With this mid-week update (Wednesday) we are now entering another reversal zone (May 15 -22) which is relevant to all markets, but is especially applicable to precious metals and the broad stock market. Unfortunately, there is no clear directional pattern in any of the markets right now to suggest a top or bottom is imminent. The ongoing U.S.- China "trade war" has been giving Wall Street a bit of a roller coaster ride and is surely contributing to trader indecisiveness. We can't control Trump's trade war, but we can look at technical and cycle patterns in our charts to pinpoint likely turning points in these markets.
The broad stock market plunged dramatically on Monday to new monthly lows in all three major indices (DOW, S&P 500 and NASDAQ). Was this the final medium-term cycle low we've been waiting for? It's possible, but Monday was not in a reversal zone. It would be much better to see the final bottom in our new reversal zone (i.e. between now and next Wednesday). We also did not get a bullish divergence signal because all three indices made new lows. The two day bounce from Monday's lows could be just a "relief rally" before the market resumes its plunge. Lower lows early next week (perhaps with a bullish divergence signal) would be the ideal set-up to buy so let's watch for that. If instead this market pushes higher into the reversal zone, we would also expect a reversal from a top either this week or early next week. In that case, we could see a final bottom in early to mid-June. We will stay on the sidelines for now until we can identify the medium-term cycle bottom with more certainty.
Gold made a new weekly high on Monday while silver stayed well below last week's highs so we now have a case of bearish divergence (until silver exceeds $14.95). Both metals could turn down now and make new lows in the current reversal zone (by next Wednesday). As with the broad stock market, that would probably be a good a good buy spot. Even if prices push higher into the end of the week, the reversal zone suggests they will turn down again. Let's stay on the sidelines of this market for now.
The U.S. Dollar Index had been falling steeply since late April, but it has been rising sharply from a low near 97 on Monday. That low was in the center of a reversal zone specifically for currencies (May 7 - 16) so it's possible this rally could gain some legs (although it needs to first overcome resistance at 97.60). If the dollar does rally now, it would put downward pressure on gold and silver prices.
In Sunday's blog on crude oil I wrote:
"Crude oil may have started a new medium-term cycle on May 5 at $60.04 (June contract chart), but the rally from there has not been that strong (new cycles usually start off very bullish). We took profits in our short position at that bottom, but it's possible the old medium-term cycle is not over and could still go lower. If that's the case, prices could continue down into the next reversal zone for crude in mid-June (June 7 - 22) which would be a good place to buy. (Any dip back down to $60 which holds may also be a "double bottom" low and an opportunity to buy.)"
All of this still applies. This market still seems reluctant to rally, and may be taking its cues from the broad stock market with jitters from Trump's "trade wars". The chances of prices making a new low are still substantial so let's stay on the sidelines of crude for now.