A better than expected U.S. jobs report today fueled speculation from analysts that the Fed may not announce a rate cut soon as had been expected. This news seemed to discourage the broad stock market (the DOW dropped about 200 points this morning), but it gave a boost to the U.S. dollar. The U.S. Dollar Index jumped to 97.44 this morning before backing down a bit from that high.
As a result of the dollar's rally, gold and silver prices dropped significantly this morning but are now snapping back a bit as we move towards the end of today's trading. Gold did not break below our stop loss point at $1380 and seems to be closing around $1394 so we are still long in this metal. Silver, however, did briefly break below our stop loss at $14.90 so we are stopped out of our long position in silver. This sub-cycle correction in precious metals was due in gold and therefore not completely unexpected. While it may go lower, we are expecting it to bottom any time by the end of next week. As long as prices don't go too low, both metals still look bullish, and we still want to be long (or go long) for more more rallying into the summer. Holding my long position in gold for now, but on the sidelines of silver.
It's still not clear if the broad stock market is going to fall or rise into next week's reversal zone (July 10 - 17). If it falls, we still have a downside target for the correction around 26,100 in the DOW. If it rallies, we will expect a high in that reversal zone to be followed by a significant correction. Either way, we want to be short. We are short now, but we are a little above our entry point and in the red so the risk here is that a strong rally could give us a significant loss before we make a gain on the reversal down (if it happens). Let's hold our long position for now and wait to see what the market does next week. More intermarket bearish divergence signals then would be a good sign to hold our shorts. But if this market rallies and the DOW breaks above 27,200, and especially if the S&P 500 breaks above 3,100, we may have to cover our short position.