Overall directional momentum in the broad stock market continues to be bullish, but we are nearing the end of some short-term cycles in the DOW, S&P 500 and NASDAQ that would point to at least a short-term correction that could bring the DOW into the 15,800 area or lower. This could happen anytime now (and it may have already started from the 16,588 high on Dec. 31). Because the market is falling into a reversal zone early this week, we could see a one or two day bounce that could bring these indices back up towards those Dec. 31 highs. If those highs hold, such a bounce would present an ideal spot to sell the market short. This is what I will be watching for this week. Still on the sidelines here and waiting to sell short.
Crude oil is also falling steeply into a reversal zone early this week and may also bounce in a relief rally that could take prices back towards the $97 -$98 area. Momentum in this market is currently 100% bearish so I am looking to sell short any rallies. On the sidelines at the moment.
Unlike the broad stock market, gold and silver are rising into this week's reversal zone, so we may see a short-term pullback that would give us a good opportunity to cover our short positions in silver and start to go long in both metals. As I mentioned in my last blog, there are signs now of a directional shift in the precious metals markets from bearish to bullish. Does this mean that the June 27th low in gold at $1183 (spot price) and the $18.25 low (spot price) in silver were the final long-term cycle bottoms that we've been waiting for? Maybe. That will take time to confirm. An alternate scenario would be a short to medium-term rally in the metals now followed by another correction into a final bottom several months from now. Such a rally could be substantial and worth trading, especially considering the cycle bottoms may already be in and any rally at this point could be the start of the new long-term bullish cycles in these metals. Even though we have to rely on short-term trading before the passage of time officially confirms the long-term cycle bottoms, long-term traders should note that I don't expect the final bottom in gold to go below $1000. Because these new cycles will likely take gold and silver to new all-time highs (and probably higher) over the next several years, one can easily see the long-term benefit of accumulating gold and silver at current prices (or lower). Currently out of gold but still short in silver.