Gold and silver continue to show strong bearish momentum, and today the price of both metals dropped sharply. This is looking good for our short position in gold. (We bailed out of our short silver position last week to avoid being too heavily short in the precious metals as there are also strong bullish indicators in this market right now). As mentioned in previous blogs, there are support levels around the recent "crash" lows at $1321 in gold and $22 in silver. (There is also some support around $1400 in gold). Today gold closed at $1395 and silver at $22.75 so we are very close to those supports. We will watch carefully now for any bullish change in momentum that might indicate the bottom is in. There are many technical factors pointing to a strong rally in precious metals once this correction is over, and we need to be ready to go long when that happens (which could be soon). We will maintain our short position in gold for today (still out of silver) and will now watch for signs of a bottom to this correction.
The broad stock market continues to be incredibly bullish, but it is very overbought right now, and there are several technical indicators pointing to at least a small correction now which we will probably look to buy. Because all three major indices that we follow (DOW, S&P 500, NASDAQ) have now broken out to new all time highs, it is possible that the broad stock market is moving into a "blow-off" mode, that is, a period of accelerated price gains fueled by "irrational exuberance" (to quote former Federal Reserve Board Chairman Alan Greenspan), and if this is the case we could see much higher prices within a relatively short-term period of time. It is important to note, however, that blow-off tops are always followed by severe crashes. Calling the top of a blow-off market is difficult if not impossible to do, and it is usually best to be prudent and take profits sooner than later if such a surge develops. This is another reason we are being cautious with the current bull market. Still on the sidelines here and waiting for a correction (probably small) to buy into.
The price of crude oil plunged intraday and nearly touched $92 but then snapped back up and closed the day over $94. This is bullish behavior, but there are are other short-term bearish signals in the oil charts today so we will stay on the sidelines for now. If the price drops closer to $90 we may go long with a stop loss around $89.