I have refrained from posting any blogs over the last four days as I was waiting to see how the markets would move into the end of the week due to the significance of Friday (today) being the center point for a likely reversal in all markets. The timing window for this reversal could extend into the first half of next week, a point to keep in mind as we analyze the markets below.
The broad stock market is clearly rising into this reversal zone so we are looking for a correction down now in this market. So far the DOW has not yet exceeded its Dec. 31 all-time high at 16,588 while the S&P 500 and NASDAQ are making new highs. This is a case of intermarket bearish divergence until the DOW breaks through that high. Despite this bearish sign, directional momentum in the S&P 500 and NASDAQ indices remains 100% bullish, so any correction now could be brief and shallow and give us a good entry point to go long in the broad stock market. The top to this current rally may push into early next week and I will be looking for a reversal then. Still on the sidelines of this market.
Gold prices rose into Wednesday close to the center of this week's reversal zone and are now falling. Silver prices peaked a little early on Monday and are also falling. In my blog last Monday I stated that, "...there are several short-term technical, cycle and timing signals that suggest a brief but sharp pullback now before this rally really takes off."
This is proving to be correct, with silver falling especially hard. I don't think the correction is quite finished, though, and we could see the precious metals edge down a bit more next week. Ideally I would like to see gold approach the $1280 area and the silver price closer to $20. One thing that has me concerned right now is the fact that the U.S. Dollar Index is breaking below its strong support at 80 today and is looking quite bearish. A breakdown in the dollar could kick start a strong rally in gold and silver. Curiously, gold is down today so this dollar break could be a false signal that may not follow through. There is still reasonable support for the dollar down to 79. I am watching this carefully as it could be a sign to go long in precious metals now. There are, however, some short-term momentum signals that are at the moment bearish for gold and silver. I am therefore going to hold off buying at least until next week when prices could move closer to the ideal targets mentioned above. On the sidelines here and waiting to go long.
Crude oil prices peaked a little early in the week (on Monday at $103.45) and they seem to be stabilizing above $102. We may see a higher peak into early next week (or a double top) before any correction starts. Directional momentum in crude oil charts is still strongly bullish, and as long as it stays bullish my strategy here will be to buy any short-term corrections. Still on the sidelines of this market.