BROAD STOCK MARKET UPDATE and IMPORTANT PRECIOUS METALS UPDATE (7:00 pm EDT)
With European and Asian economies crumbling, the recent shock of Britain leaving the European Union, the upcoming controversial U.S. presidential election, an alarming number of terrorist attacks on the news, and most equity markets way overdue for a serious correction, it is not surprising that all financial markets are on edge. We are now in an extremely volatile marketplace that is very challenging to trade.
Despite the fact that equity markets are overbought, the recent Brexit "crash" seemed to unwind a lot of market tension (or at least the psychological tension of investors), and as the Brexit vote becomes old news, the U.S. stock market seems to be mustering up a strong new rally due in part to global investors fleeing unstable European markets for the perceived safety of U.S. markets. Rising U.S. equity markets are also likely being propped up by powerful market manipulators who do not want to see a serious crash before the November presidential election.
The present cycle structures of the major stock market indices are also supporting the idea of more rallying into the end of the year. This is why we now have a long position in the broad stock market. We may still see a minor pullback this week, but we won't worry too much unless we see the DOW and S&P 500 break below our stop loss levels (17,400 in the DOW and 2,040 in the S&P 500 - let's not raise those levels just yet). Holding my long position in the broad stock market.
The precious metals market is quite complicated right now and is giving us a lot of mixed signals. The analysts that I follow are also somewhat divided in their opinions on the direction of gold and silver prices short-term, medium-term and long-term. The long-term direction of these metals will be determined by what happens to global economies over the next several years, and specifically whether economies move towards inflation (possibly hyperinflation) or deflation (possibly a deflationary implosion). The bottom line here is that inflation will likely boost gold and silver prices and deflation could depress them. (Note the arguments for inflation or deflation and how they affect precious metal prices is complex and beyond the scope of this blog. There are plenty of blogs and articles on the internet that explore this topic). We need to be prepared and alert to whatever scenario unfolds.
If deflation is imminent, gold prices may not get far above $1,400 (they may have already peaked recently at $1,376) before they start falling to well below $1,000. In an inflationary scenario, however, we could see gold above $1,500 before the end of this year. To further complicate things, the technical and timing cycles tell us that even if we are looking at longer-term inflation we might still see a medium-term correction in gold (perhaps to the $1,000 level) into the end of this year or early next year before a long-term rally can begin. So how do we trade this market now?
Let's focus on gold because it started a new medium-term cycle recently (May 31st) while silver's medium-term cycle is due to bottom (with a sharp correction) any time over the next several weeks. There is strong support for gold around $1,300 right now, and we are in the middle of a reversal zone for the precious metals. If this support level holds and gold rallies, we will watch to see if that rally can make a new high above $1,376 and especially if it can clear the $1,400 area. If it can do both, it would mean that the current trend is remaining bullish. If prices hesitate around $1,376 or $1,400 and start to fall, however, it could mean that the current cycle is turning bearish, and we could see gold and silver move much lower into the end of the year (especially if gold breaks below $1,200). We went long in gold last Friday with a close stop loss at the $1,300 level so we will now wait and see if prices can rally this week. Holding my long position in gold but out of silver for now.
With European and Asian economies crumbling, the recent shock of Britain leaving the European Union, the upcoming controversial U.S. presidential election, an alarming number of terrorist attacks on the news, and most equity markets way overdue for a serious correction, it is not surprising that all financial markets are on edge. We are now in an extremely volatile marketplace that is very challenging to trade.
Despite the fact that equity markets are overbought, the recent Brexit "crash" seemed to unwind a lot of market tension (or at least the psychological tension of investors), and as the Brexit vote becomes old news, the U.S. stock market seems to be mustering up a strong new rally due in part to global investors fleeing unstable European markets for the perceived safety of U.S. markets. Rising U.S. equity markets are also likely being propped up by powerful market manipulators who do not want to see a serious crash before the November presidential election.
The present cycle structures of the major stock market indices are also supporting the idea of more rallying into the end of the year. This is why we now have a long position in the broad stock market. We may still see a minor pullback this week, but we won't worry too much unless we see the DOW and S&P 500 break below our stop loss levels (17,400 in the DOW and 2,040 in the S&P 500 - let's not raise those levels just yet). Holding my long position in the broad stock market.
The precious metals market is quite complicated right now and is giving us a lot of mixed signals. The analysts that I follow are also somewhat divided in their opinions on the direction of gold and silver prices short-term, medium-term and long-term. The long-term direction of these metals will be determined by what happens to global economies over the next several years, and specifically whether economies move towards inflation (possibly hyperinflation) or deflation (possibly a deflationary implosion). The bottom line here is that inflation will likely boost gold and silver prices and deflation could depress them. (Note the arguments for inflation or deflation and how they affect precious metal prices is complex and beyond the scope of this blog. There are plenty of blogs and articles on the internet that explore this topic). We need to be prepared and alert to whatever scenario unfolds.
If deflation is imminent, gold prices may not get far above $1,400 (they may have already peaked recently at $1,376) before they start falling to well below $1,000. In an inflationary scenario, however, we could see gold above $1,500 before the end of this year. To further complicate things, the technical and timing cycles tell us that even if we are looking at longer-term inflation we might still see a medium-term correction in gold (perhaps to the $1,000 level) into the end of this year or early next year before a long-term rally can begin. So how do we trade this market now?
Let's focus on gold because it started a new medium-term cycle recently (May 31st) while silver's medium-term cycle is due to bottom (with a sharp correction) any time over the next several weeks. There is strong support for gold around $1,300 right now, and we are in the middle of a reversal zone for the precious metals. If this support level holds and gold rallies, we will watch to see if that rally can make a new high above $1,376 and especially if it can clear the $1,400 area. If it can do both, it would mean that the current trend is remaining bullish. If prices hesitate around $1,376 or $1,400 and start to fall, however, it could mean that the current cycle is turning bearish, and we could see gold and silver move much lower into the end of the year (especially if gold breaks below $1,200). We went long in gold last Friday with a close stop loss at the $1,300 level so we will now wait and see if prices can rally this week. Holding my long position in gold but out of silver for now.
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