Crude Oil and Gold cycles look promising

Thursday’s Equity snapback rally proved short-lived, as some European bank credit default swap widening spooked the bond market, and stock indices followed suit.   The rumor was that counter-party hedging was responsible, but the bond market was volatile yet again.

While stock indices managed to recover by the close, breadth was lower by nearly 2/1 negative as Equal-weighted Financials, Energy and Utilities all fell more than 1%. 

Near-term, it’s still not a stretch to say SPX and DJIA are up near important short-term resistance and could stall out and/or reverse during this important seasonal period.  Following the recent 200-point SPX move off 3/13 lows, short-term trends remain bullish but are wavering a bit after having reached resistance within downtrends from early February.

Neither SPX nor DJIA has exceeded areas of importance, and similar to Wednesday, prices fell sharply from intra-day highs, albeit not as extreme as in yesterday’s trading.

Technology, to its credit, continues to lead the charge, largely uninterrupted.  Thursday’s +1.5% advance swamped all other sectors, and camouflaged the decline yet again given strength in names like MU 2.68% , INTU 1.62% , LRCX 2.65% , and ACN -0.32%  meaningfully outperformed.

Meanwhile, Financials fell -1.2% in Equal-weighted terms, which might have been ignored based on the strength seen in the Large-cap Financials, which made XLF -0.15%  seem like it was lower by nearly half that amount.  Strength in the credit card names like MA 0.07% , V -0.46%  along with gains in AJG -1.20%  and MKTX 0.10%  were clearly helpful for large-cap Financials.

Near-term, the area at SPX-3896 has short-term importance as support, and should provide support to declines into early next week.  However, moving below that might result in a quick test of March lows before rebounding into the strong seasonal month of April.  Conversely, recovering above SPX 4040 would truly be a positive for both SPX cash and 1^st month Futures.

Overall, it will take some patience here, and as discussed in recent days, seeing some more concrete recovery in Financials and also Healthcare will be important before truly expecting that stock indices can simply break out across the board.

Crude oil recovery won’t be believable until $75 is exceeded

WTI Crude rallied for three straight days off the lows before Thursday’s selloff made what appeared to be a minor reversal. 

It’s thought that Crude has entered a bottoming process.  While near-term weakness very well could unfold over the next 3-5 trading days, cyclical trends point sharply higher into late May/June and should bode well for recovery.

For conviction that WTI Crude has truly bottomed, a daily close back up above late February lows at $73.83 (Front mth Futures) will be necessary.  This would drive a rally back to the low $80’s and ultimately lead Crude up above $100 in the 2^nd half of 2023.

At present, it’s not thought that Crude should decline under $60.  Thus, buying here in small size might be wrong, looking to add as price dips in the weeks to come.

Crude Oil Cycle starts to turn sharply higher into late May

This stabilization in recent days fits in with the thinking that a larger rally should occur in Crude in the months ahead.

Seasonality trends haven’t been favorable for Crude in March in recent years, as Crude has declined over the last three of five years.  Its 10-year average return for March is -3.52%, the second worst month behind November for WTI.

However, April is much better and April and May are the best two months of any within the 10-year period.  The average return for April over the last 10 years is +5.26% while higher by a whopping +9.11% in May.   (Unfortunately this data is skewed thanks to May’s outsized return in 2020 following Crude’s plunge into negative territory.)

However, the best time of the year lies directly ahead for WTI Crude, and Energy as a sector should likely follow suit.

Crude cycles start to turn higher during the last full week of March and trend higher into late May before weakening.  This cycle composite which I created seems to have been effective in the past and nailed the peaks from 2008 to 2013-2014 along with 2022 as highs.  Moreover, it had lows during 2009 along with 2021 and bottoms now during late March.

Bottom line, price action will need to turn higher and exceed $75 before making too much of this, but the combination of near-term oversold conditions, bearish sentiment and bullish cycles and seasonality make Crude and Energy seem like an excellent risk/reward.

Gold short-term cycle says something different than long-term

Gold and Silver both have been acting very well lately and technical trends favor a coming test of all-time highs.

However, the cycle that has pinpointed the last few major highs and lows seems to suggest some consolidation might be warranted before expecting a meaningful advance back over all-time highs. 

The short-term cycle seems to be at a time when tops are possible and stays lower into early August when it turns up sharply during the historically bullish Fall period.

My weekly Gold cycle, however, gives far more reasons for optimism and when running cycles back to the early 1990’s a few prominent highs and lows were successfully captured by the composite when using weekly long-term cycles.

The prior peak during 2011-2012 happened nearly right on schedule while the runup from late 2018 into late 2020 also happened like clockwork before a big decline.

2023 into 2025 looks very bright for Gold, and traditional technical patterns tend to agree with this, with very constructive pattern development and improvement in momentum.

Thus, a rally back to new highs, and potentially much higher looks likely for Gold.  However, when combining the daily with the weekly cycles, it seems like a tactical rally into April might lead to a temporary peak before pulling back into the Summer.

Dips, however, should be bought for gains back to new high territory.  Movement over $2075 would set up for gains to $2181 and then eventually $2500 which would allow the two-year rally from August 2018 to August 2020 to equal the rally from September 2022.  If this second leg of the rally were to equal the first, then a two-year rally would last into next Fall before peaking, which would roughly line up with the weekly cyclical path.

Overall, precious metals are bullish technically.  However some patience might be required in Spring/Summer, which might directly have to do with US Dollar and/or Yields bouncing.