In my Jan. 22 blog I stated: "Unfortunately, markets could be very unstable and volatile over the next three weeks so we may see choppy index movements as we move into February."
This is turning out to be true, especially in equity markets and the precious metals. Last week saw steep drops in both gold and silver as well as a steep drop in the DOW with 200 point daily seesawing. This kind of volatility could continue for at least two more weeks so we need to be especially prudent now in our trading.
The broad stock market looks a little more bearish than bullish at the moment, but technical signals are still quite mixed. If the DOW edges lower this week but can stay above 17,000, we may have a good entry point for a new rally into early March that may or may not make a new high (i.e. above 18,103). If that 17,000 level breaks, however, the markets could panic and we might see a steep drop into early March instead of a rally. A third possibility would be my original ideal scenario (still possible but less likely now) where the DOW rallies strongly next week but does not make a new high (now over 800 points away). We need to wait and see how the market moves next week before considering any trade. Still on the sidelines.
The steep drop in gold and silver prices last week brought both metals near to our ideal target prices for a bottom ($1250 for gold and $17 for silver). The only problem is that the ideal time for a bottom is the middle of this week, and so despite the price rebound on Thursday and Friday, prices could drop again this week. If they do, we will look to buy. Gold and silver are a tricky call right now as it is also possible for prices to surge this week. If this happens, we may get a good setup to sell short, especially if gold makes a new monthly high and silver does not (intermarket bearish divergence). We are late in the shorter-term cycles of both gold and silver so some sort of correction is due soon. Nevertheless, we can't rule out a strong surge here before the drop. As with the broad stock market, price movements next week will determine our trading strategy moving forward. On the sidelines for now.
Crude oil also made a bottom last week (a new low at $43.58 on Thursday) that was a bit early in terms of timing (it would be better this week). Any pullback in prices next week should probably be bought as we appear to be at the bottom of a long-term cycle in crude, this market is very oversold, and the timing is ideal for a reversal. On the sidelines and waiting to buy.