We are now at the end of a timing window for likely reversals in all markets so I will analyze trading strategy with this in mind.
The broad stock market has clearly been rising into this period and I am still expecting it to turn down now, even if briefly, for some sort of correction. The DOW was up strongly this morning but now (late afternoon) it has lost most of that gain. It is significant that even today's new high at 16,505 still has not exceeded the DOW's all-time high of 16,588 on Dec. 31, 2013. The S&P 500 and the NASDAQ indices have already exceeded their Dec. 31 levels, so intermarket bearish divergence between these indices continues and supports the argument for a correction now. Directional momentum, however, currently favors the bulls with the S&P 500 and NASDAQ still nearly 100% bullish (the DOW remains mixed bullish and bearish). This suggests that any correction could be brief and minor and could present a good entry point to go long. As I stated in my last blog, there is a possibility here of the DOW correcting down towards the 15,400 level, so we need to be careful about going long until that danger has passed. Still on the sidelines of this market.
Crude oil prices peaked just above $105 on Monday and fell steeply into Thursday (to $100) and are rising again today. In Tuesday's blog I wrote that, " I am anticipating a peak in crude prices before the end of the week. We may have just seen it with Monday's high..." So we are getting our anticipated correction in a rather volatile fashion (most likely in response to this week's political instability in Ukraine). Is the correction over with that bottom on Thursday? Maybe, but from a technical standpoint I would prefer to see it last a bit longer with prices closer to the $98 level. I am still looking to go long in this market but I am going to wait and see if prices can edge lower into next week. If they don't, and we get a strong short-term buy signal, I will look to buy. On the sidelines and waiting to go long.
I am also waiting for a good entry point to go long in both gold and silver. Both metals are falling from highs on Monday. At the moment silver is looking a bit more bearish than gold, but the charts for both metals are suggesting a little more downside in prices. Ideally I would like to see gold closer to the $1280 area and silver closer to $20 before buying. We may see that next week so be prepared to buy. On the sidelines and waiting to buy soon.
I am watching carefully the U.S. Dollar Index as its directional movements are often opposite that of the precious metals and this may help us pinpoint turning points in gold and silver. Directional momentum in this index has been very bearish, and recently a strong support level at 80 was broken. There is, however, good support down to 79, so a short-term bounce right now is not out of the question. Such a bounce could push gold and silver down a bit further. A further breakdown in the dollar, however, could send precious metal prices soaring, so we will be on the alert for this as well.