks quite bullish. If gold prices can start breaking above $1375, we could see gold possibly as high as $1500 this year. This is my bullish view at the moment; however, a failure to exceed $1375 by July could mean these markets are turning bearish (especially if gold prices break below $1100 - see GOLD Update 8/22/18 on the home page). But I am getting way ahead of myself. For now, we will try to sell short the tops of the current medium-term cycles (which are imminent) and then buy at the the final corrective bottoms. On the sidelines of both gold and silver.
Today's dovish comments from the Fed sent the value of the U.S. dollar down, but as with the broad stock market, we will have to wait and see if those comments have any lasting impact beyond this week (or even today). The U.S. Dollar Index is approaching 95, an area where there is significant support. Also, the current cycle pattern for the greenback looks quite bullish so it doesn't seem likely the dollar is going to tank here. There is room now for the dollar to edge lower into support and encourage the precious metals to rally some more before potentially hitting a a top and reversing (as described in the gold and silver discussion above).
The price of crude oil is taking its cues from the broad stock market, and today it rallied to make a new high for the month at $54.69 (March contract chart). As I've pointed out recently, it is highly likely crude oil started a new medium-term cycle on Dec. 24 at its low of $42.67. It's also possible that was the start of a new longer-term 3 year cycle which, if correct, means this market is quite bullish and prices could be pointed up for the rest of the year. According to cycle projections, we could eventually see prices back up near $100 within the next 3 years. For these reasons, we are looking to go long in this market as soon as possible. As with the other markets, we have been waiting for a sub-cycle correction to buy (in the $48 - $50 area) but bullish forces seem to be delaying (or preventing) a normal correction. Today's new high is happening in a mild (weak) reversal zone so we could still see a price dip start over the next several days. If prices edge higher past next Wednesday, however, we may have to wait another week or two for a corrective dip to buy. Still on the sidelines of crude oil but looking to buy any time now.