It appears that the war between President Obama and U.S. congressional Republicans over federal budget cuts as well as congressional gridlock is continuing into the 11th hour of the sequestration "crisis", and it is looking like there's a good chance the sequestration cuts will start to kick in tomorrow (unless a last minute "miracle" plan is created to save the day or perhaps delay the cuts again). It's hard to gauge how the financial markets will react to all of this, but widespread public fear about the economy, whether justified or not, can can have a major impact on stock market and commodity prices.
My suspicion on Tuesday that the precious metals would start to back down a bit is proving correct, and this may give us an ideal entry point to go long both gold and silver. As I've mentioned before, there is strong support around $1530 in gold and $26 in silver, so buying as close to these levels as possible is ideal because we can set a stop loss just below them and bail out with minimal loss should they break (which is considered very unlikely at this time). Both gold and silver flashed short-term bearish signals today, so we will remain out of these markets and will wait to see what happens tomorrow when the dreaded sequestration could start taking effect.
The broad stock market has not changed much since my last blog (Tuesday). Curiously, the DOW continues to look bullish while the S&P 500 and especially the NASDAQ are looking quite bearish. The DOW also made a new multimonth high today while the S&P 500 and NASDAQ did not (yet). This is known as intermarket divergence and in this case is a bearish sign. With these mixed signals and with the sequestration deadline coming up tomorrow, we will continue to play it safe and stand on the sidelines of this market for now.