Next week is a holiday week in the U.S. (Fourth of July) and markets will be closed on Friday. Equity markets are often thinly traded on holiday weeks and also tend to be optimistic (bullish). If the broad stock market does rally into the holiday, we may get a good setup to go short. Lower prices, however, could lead to a modest correction next week followed by more rallying into mid-July. Because trading could be light next week I will probably stay on the sidelines and just observe the directional trend. Ideally, I would still like to sell short in mid-July.
There are currently several technical indicators strongly suggesting that gold and especially silver prices are about to turn down. It is starting to look like this correction could be severe. If support at the $1280 area in gold is broken, prices could fall to $1200 or even lower. It is tempting to try and sell short here, but unless we get a very strong bearish momentum signal, I am going to stick with my bullish strategy of waiting to go long at the bottom of any significant correction. A bottom in the precious metals would be ideal in mid-July.
Last week the U.S. Dollar Index broke support at 80.20 and is now testing another strong support level at 80.00. As I mentioned in last Thursday's blog, the dollar has a lot of support all the way down to 79, so it would not be surprising to see it bounce significantly up any day now and kick start a downturn in gold and silver prices. This may happen next week.
Directional momentum in crude oil remains strongly bullish. If prices can fall to the $103 - $104 area soon I will consider a long position as it is still early in crude's current cycle and there is room for prices to go considerably higher. The ongoing civil war in Iraq is also a major factor now that could push crude prices to higher levels.