I apologize to readers for not posting an update since last Wednesday, but I have been experiencing delays in my market data sources while traveling this week-end. This should be remedied by tomorrow and I should be back on track with my chart analysis by then.
A major event since my last blog posting has been the horrific murder of popular British politician Jo Cox, a member of the Labour Party and a strong opponent of Britain leaving the European Union. Following her death, polls have been showing decreased support for a "Brexit" vote, presumably in sympathetic response to her tragic murder. Previous polls had shown Brexit supporters leading, but current support seems equally divided between those wanting the U.K. to remain in the EU and those that prefer an exit.
The broad stock market had been falling, but it is turning back up now, most likely in response to this recent surge of opposition to a Brexit. It is hard to say what the outcome of the Brexit vote will be this Thursday, but as the emotional impact of this tragic killing starts to subside, we could see support for a U.K. exit from the EU reassert itself and possibly see the return of a nervous selloff in equities. I am going to hold my short position in the broad stock market for now, but we will watch this situation carefully this week. If it looks like a Brexit won't pass and this equity rally gains strength, we may have to cover our short position.
If Britain does leave the EU, it would likely severely weaken the euro currency, and since the U.S. Dollar Index is heavily weighted in euros (57.6%), the greenback would likely surge, and a dollar surge could depress gold and silver prices. Last Thursday (the day of the Jo Cox murder) gold prices soared to $1,318 intraday but then fell and closed the day back under $1,300 at $1,281. The strong price surge suggests a "breakout", but the low close is saying that surge could be a "fake-out". Today gold remains below $1,300 and it is still not clear what this market wants to do, and it may remain unclear until after the Brexit vote this Thursday. It looks like gold started a new medium-term cycle with its low of $1,201 on May 31 so that means this market could be bullish; however, there are other technical signals that suggest a more bearish picture, including the COT (Commitment of Traders) charts which are still quite bearish for both gold and silver. Needless to say, based on all of these conflicting factors and the potential volatility that could result from the Brexit vote this week, it is best to remain on the sidelines of gold and silver for now.
Last Wednesday was the center of a reversal zone for crude oil, and prices have turned up sharply. The question is whether or not last week's low was the final bottom and end of a medium-term cycle. It did not reach our target for the bottom ($40 - $45 or lower), and it would fit the cycle analysis better for the low to come at the end of June/early July. I am going to hold my short position in crude oil for now, but, as with the broad stock market, if this current rally gains legs, we may have to cover this position. If Britain votes to leave the EU it could send crude prices back down again.