My decision to short sell the broad stock market last Thursday seems to be a good one so far as the market dropped sharply on Friday and is down a bit more today at the time of this writing (2:00 pm EST). Not surprisingly the NASDAQ is making the steepest drop (about 2.5%) as its directional momentum has been nearly 100% bearish since April 15. The DOW and S&P 500 remain mixed bullish and bearish. Cycle analysis and timing factors are suggesting that this market will continue to fall into the second half of May with the DOW possibly reaching the 15,600 area. Unfortunately these days we can never underestimate the possibility of market manipulation undermining the normal flow of "free" markets. The U.S. government and the Federal Reserve's "Plunge Protection Team" are constantly working to thwart panic selling in the broad stock market. This is why there has not been any serious corrections in equity markets since the crash of 2008-2009. (Even minor corrections over the last several years seem to be frequently truncated and tend to fall short of technical expectations). My point here is not to backpedal my decision to sell short but to recognize that market manipulation is a "wild card" factor we have to deal with now when trading equity markets (and sometimes commodity markets as we saw with last October's manipulation of gold prices). The most overt form of equity market manipulation over the last several years has, of course, been quantitative easing or QE. But as we all know, QE is now being "tapered" (ie. the Fed is slowing down their program of bond buying with money created out of thin air) so markets are very jittery now and hanging onto hopes that the reportedly dovish Fed chairwoman Janet Yellen will at least keep interest rates low for some time. This uneasy balance between bearish cycle and technical indicators and a Fed that wants to be bullish requires us to be "cautiously bearish" with our trading strategy now.
Considering all the above, I think it is safe to stay short in the broad stock market unless the DOW breaks clearly above last week's high at 16,565. This will be my stop-loss point for now. A clear break of the DOW and S&P 500 above their all-time highs of April 4 would also be a bullish development and could lead to more rallying into the second half of May. (The currently very bearish NASDAQ makes this seem unlikely.) Maintaining short positions in the broad stock market for now.
Like the broad stock market, gold and silver prices could go either way right now. My bias is bearish at the moment and I think these metals could go lower before a major rally gets underway. Supporting this view is the price chart for silver which turned nearly 100% bearish last week. Gold's chart is still mixed bullish and bearish. There are, however, some short-term bullish signals now that could drive a small rally. If gold prices can clear and close above the recent high around $1330, I may have to change my bearish view as a major rally could be starting and we would want to go long. Still on the sidelines of gold and silver.
Despite increasing tensions in Ukraine (the mayor of a major city in East Ukraine was shot today) crude oil prices have been stable and hovering above $100 over the last few days. It looks like a significant top may have formed on April 16 around $104, and if so, prices could be down into the second half of May. We just missed selling crude short near that top due to its volatile move down on April 22, but if prices rise back above the $102 area I will consider shorting it again. Out of this market for now.