ALTHOUGH THE BROAD STOCK MARKET NOW SEEMS RIPE FOR A SHORT SELL (SEE BELOW), I AM REMAINING OUT OF ANY TRADING POSITION DUE TO POTENTIALLY EXTREME VOLATILITY.
I WILL TRY AND POST ANOTHER UPDATE TOMORROW (THURSDAY).
MARKETS UPDATE (5/18/20)
In last Wednesday's blog on the broad stock market I wrote:
"....markets are very unpredictable right now. There is still time for these indices to edge higher before this reversal zone is over. If they do that, we may be looking for a top to sell short later this week or early next."
Well, it is "early next" and today equities responded to some positive news about a coronavirus vaccine with an impressive rally. The DOW was up over 900 points! Our current strong reversal zone technically ends on Wednesday so we could be seeing a significant top forming right now or over the next two days. Today all three market indices (DOW, S&P 500, NASDAQ) made new weekly highs, but only the S&P 500 and NASDAQ made new monthly highs (although the DOW came very close). This could be a bearish divergence signal (although that could easily be negated tomorrow if the markets edge higher and the DOW breaks above 24,765). The incredible volatility of this market is keeping me on the sidelines. If these indices stall tomorrow and the DOW remains below 24,765, I will consider selling short (perhaps with a stop loss based on that break above 24,765); however, a sharp downturn would probably have me waiting for a corrective bottom to buy (that could come fairly quickly). Again, I'm not anxious to trade this volatile market right now (or I should say that I AM anxious about trading this market). We are remaining on the sidelines today.
Gold and silver prices also rallied strongly early in the day (pre-trade hours), but then backed down. Gold made a new high for its current medium-term cycle (which began in mid-March), but silver's high was well below the high (so far) of its current medium-term cycle (which also started in mid-March). This is another bearish divergence signal, and
because this is a reversal zone, we could now see prices fall closer to our original targets ($1600 in gold $14 in silver; now maybe $1650 in gold and $14.50 in silver) for a corrective bottom to buy. Still on the sidelines of this market but waiting to buy.
Crude oil may also give us a good opportunity to sell short if prices can edge up closer to $36 (June contract chart) before Wednesday. We are basing this on the idea that crude started a new medium-term cycle on April 21 and is now due for its first sub-cycle correction. On the sidelines of crude for now.