In last Thursday's blog on the broad stock market I wrote:
"If we look at the chart of the DOW, we will notice a "gap up" in prices on June 4. Today, June 11, prices made a "gap down" in that same range. This creates what is known as a "bearish island reversal" (trading on June 5 -10 appear like an "island" floating above the gap areas on the chart). This is an extremely bearish sign and usually means the market has turned bearish until it rises back above the gap areas (and there is much resistance at those gaps - now around 26,300 - 26,800 in the DOW). This market is now most likely falling to a deep sub-cycle corrective bottom or maybe even a final medium-term cycle bottom. A sub-cycle correction would be completed either this week or next, but a full cycle bottom would likely be longer and bottom sometime in the last two weeks of June."
All of this is still valid. Today equity markets plummeted in early trading (the DOW lost over 600 points) but then recovered that loss and made a slight gain by the closing bell. If this market is going to turn bullish, it has to rise now and overcome the heavy resistance at the "gap zone" described above. Although anything is possible in these volatile times, that doesn't seem likely. For now, we will stay with the idea that this market will fall some more and give us an opportunity to buy over the next two weeks. Still on the sidelines of the broad stock market.
Gold and silver are EXTREMELY volatile right now with technical signals being very ambiguous in both charts. It looks like a strong move is imminent, but the direction could be either up or down (I know - not very helpful, right?). The odds, however, are slightly favoring a strong rally. A rally could surge into next week, but would be pushing into a strong reversal zone which could limit its height and cause it to top out. There is strong resistance in gold around $1800 so that could turn out to be the peak. On the other hand, prices could fall now. Ideally, we would like to see both metals fall sharply into the end of this week or into early next week which would give us very good spots to buy, but at the moment we just can't rule out the possibility of a sharp rally. How prices move into the end of this week (the center point of our current wide reversal zone - June 8-30) will determine what cycle pattern is unfolding and how we will trade. We will stay on he sidelines for now.