BROAD STOCK MARKET TRADE ALERT and MARKETS UPDATE (3:15 pm EDT)
Last Wednesday we entered a short position in the broad stock market in anticipation of an imminent significant correction. In Friday's blog I described a stop loss for that trade:
"On Wednesday I suggested a stop loss based on both the S&P 500 and NASDAQ making new highs next week. I am going to change that to both the S&P 500 and DOW making new highs. The reason for this is that it is possible the NASDAQ's correction is already underway, and it could fall into early July while the DOW and S&P 500 push higher. Because our short trade has been made in index funds tied to the DOW or S&P 500 (not the NASDAQ - see Wednesday's trade alert), we don't want to see these indices break higher after this week."
The DOW and S&P 500 are both making new highs today so our stop loss condition is being met and we should now cover (unload) our short positions in this market. We are just above last Wednesday's index values and should be able to get out here with an insignificant loss (<1%). There is a possibility we are being "whipsawed" prematurely out of this trade (i.e. the market could still fall over the next day or two), but as disciplined traders we will stick to our stop loss parameter which is designed to minimize our loss. It appears that this market is bypassing an overdue subcycle and will move directly to the next one which could peak in early July. If this is happening, the overdue correction is even even more likely to take place from any high that forms then. Our strategy now will be to watch for a peak to again sell short which could be as early as late next week. This correction could be as much as 10% or more. Covering (unloading) my short position in the broad stock market today.
On Friday we entered a long position in gold while staying out of silver. I was hoping for a scenario where gold prices would stay above last week's low while silver prices would make a new low this week (bullish divergence) closer to our target price of $16.50. Well, today silver is making a new low and touching that $16.50 mark, but gold prices are also falling to new lows so we are not going to get that intermarket bullish divergence signal. We have not yet breached our stop loss point for our gold trade ($1240), but we are getting close. There are some short-term technical signals suggesting a possible reversal by Wednesday so I am going to hold my long position in gold for now. As with the broad stock market, gold and silver could be bypassing an overdue subcycle low and moving directly to the next one which could bottom late next week into the first week of July.
Gold and silver's fall today is being driven by a rise in the U.S. Dollar Index. As I have stated in recent blogs, the chart of the dollar is looking very weak right now. Today's rally has the greenback again pushing against a set of strong resistance lines from 97.50 all the way up to 100. In other words, there is a lot of overhead pressure on the dollar to put a damper on any rally it may attempt. If the dollar does attempt to "break out", it could push precious metal prices lower so we will keep an eye on this.
Crude oil prices continue to move lower and are now testing the low of May 5. The cycle pattern in this market is still not clear so we will remain on the sidelines of crude for now.
Last Wednesday we entered a short position in the broad stock market in anticipation of an imminent significant correction. In Friday's blog I described a stop loss for that trade:
"On Wednesday I suggested a stop loss based on both the S&P 500 and NASDAQ making new highs next week. I am going to change that to both the S&P 500 and DOW making new highs. The reason for this is that it is possible the NASDAQ's correction is already underway, and it could fall into early July while the DOW and S&P 500 push higher. Because our short trade has been made in index funds tied to the DOW or S&P 500 (not the NASDAQ - see Wednesday's trade alert), we don't want to see these indices break higher after this week."
The DOW and S&P 500 are both making new highs today so our stop loss condition is being met and we should now cover (unload) our short positions in this market. We are just above last Wednesday's index values and should be able to get out here with an insignificant loss (<1%). There is a possibility we are being "whipsawed" prematurely out of this trade (i.e. the market could still fall over the next day or two), but as disciplined traders we will stick to our stop loss parameter which is designed to minimize our loss. It appears that this market is bypassing an overdue subcycle and will move directly to the next one which could peak in early July. If this is happening, the overdue correction is even even more likely to take place from any high that forms then. Our strategy now will be to watch for a peak to again sell short which could be as early as late next week. This correction could be as much as 10% or more. Covering (unloading) my short position in the broad stock market today.
On Friday we entered a long position in gold while staying out of silver. I was hoping for a scenario where gold prices would stay above last week's low while silver prices would make a new low this week (bullish divergence) closer to our target price of $16.50. Well, today silver is making a new low and touching that $16.50 mark, but gold prices are also falling to new lows so we are not going to get that intermarket bullish divergence signal. We have not yet breached our stop loss point for our gold trade ($1240), but we are getting close. There are some short-term technical signals suggesting a possible reversal by Wednesday so I am going to hold my long position in gold for now. As with the broad stock market, gold and silver could be bypassing an overdue subcycle low and moving directly to the next one which could bottom late next week into the first week of July.
Gold and silver's fall today is being driven by a rise in the U.S. Dollar Index. As I have stated in recent blogs, the chart of the dollar is looking very weak right now. Today's rally has the greenback again pushing against a set of strong resistance lines from 97.50 all the way up to 100. In other words, there is a lot of overhead pressure on the dollar to put a damper on any rally it may attempt. If the dollar does attempt to "break out", it could push precious metal prices lower so we will keep an eye on this.
Crude oil prices continue to move lower and are now testing the low of May 5. The cycle pattern in this market is still not clear so we will remain on the sidelines of crude for now.
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