The romantic optimism of Valentine's Day seems to have spread across several markets today with bullishness especially apparent in the precious metals and broad stock market. There are, however, technical reasons to exercise caution now in trading, a major one being the high level of volatility in all markets that is in place through early March.
Keeping in mind the above warning, it can be said that gold and silver seem to be in a "breakout" mode. In my last blog I mentioned that the gold and silver mining company indices HUI and XAU had turned 100% bullish (they remain so) and that this was a positive sign for the precious metals sector in general. This has been confirmed today with gold and silver prices rising strongly and breaking through important technical resistance. Directional momentum in silver had been 100% bearish, but is now, like gold, mixed bullish and bearish. (Note that I will continue short-term trading of precious metals until momentum signals are 100% bullish.) Both metals have been rising steeply for the last two weeks with no significant corrections, and there are some short-term technical signals suggesting a correction (perhaps minor) over the next week. My strategy here continues to be bullish and I will be looking to buy any short-term dips in this market. On the sidelines of gold and silver but looking to go long now.
Like the precious metals, the broad stock market is also breaking through resistance levels today and the DOW, S&P 500 and NASDAQ are all closing the week at new weekly highs. We short-sold this market on Jan.17 near the start of the recent correction, but then I took profits and covered these shorts a few weeks later anticipating the market bottoming and potentially turning bullish again (according to cycle and timing factors). Many mainstream media financial "experts" who had been quite bullish and optimistic about the stock market at the start of the new year suddenly became "gloomer/doomers" and were declaring that a major crash was in progress as the DOW dropped over 1000 points in the last two weeks of January. Of course, the fickle nature of the mainstream media is why I avoid following it (and I suspect is the reason why many of you are reading this website). Though it appears we have started a bullish new cycle in the broad stock market with the Feb. 5 bottom in the DOW at 15,340, we are not out of the woods yet. Directional momentum in the DOW is still strongly bearish and in the S&P 500 it is still mixed bullish and bearish. On the other hand, momentum in the NASDAQ has turned 100% bullish this week, so this could mean the other two indices will soon follow. So is the recent correction over? Maybe, but I want to see more bullish signals in the DOW before buying into this market. Still on the sidelines here.
In my last blog on crude oil (Feb. 9) I speculated that this market was turning bullish. This has been confirmed now as momentum signals in crude oil charts have turned 100% bullish. This means I will be looking to buy any short-term corrections (on the condition that momentum remains bullish). Crude should be making a short-term correction over the next couple of weeks (ideally into the start of March) which I will probably be looking to buy (assuming prices stay well above $92). There is resistance now in the $101 - $102 area, so the high on Feb. 12 just above $101 may have been a peak from which a correction is starting. Still on the sidelines of this market.
In my blog on Feb. 9th I also discussed the U.S. Dollar Index and how it has been moving within a narrow range between 80 and 81.5 since early January. This index today dropped down to just above 80 as momentum shifted from mixed bullish and bearish to 100% bearish. This, of course, helped to drive today's strong rally in the precious metals, but this 80 area represents a strong support zone for the dollar. A short-term bounce in the dollar from here might encourage gold and silver prices to back down a bit and give us a better entry point to go long in these metals. A clear dollar break below 80, however, would reinforce gold and silver's breakout and likely accelerate the current precious metals rally. The strong bearish momentum now in the dollar chart suggests that 80 level could be broken soon. This would be yet another signal to encourage long positions in both gold and silver.