MARKETS UPDATE (10:00 pm EDT)
We had been using a "bearish island reversal" chart formation in all three of our broad stock market indices (DOW, S&P 500, NASDAQ) to support the idea of this market falling to a final medium-term cycle low in the upcoming strong reversal zone (July 18 - 27). But today all three indices "gapped" UP to produce "bullish island reversal" formations, so now "the shoe is on the other foot", so to speak.
Today's equity surge was apparently caused by excitement over the release of the June CPI (Consumer Price Index) figures which were only VERY SLIGHTLY better than what had been anticipated. OK, inflation is easing a bit this month, but the following comment from Richmond Fed President Barkin puts things in perspective as he said, "...[inflation] is still too high. Our target is 2%. If you back off too soon, inflation comes back strong, which then requires the Fed to do even more."
The strong reaction by the broad stock market indicates just how sensitive, nervous, and volatile the market is right now - i.e. not very confident. Could today's "irrational exuberance" send equities to a new high into next week's reversal zone? Yes, it could. But we also note that the DOW is forming a bearish "triple-top" today with its recent highs from June 16 and July 3. Also, today's high in the DOW did not exceed its high from June 16 while today's highs in the S&P 500 and NASDAQ did exceed their June 16 highs. This gives us a bearish divergence signal which also is happening within a potentially strong "pivot point" for equities today and tomorrow.
I am going to hold my short position in the broad stock market for at least another day. We can have a stop loss for this trade now based on the DOW exceeding its June 16 high (34,589), the S&P 500 closing above 4,500, and the NASDAQ closing above 14,000.
Gold rallied strongly today which strongly supports our idea that a new medium-term cycle began with the low of $1900 on June 29. Today prices closed a little below the 45-day moving average (now at $1972). A close above there will confirm the new cycle. Today is a potential "pivot point" for gold (and silver), so we might see a small pullback over the next day or two, but a more serious concern is the strong general reversal zone coming up next week which is also a reversal specifically for precious metals. If gold rallies strongly into that time frame, we will want to take profits and sell our long position close to the top of the rally. A good target for a top might be around $2000, but it might go higher. We are still holding our long position in gold that we entered on June 30.
We have avoided buying silver recently as we weren't certain it's medium-term cycle had bottomed on June 23 at $22.14. Today silver prices shot up to $24 and closed well above the 45-day moving average. This confirms June 23 as the start of a new cycle. This is a new and young cycle and potentially very bullish. Resistance for the current rally can be found around $24 (we are there now) and $26. A break and close above $26 could lead to prices around $28 and possibly up to $35. We will therefore be looking to buy any significant pullbacks in price. We may get one now as today is a potential "pivot point" for silver and gold. If not, a rally into next week's reversal zones may produce a high followed by a corrective drop that could give us a good spot to buy. We are currently on the sidelines of silver.
Today's rally in precious metals is not surprising given the plunge taken by today's U.S. Dollar Index. The greenback dropped down to 100.51 and is challenging its two lows in this area from April 14 (100.79) and February 2 (100.82). There may be some support around 100, and after that down to 98. We note that next week's reversal zones also overlap with a reversal zone for currencies (July 18 - 27), so that may hold back any serious plummeting of this index and even push it back up.
We can now say with a good amount of certainty that the current medium-term cycle in crude oil began with the low of $63.71 (Aug. contract chart) on May 4. This means this cycle is in its 10th week and getting around its mid-point. Today prices broke and closed above resistance at $75, but they still need to clear the $82 - $85 area to confirm a bullish cycle.
Prices have been rallying and It's about time for another sub-cycle top and correction. A good time for a crest would be in next week's strong reversal zone, but we might instead see a top this week leading to a corrective low in next week's reversal window. We will be looking to buy any significant sub-cycle correction now as long as the correction doesn't go TOO low (i.e. below $67, and especially below $64). As long as prices remain above $64, there's a good chance that May 4 was also the start of a new long-term 3 year cycle. If that's the case, crude prices could be very bullish into the end of this year. If prices can get above $85, we could see crude getting back up to $128 - $130 by the end of the year. We are still on the sidelines of crude oil as we wait for a sub-cycle correction to buy.
