Not unexpectedly, the broad stock market bounced up and down this week in a wide (about 4%) trading range, roughly between 16,000 and 16,600 in the DOW and 1900 and 1980 in the S&P 500. Significantly, these markets seem reluctant to break through the resistance levels that I identified last week (16,500 in the DOW and 1980 in the S&P 500). If these resistance areas hold, we could see both indices break below their Aug. 24 lows soon. We are now in the center of another reversal zone (it ends next Wednesday), but this week the DOW and S&P 500 did not make new weekly highs or lows. This makes me think that we might get a surge to a new weekly high in either index (or both) by next Wednesday and then a reversal to new lows. Whether we get this short-term surge or not, the broad stock market looks like it is pointed down for at least seven more weeks so we should not expect a bottom to this current correction until late October. It would take a clear break above 17,400 in the DOW (and/or 2050 in the S&P 500) to alter this bearish view. Holding my short position in the broad stock market.
Gold and silver charts are again starting to give mixed technical signals that is calling into question my recent bearish view of this market. I was getting ready to sell short the top of a rally at the end of this week, but gold prices have been falling steeply and seem to be finding support at $1120 so it is possible gold could see a reversal up from here. Silver, however, did make a new high yesterday and could be turning down now. There is still time for gold to make a new weekly high next week and then turn down. However, if any rally exceeds the Aug. 24 high of $1170, it could mean this market is turning bullish. The precious metals picture is unclear at the moment so we will remain on the sidelines.
The U.S. Dollar Index could be the key to how the precious metal prices will move. The dollar recently seems to be taking its cues from the broad stock market, so if equities continue to tank, the dollar could fall too, and this could trigger a strong rally in gold and silver. So how does the dollar chart look? Well, like the gold and silver charts, it is ambiguous. Directional momentum is mixed bullish and bearish. Today the U.S. Dollar Index is down a bit (in sync with falling equities), but it seems to be finding support just above 96, a resistance level it cleared yesterday. To be bullish, the dollar needs to break clearly above 98. A break below 93 would turn the dollar bearish. We will watch this index carefully now to help us gauge the price movements of gold and silver.