July's U.S. jobs report released last week on Friday morning was just about what analysts expected. The U.S. gained 215,000 jobs and the unemployment rate remained stable at 5.3%. While these numbers were neither above nor below expectations, their stability triggered fears of a September rate hike, and the broad stock market reflected this with a sharp drop after the report was released. The DOW quickly broke below our stop loss of 17,399 but found some support at the 17,300 level and then rallied to close the day at 17,373. I refrained from selling my long position as I watched the DOW climb rapidly in the last hour of trading with hopes of it closing back above 17,399. Even though it didn't do that, the snap back rally was a bullish signal suggesting a possible continuation into this week.
The fact that the DOW broke significantly below its July 27 low now increases the likelihood of the broad stock market turning bearish for a significant correction over the next several months. Readers of this blog will know that we have been expecting a serious correction for some time, but cycle structures had been suggesting a short-term rally that would possibly take the markets to new highs before falling. If the DOW can turn up now and stay above Friday's low, that rally is still possible. It seems more likely, however, that the markets are going to turn bearish, and we should be looking to exit our long position and possibly start looking for a spot to sell short. Any traders that sold on Friday's break below our 17,399 stop loss should stay on the sidelines for now. Friday's closing price was about 1.5% below our buy price. Because of Friday's sharp plunge and snap back, we may see a corrective bounce early next week so I am going to wait until Monday's trading to see if I can get out at a higher price. More conservative traders may wish to put in a sell order for tomorrow's opening in case the market continues to drop. Holding my long position but looking to sell soon.
Last Tuesday there were several short-term bearish technical signals in gold and silver charts that prompted us to abandon our long position in both metals at a break-even level due to the risk of an imminent plunge in prices. While that risk is still present to some degree, chart patterns seem to be turning bullish again, and there is the potential for a significant rally again. Gold prices are still trading within a chart pattern that looks like a "bearish wedge", but it now looks like there is a good chance gold will break out of this pattern and rally. The upper part of the wedge is currently focused around $1100 and the lower part at $1070 - $1080. The way we can play this is to enter a long position in gold and silver now (gold is currently trading around $1090) and set a stop loss on a close below $1070. Silver's stop loss can be on a close below $14.38 (silver is currently trading around $14.85). The risk (loss) at these stops is around 1.5% for gold and 3% for silver. Any rally could take gold to at least $1140 (4.5% gain or more) and silver to $16 or higher (7.5% gain or more). I should state here that if we do we get a rally in the precious metals now, it would likely not last longer than three weeks, and we would probably be looking to reverse our long positions and sell short at the levels mentioned above. The trades I am suggesting are, therefore, short-term with potentially modest (but significant) gains. Conservative traders may wish to remain on the sidelines and wait for the short sell suggested above for a potentially more substantial profit. Entering orders for long positions in both gold and silver for Monday's market opening. (Note - It is suggested that stop loss points in silver be set up for automatic triggering and not done manually as silver prices can make large moves very quickly).