We had been using a "bearish island reversal" chart formation in all three of our broad stock market indices (DOW, S&P 500, NASDAQ) to support the idea of this market falling to a final medium-term cycle low in the upcoming strong reversal zone (July 18 - 27). But today all three indices "gapped" UP to produce "bullish island reversal" formations, so now "the shoe is on the other foot", so to speak.
Today's equity surge was apparently caused by excitement over the release of the June CPI (Consumer Price Index) figures which were only VERY SLIGHTLY better than what had been anticipated. OK, inflation is easing a bit this month, but the following comment from Richmond Fed President Barkin puts things in perspective as he said, "...[inflation] is still too high. Our target is 2%. If you back off too soon, inflation comes back strong, which then requires the Fed to do even more."
The strong reaction by the broad stock market indicates just how sensitive, nervous, and volatile the market is right now - i.e. not very confident. Could today's "irrational exuberance" send equities to a new high into next week's reversal zone? Yes, it could. But we also note that the DOW is forming a bearish "triple-top" today with its recent highs from June 16 and July 3. Also, today's high in the DOW did not exceed its high from June 16 while today's highs in the S&P 500 and NASDAQ did exceed their June 16 highs. This gives us a bearish divergence signal which also is happening within a potentially strong "pivot point" for equities today and tomorrow.
I am going to hold my short position in the broad stock market for at least another day. We can have a stop loss for this trade now based on the DOW exceeding its June 16 high (34,589), the S&P 500 closing above 4,500, and the NASDAQ closing above 14,000.
Gold rallied strongly today which strongly supports our idea that a new medium-term cycle began with the low of $1900 on June 29. Today prices closed a little below the 45-day moving average (now at $1972). A close above there will confirm the new cycle. Today is a potential "pivot point" for gold (and silver), so we might see a small pullback over the next day or two, but a more serious concern is the strong general reversal zone coming up next week which is also a reversal specifically for precious metals. If gold rallies strongly into that time frame, we will want to take profits and sell our long position close to the top of the rally. A good target for a top might be around $2000, but it might go higher. We are still holding our long position in gold that we entered on June 30.
We have avoided buying silver recently as we weren't certain it's medium-term cycle had bottomed on June 23 at $22.14. Today silver prices shot up to $24 and closed well above the 45-day moving average. This confirms June 23 as the start of a new cycle. This is a new and young cycle and potentially very bullish. Resistance for the current rally can be found around $24 (we are there now) and $26. A break and close above $26 could lead to prices around $28 and possibly up to $35. We will therefore be looking to buy any significant pullbacks in price. We may get one now as today is a potential "pivot point" for silver and gold. If not, a rally into next week's reversal zones may produce a high followed by a corrective drop that could give us a good spot to buy. We are currently on the sidelines of silver.
Today's rally in precious metals is not surprising given the plunge taken by today's U.S. Dollar Index. The greenback dropped down to 100.51 and is challenging its two lows in this area from April 14 (100.79) and February 2 (100.82). There may be some support around 100, and after that down to 98. We note that next week's reversal zones also overlap with a reversal zone for currencies (July 18 - 27), so that may hold back any serious plummeting of this index and even push it back up.
We can now say with a good amount of certainty that the current medium-term cycle in crude oil began with the low of $63.71 (Aug. contract chart) on May 4. This means this cycle is in its 10th week and getting around its mid-point. Today prices broke and closed above resistance at $75, but they still need to clear the $82 - $85 area to confirm a bullish cycle.
Prices have been rallying and It's about time for another sub-cycle top and correction. A good time for a crest would be in next week's strong reversal zone, but we might instead see a top this week leading to a corrective low in next week's reversal window. We will be looking to buy any significant sub-cycle correction now as long as the correction doesn't go TOO low (i.e. below $67, and especially below $64). As long as prices remain above $64, there's a good chance that May 4 was also the start of a new long-term 3 year cycle. If that's the case, crude prices could be very bullish into the end of this year. If prices can get above $85, we could see crude getting back up to $128 - $130 by the end of the year. We are still on the sidelines of crude oil as we wait for a sub-cycle correction to buy.
RSS Feed