The broad stock market is still refusing to give us a clear directional trend as we enter the first week of October. We are getting several mixed technical signals as well as some inconsistency between our three major market indices (DOW, S&P 500, NASDAQ). Let's look at each one.
The DOW seems to be finding support at the 34,000 line. As I stated in my last blog, this index could be forming a "double-bottom" base with the Sept. 20 low and about to start a new medium-term cycle. Certain technical indicators are suggesting this is the case, and if so, this index would be bullish and should start another rally now. We are approaching another reversal zone at the end of this week (Oct. 8-22). If this is the start of a new cycle, then we should see a good rally into that time frame that may or may not make a new all-time high. But there's still a chance this index could break lower and form some sort of bottom in that same time period. At the moment, a bullish rally seems more likely. Even if we get a rally, however, we are still on the lookout for a long-term cycle top to sell short. A new medium-term cycle is usually very bullish, but if a longer-term cycle top is due (now overdue), the medium-term cycle could top out early and start a long and steep fall to its final bottom. Let's remain on the sidelines as we wait to see if this index can start a rally now.
The S&P 500 is most likely completing an older medium-term cycle. Monday's low at 4,279 could have been a significant sub-cycle bottom (probably not the final bottom), and this index, like the DOW, could start a rally now. If that happens, as with the DOW, we would be looking for a top in our new reversal zone that may or may not break to a new all-time high. If instead, this index turns south, we may be watching for a bottom in that reversal zone. We will remain on the sidelines as we watch for a potential rally.
The NASDAQ is looking more bearish than the other two indices. We had been thinking that this index was starting a new medium-term cycle on either Aug. 19 (at 14,424) or Sept. 20 (at 14,530). If that's still the case, the NASDAQ is very bearish because it has now broken below both of those lows and could be moving lower for many more weeks (even months). There's a chance, however, that this Monday's low at 14,181 or a lower low in our upcoming reversal zone (which starts on Friday) will be the final bottom of an older medium-term cycle and the start of a new one. The cycle pattern - bullish or bearish - is just not clear right now. We will stay on the sidelines of this index for now.
In last week's blog on gold I wrote:
" ...the current medium-term cycle (which began with the low of $1693 on Aug. 9) is showing a reluctance to rally and could be turning bearish. Last week's low at $1739 was in our reversal zone and could be a sub-cycle low and the starting point for a rally....We need to see gold closing above $1800, and especially $1834, for the trend to start looking bullish again..."
Gold has rallied a bit but hasn't gotten beyond $1770, so the trend is still unclear.
In last week's (Sept. 27) blog on silver I wrote:
"That low last Monday at $22.07 may have been the end of an old medium-term cycle and the start of a new one. That would make silver very bullish now, but prices would have to rally above $24.82 to confirm this labeling. The alternate view is that silver started a new medium-term cycle with the double-bottom of Aug. 9 ($23.02) and Aug. 20 ($22.92). In that case, silver's trend is bearish because prices have already moved below the start of the cycle. It is unclear at the moment which view - bullish or bearish - is correct."
Well, silver prices broke down to $21.44 last Wednesday (Sept. 29). They have been rallying from there, so that may have been the end of an old medium-term cycle. That will be confirmed with more rallying, but if prices turn south again, we may have to accept the bearish view of silver and lower prices for many more weeks.
It does not bode well for the bullish view that both metals are now making highs in our current reversal zone for the precious metals (Sept. 9 - Oct. 7) We will remain on the sidelines of both silver and gold for now.