Gold and silver prices dropped significantly this week. Gold is now at the lower end of our target price range for a bottom to this correction ($1250 - $1260) while silver hasn't yet touched our target price of $16.50 (it is close). There are several technical signals suggesting a reversal in these metals could start anytime between now and next Wednesday with a significant rally to follow. Curiously, directional momentum in silver is at the moment strongly bearish while gold is strongly bullish. An ideal set-up for a rally would be to see silver make a new low early next week closer to $16.50 with gold staying above this week's low for a case of intermarket bullish divergence. Gold is now close to a support line at $1250 (and another at $1240) so I am going to enter a long position in gold today but hold off buying silver until we see how prices move into early next week. We can set a close stop loss for gold on a close below $1240.
After rallying last week (perhaps in anticipation of this week's Fed meeting and an expected interest rate hike), the U.S. Dollar Index fell into Wednesday's rate hike announcement but snapped back up Thursday. Today the dollar is testing a strong resistance level at 97.50. If it does get through this, there is an even stronger resistance zone at
98 - 99.50. This downward pressure on the dollar (directional momentum is still strongly bearish) could force the greenback lower in coming weeks, and this would be bullish for gold and silver.
Crude oil prices continued lower this week, and they are now testing the May 5 low of $44.13. Directional momentum in this market is now 100% bearish. If that $44.13 low breaks, crude prices could continue lower for at least several more weeks. We are on the sidelines of crude for now.
We are now short in the broad stock market based on the idea that this week's high in the DOW and last week's high in the S&P 500 and NASDAQ all represent a significant sub-cycle top from which a significant correction will now unfold. So far the NASDAQ has fallen significantly, but the S&P 500 and especially the DOW seem reluctant to move down. Starting next week there are no reversal zones until the first week of July so these indices will likely move down into that time. I am going to change my stop loss parameters on this short trade. On Wednesday I suggested a stop loss based on both the S&P 500 and NASDAQ making new highs next week. I am going to change that to both the S&P 500 and DOW making new highs. The reason for this is that it is possible the NASDAQ's correction is already underway, and it could fall into early July while the DOW and S&P 500 push higher. Because our short trade has been made in index funds tied to the DOW or S&P 500 (not the NASDAQ - see Wednesday's trade alert), we don't want to see these indices break higher after this week. Holding my short position in the broad stock market (DOW and S&P 500).