The broad stock market was clearly in a pessimistic mood early in today's trading as the DOW dropped nearly 400 points by early afternoon, but then it recovered a bit and closed the day with only a 173 point loss. Many support levels have now been broken, and the cycle pattern indicates that this market should be going lower for at least three more weeks. The DOW's correction from its Sept.19th all-time high of 17,350 is now over 8%, so it looks like we are approaching the 10% or more correction that has been overdue for some time. As I've stated before on the site, when major cycle corrections are delayed, they often manifest later in an abrupt and sharp fashion and are hard to pinpoint and trade. This week's dramatic plunge is an example of this as a "normal" market would have rallied a bit more before falling. Technical factors are now suggesting that this correction could be considerably more than 10% (possibly 17% or even more) so I am still going to be looking for an opportunity to sell this market short. Equities are extremely oversold right now and a reversal is still possible so we may get a relief rally over the next several days.
If we do, it might give us a good spot to sell short. Still on the sidelines.
Gold and silver continue to rally (especially gold) and gold prices nearly touched $1250 today which is the midpoint of my first target range ($1240 - $1260) for this rally. However, I think prices could go higher and I am not ready to take profits on long positions just yet. Gold is overbought right now and may pull back a bit, but as long as prices remain above the $1210 - $1220 area I am holding on to my long position in gold.
After nearly four months of bullish momentum and strong rallying, the U.S. Dollar Index is starting to show some signs of weakness. The dollar dropped sharply today (intraday) to support at 84.5 as a bearish momentum signal appeared in dollar charts. Directional momentum is now mixed bullish and bearish for this index which means the current dollar correction could turn out to be more than just a shallow dip. We will have to wait and see. This is good news for the precious metals as a slump in the dollar encourages higher prices in gold and silver.
My patience in waiting for a bottom in crude oil prices is starting to wear thin. There are two reasons I have held on to my long oil position recently. First, the current cycle in crude has reached its maximum duration length. This length is based on statistical probability; in other words, it is highly likely the cycle bottom is happening now (this week). If the cycle doesn't bottom now and continues for several more weeks it is distorting, which is possible but less likely. Secondly, last week and early this week has been a time period when directional reversals in many financial markets can occur, and crude has been moving down and making new lows into this timing window. My line in the sand now is $79 - $80, and I will have to bail out of this long oil position if that price level is breached. We nearly touched $80 today, and prices closed in the upper part of the day's trading range so we may get a bounce here, especially if the broad stock market has a relief rally now. Still holding my long position in crude.
With tensions in the Middle East heating up, one would expect oil prices to be rising. So what could be sending crude prices lower and causing the crude cycle to distort right now? A recent article posted on the news site VOX (http://www.vox.com/2014/10/14/6975977/which-countries-suffer-most-when-oil-prices-plummet) may have the answer to this question. It points out how falling oil prices could crush Russia's current economy since oil revenues account for roughly 45% of Russia's budget. With the recent conflicts in Ukraine and Syria intensifying, many geopolitical analysts are already referring to a new "cold war" developing between Russia and the West. The downward manipulation of crude prices to subjugate an increasingly obstinate Vladimir Putin seems to be a possibility here, especially in light of the fact that some Washington politicians were discussing the possibility of selling U.S. oil reserves earlier this year to lower oil prices and weaken the Russian economy. The purpose of this website is not to discuss conspiracy theories, but when distortion occurs in the natural cycle of a financial market, I believe market manipulation can sometimes be a significant force behind it, and I think it is worth mentioning. As traders, I believe we need to accept the fact that market manipulation does happen. When it does, it can be like someone throwing a wrench into our carefully worked out technical and cycle analysis, and trading can become very difficult, though not impossible. Interestingly, I have noted over the years that even though market manipulation often distorts cycles, it usually doesn't eliminate them. Thus we are not totally lost when a cycle shift occurs and can usually in short time figure out how our trading strategy needs to be altered and realigned to the new pattern.