The major market development this week has been the breakdown of gold and silver. As I suggested in my last blog, a break up or down was imminent, and the precious metals have clearly chosen the latter. Gold has broken below a significant support level around $1260 and silver below the strong support at $19. It is likely that we will now see a deeper correction in these metals at least into the second week of June, and I will be looking for signs of a final bottom to buy in both gold and silver at that time. In the meantime, any short-term bounces may present us with an opportunity to sell short as this correction could be substantial. Still on the sidelines.
Directional momentum signals in the broad stock market continue to be very bullish which implies more rallying ahead; however, the DOW still seems reluctant to exceed its May 13 all-time high at 16,735. The S&P 500, on the other hand, continues to make new record highs for the month. This is creating intermarket bearish divergence between the two indices and the potential for a downturn in both. As long as momentum remains strongly bullish, however, I am anticipating a significant top in this market in the second week of June and then the start of a correction to sell short. The DOW may or may not make a new high by then. If it doesn't it will strongly support and reinforce the case for a substantial correction at that time. Still out of this market.
Crude oil prices seem to be correcting a bit after Tuesday's high at $104.50, but momentum signals remain strongly bullish. The cycle pattern in this market is still unclear so I am remaining on the sidelines for now.
I will post a more detailed analysis of the markets and trading strategies this week-end.