On Monday, July 3, the DOW made a new all-time high and touched 21,562. The S&P 500 and NASDAQ, however, did not even clear last week's highs, and directional momentum in both of these indices is still mixed bearish and bullish (the DOW remains nearly 100% bullish). We thus started off the week with some intermarket bearish divergence (which persists until the S&P 500 and NASDAQ make new highs). Last week's low in the DOW (21,197) was far above our ideal target for a correction (20,600 - 20,800), but this reversal zone ends Thursday so that may have been it. The S&P 500, however, got close to our 2,400 target (it hit 2,405 on Thursday) so that too could be the end of the correction. If those are the turning points for a reversal, the broad stock market should rally now, at least into the third and fourth week of this month (our next reversal zone), but Monday's bearish divergence signal keeps open the possibility of this market falling lower. A steep drop into Thursday could lead to a final corrective bottom (and good buy spot if the DOW gets within our target range), but if these indices continue to fall past Thursday, we may have to wait at least three weeks for a bottom. On the other hand, if the S&P 500 and NASDAQ both make new highs this week (breaking the bearish divergence), we may be looking for a buy spot as this market could be bullish for at least three more weeks. I know this is all a bit confusing, but the next few days should tell us which way this market is likely headed. Please note that if the market turns bullish now, the significant correction (maybe 8% or more) that I have mentioned as being imminent is even more likely to happen in the next sub-cycle correction (possibly from a high in the next reversal zone if the market turns bullish). Still on the sidelines of the broad stock market.
The sudden plunge of gold prices on June 26 caused by a large "accidental" sell order given in early morning trading dampened a potential setup for gold to "break out" and rally strongly. On June 27 I wrote:
"...gold's sudden drop below a support line at $1240 introduces the possibility of a sharp sub-cycle correction into the upcoming reversal zone for gold and silver (June 28 - July 6). If such a correction sends gold below $1214, the overall trend could turn very bearish."
And then on June 30 I wrote:
"We are now in the center of a reversal zone for both gold and silver which ends next Thursday so prices could easily make a new low by then, but first gold has to break clearly below support at $1240. We will watch for that and an opportunity to buy next week as long as gold prices stay above $1214 (and silver above $16.07). An ideal buy situation will set up if gold makes a new low next week and silver stays above this week's low (bullish divergence)."
Well, gold prices broke dramatically below that $1240 support on Monday and now seem to be testing another support level at $1220. Silver prices, however, are now breaking below $16.07 (which was the start of the current medium-term cycle on May 9), and this is potentially a very bearish signal. The current reversal zone for these metals ends tomorrow so we could still see prices turn back up, but since silver's trend may now be bearish, any rally may be small and short-lived. If gold can stay above its low from May 9 ($1214), we may have a good bullish divergence signal and buy spot here, but if gold breaks that low (it is close) then both metals are likely turning bearish and will move lower for at least several more weeks (probably longer). Let's stay on the sidelines of both metals for now and see if gold breaks below $1214 by the end of the week.
Because of the Fourth of July holiday this week in the U.S., I may have missed an opportunity to sell short crude oil. Crude prices peaked around $47 (Aug. contract chart) on Monday and Tuesday in the center of a reversal zone for crude (on July 4th) and today they fell dramatically and closed the day around $45. If prices can edge back up tomorrow and Friday and stay below that $47 high, we may get another chance to sell short; otherwise, we will wait for another bottom to buy in another reversal zone for crude coming up in the third and fourth week of this month. Ideally, that could be close to $40 and the bottom of a long-term cycle (very good spot to buy), but if prices stay above $42, it could still be a good buy spot as the new long-term cycle may have started at that $42 low on June 7. Still on the sidelines of crude oil.