With the dramatic exception of crude oil, last week's markets were rather flat into the Fourth of July holiday, but then they reacted on Friday to the better than expected jobs report which indicated the U.S. labor market added 195,000 new jobs in June (although the unemployment rate remained unchanged at 7.6%).
The broad stock market seemed to cheer the job numbers with a 147 point rally, but perhaps this was just post holiday optimism fueled by beer, barbecue, and fireworks. After all, just a few weeks ago positive news about the economy from Ben Bernanke sent the market plummeting for fear of the tapering off of QE. We will find out this week if Friday's optimism can be sustained. Momentum in this market is still mixed (bullish and bearish), and I am still expecting a significant correction to begin within the next 3 or 4 weeks. My strategy now is to watch for signs to sell this market short. It is possible that the DOW high of 15,542 on May 22 is the top already, but directional momentum is currently ambiguous, and we could still make a new all-time high (or double top) before any serious correction begins. Still on the sidelines of this market.
Momentum signals in gold and silver price charts continue to be strongly bearish, and these two metals seem to want to correct down some more. On Friday both metals dropped on news of the positive job numbers, but (as mentioned above) optimism about the economy may be short-lived, and gold and silver are clearly valuable assets in our currently very unstable global economy. As I've been stating in recent blogs, we are likely seeing a significant bottom forming now in the precious metals, and I am waiting for bullish technical signals to go long. These could come as early as next week as there are strong timing factors for a possible reversal in the middle of the week, and gold is dropping again towards our ideal price range (around $1100 - $1200) for a bottom. Still on the sidelines here and waiting to go long.
The price of crude oil soared last week and this was clearly the result of the political turmoil in Egypt. With Mohammed Morsi now ousted from his presidency by the military, it is not clear how soon political stability will return to this country. This instability coupled with the ongoing civil war in Syria is driving a dramatic surge in oil prices. It is interesting to note how crude oil's reaction to these global events (along with its negative reaction to Ben Bernanke's recent speech) created a technical chart pattern in crude oil prices that I identified in a blog on 6/21 when I wrote: "...There is a cycle pattern that may be occurring here which typically manifests as a sudden sharp price drop that briefly interrupts a rally and then quickly snaps back up with a resumption of the rally to higher levels..." This chart pattern is indeed playing out. Unfortunately, the drop in price did not reach my projected target (it came close), and the subsequent sharp rally entered a time window where strong reversals can occur (we are still in it). In my analysis early last week I felt that this potential reversal factor and the lack of a confirmed bottom target decreased the likelihood of the rally moving very high, so I did not enter the market. Of course, I was wrong as the "wild card" factor of Egypt's political conflict took the reins and drove the price to over $103 on Friday. We are, however, still in that time window for a reversal (it ends on Tuesday but could possibly extend into Friday), and we have been anticipating a major correction in crude oil in July or August (same as the broad stock market) so my strategy now will be to wait for a bearish signal to possibly sell this market short. Can the price go higher from here? Of course it can, especially with major conflicts arising in the Middle East, but cycles, timing and technical studies can point us towards the next predictable major move, and that move should be down. We are still out of this market.