My decision to bail out of gold positions on Tuesday based on negative COT charts and a bullish looking U.S. Dollar Index has turned out to be a good one. Gold prices broke support at $1290 yesterday and plunged to a new monthly low at $1274 intraday. It is significant that gold also broke below $1280 because, according to cycle studies, this now means that prices will be moving lower before the current short-term cycle is over. The end of next week and the first week of September is a major reversal zone for gold so we won't have to wait long for some sort of bottom that could be a good buy spot. Please note that my trading of gold and silver is going to be short-term until we have strong evidence that the final long-term cycle bottoms of gold and silver are in. That might not be until early next year, but there should be good short-term trading opportunities before then. I want to emphasize here that the long-term bullish picture of gold and silver remains very much intact and that once the long-term gold cycle makes its final bottom (somewhere above $1000), gold and silver will be starting multiyear rallies that should take both metals to new all-time highs. For now, however, we will focus on the first week of September for a likely trend reversal and a possible bottom to buy. On the sidelines of this market.
The broad stock market continues to look bullish with the S&P 500 and NASDAQ making new yearly highs and showing near 100% bullish momentum. The DOW's directional momentum is now mixed bullish and bearish (it had been 100% bearish earlier this week), but it still refuses to break above its all-time high of 17,152. It came close yesterday but today backed down and closed the day with a 38 point loss. As I have stated in recent blogs, I am expecting a high towards the end of next week and the first week of September from which a significant correction of 10% or more could follow. This correction is overdue and is seemingly being delayed by an unusually strong bullishness in the markets recently. One reason for this could be the collapsing European economy (made worse by the recent instigation of a new Cold War with Russia) and the flight of capital out of Europe and into U.S. equities (as well as dollars, hence the dollar's recent bullishness). Without sounding too much like a conspiracy theorist, another reason for the stock market's recent bullishness could be market manipulation. There are definitely people in high places with lots of power who have a vested interest in keeping the stock market from crashing right now. I'm mentioning this because the rise in the DOW since August 7 has been in a suspiciously straight line (this can be seen on any daily chart of the DOW) which can sometimes be a "fingerprint" left behind when markets are being manipulated (normal market movements are more irregular or wavy). My concern here is that if this market is being propped up artificially, we might see a smaller "truncated" correction instead of the normal 10% or more that would be imminent in an unmanipulated market. This speculation aside, it still looks likely that we will be getting a high over the next week or two to sell short, and so I will continue with that strategy. If the DOW remains below its all time high of 17,152 into the end of next week, that would be a good bearish sign (i.e. intermarket divergence with the S&P 500 and NASDAQ which have already made new yearly highs) and a good signal to go short. Still on the sidelines here.
Crude oil is nearing the end of its current short-term cycle and may be in the process of forming a bottom in the $91 - $92 area. Any significant rally now into the end of next week may present a shorting opportunity for a fall into the final bottom, but more than likely the bottom is forming here and we should wait until that is confirmed. Interestingly, the steep fall of oil prices since late June may be a more accurate reflection of the economy than the steeply rising August DOW. This divergence lends support to the idea that stock markets are being artificially propped up now (see discussion above). Out of this market for now.