Today's 300+ point drop in the DOW demonstrates just how volatile the markets are right now, and, unfortunately, this high volatility is likely to continue at least through the first half of 2014. In my blog last Wednesday I stated:
"...I should point out here that stock markets in general (In the U.S. and globally) are very jittery and unstable now and so we need to keep in mind that there is always the possibility of panic selling being triggered by some seemingly minor event (such as the recent Fed announcement to continue QE tapering). A clear break of support levels and a bearish change in momentum (in the DOW, S&P 500 and NASDAQ) would be signs of this happening..."
Today's plunge in equities was blamed on various factors including weak manufacturing data, economic slowdowns in China, and worries over deflation in Europe. The DOW has now broken support at 15,600, which I thought would hold, and the S&P 500 and NASDAQ are also breaching important support areas today. In addition to this, major bear signals appeared today in charts for the DOW and S&P 500, and this makes directional momentum in these two indices now 100% bearish (the NASDAQ is still mixed bearish and bullish). Does this mean we should reestablish our short positions in the broad stock market? Maybe. My caution here is due to the fact that the market has already fallen substantially (over 1000 points in the DOW from its high on Dec.31), and we are still in a timing zone that has a high probability for strong market reversals (this could even extend into early next week). The next level of support in the DOW is around 15,000, and in the S&P 500 it is around 1700. It is still possible for the market to bottom in those areas this week and start to reverse back up. A clear break below those supports and a stronger bear signal in the NASDAQ would make a better case for going short again. I am going to remain on the sidelines of the broad stock market for the moment.
Both gold and silver jumped up today in early morning trading, but then closed the day significantly below their highs. This may have been a temporary surge in buying by investors fleeing equities. Directional momentum remains nearly 100% bearish in silver (but is still mixed bullish and bearish in gold) so I don't want to go long in these metals just yet. There have been bullish technical signals developing recently in the charts of many gold and silver mining company stocks which is a sign that these metals may be turning up soon. In terms of short-term cycles, there is still time for gold to drop closer to $1200 and for silver to break below $19. If that happens towards the end of this week or early next week, it could set up an ideal buying spot for both metals. On the sidelines of gold and silver for now.