MARKETS UPDATE (6:15 pm EDT)
This is the last week for negotiations and an agreement to be reached between Greece and its creditors before Greece risks defaulting on its debt and possibly having to leave the euro currency zone. Today's talks seemed to generate some optimism of a quick resolution to the crisis as Greece submitted new proposals to eurozone finance ministers after what one EU official referred to as five months of deadlock. While this looks promising, it is still uncertain whether or not a deal will be made by the end of the week. If Greece defaults and is forced to leave the eurozone, it could have a severe impact on many financial markets.
A Greek default would almost certainly weaken the euro and as a result strengthen the U.S. dollar. The U.S. Dollar Index is now sitting on a support level at 94 (there is additional support down to 93) so it is ideally positioned for a rebound should Greek debt negotiations break down. Our main concern now is how this will effect the price of gold and especially our current long position in silver. A quick resolution of the Greek crisis would likely boost gold and silver prices while a Greek exit from the eurozone could send them tumbling down. Today gold prices dropped significantly but held above a support level around $1180. Curiously, silver remained stable and even rose a bit, closing the day at $16.22. Short-term technical signals are mixed for both these metals right now, and their cycle structures are also ambiguous. There is still a chance for a strong rally in silver now, but gold's drop today may be a bearish warning. I am going to hold my long position in silver for now, but we will maintain an extremely tight stop loss for this trade on a break below $15.80. Traders should set up an automatic trigger of this stop as silver can move very quickly and generate significant losses in a short period of time (especially if you are using leveraged funds).
The broad stock market rose again today as the DOW, S&P 500, and NASDAQ all made new monthly highs. This rally triggered a major bullish momentum signal in the chart of the DOW making directional momentum in all three of these indices now 100% bullish. This is good news for our current long position in the stock market, but this week finds us in the middle of another significant reversal zone so we need to be wary of a possible top to this rally and a potential reversal. We want to watch now for a new all-time high in the DOW and/or S&P 500 (the NASDAQ has already made a new monthly, yearly, and all-time high). If both the DOW and S&P 500 can make these highs (they are close) then we could see a rally continue for at least several more weeks. If only the DOW or only the S&P 500 makes a new all-time high but not both, we would have a case of bearish intermarket divergence. This could signal a top in the market to be followed by a significant correction (possibly 10-15% or even more). A resolution of the Greek debt crisis this week would favor a strong multi-week rally, but a Greek default and exit from the eurozone might be the trigger for that major correction. We will maintain our long position in the broad stock market for now and wait for stronger technical signals of a top forming before considering closing our longs or even selling short.
The short-term technical and cycle picture for crude oil is still a little unclear. Despite a strongly bullish directional momentum, crude seems reluctant to rally strongly. A rise now towards $63 could be followed by another correction into the $53 - $57 area, but if crude doesn't rally it could just fall directly into that price range over the next several weeks. Any low that forms over the next 2-5 weeks that stays above $47.50 may be a good spot to go long. Out of crude oil for now.
This is the last week for negotiations and an agreement to be reached between Greece and its creditors before Greece risks defaulting on its debt and possibly having to leave the euro currency zone. Today's talks seemed to generate some optimism of a quick resolution to the crisis as Greece submitted new proposals to eurozone finance ministers after what one EU official referred to as five months of deadlock. While this looks promising, it is still uncertain whether or not a deal will be made by the end of the week. If Greece defaults and is forced to leave the eurozone, it could have a severe impact on many financial markets.
A Greek default would almost certainly weaken the euro and as a result strengthen the U.S. dollar. The U.S. Dollar Index is now sitting on a support level at 94 (there is additional support down to 93) so it is ideally positioned for a rebound should Greek debt negotiations break down. Our main concern now is how this will effect the price of gold and especially our current long position in silver. A quick resolution of the Greek crisis would likely boost gold and silver prices while a Greek exit from the eurozone could send them tumbling down. Today gold prices dropped significantly but held above a support level around $1180. Curiously, silver remained stable and even rose a bit, closing the day at $16.22. Short-term technical signals are mixed for both these metals right now, and their cycle structures are also ambiguous. There is still a chance for a strong rally in silver now, but gold's drop today may be a bearish warning. I am going to hold my long position in silver for now, but we will maintain an extremely tight stop loss for this trade on a break below $15.80. Traders should set up an automatic trigger of this stop as silver can move very quickly and generate significant losses in a short period of time (especially if you are using leveraged funds).
The broad stock market rose again today as the DOW, S&P 500, and NASDAQ all made new monthly highs. This rally triggered a major bullish momentum signal in the chart of the DOW making directional momentum in all three of these indices now 100% bullish. This is good news for our current long position in the stock market, but this week finds us in the middle of another significant reversal zone so we need to be wary of a possible top to this rally and a potential reversal. We want to watch now for a new all-time high in the DOW and/or S&P 500 (the NASDAQ has already made a new monthly, yearly, and all-time high). If both the DOW and S&P 500 can make these highs (they are close) then we could see a rally continue for at least several more weeks. If only the DOW or only the S&P 500 makes a new all-time high but not both, we would have a case of bearish intermarket divergence. This could signal a top in the market to be followed by a significant correction (possibly 10-15% or even more). A resolution of the Greek debt crisis this week would favor a strong multi-week rally, but a Greek default and exit from the eurozone might be the trigger for that major correction. We will maintain our long position in the broad stock market for now and wait for stronger technical signals of a top forming before considering closing our longs or even selling short.
The short-term technical and cycle picture for crude oil is still a little unclear. Despite a strongly bullish directional momentum, crude seems reluctant to rally strongly. A rise now towards $63 could be followed by another correction into the $53 - $57 area, but if crude doesn't rally it could just fall directly into that price range over the next several weeks. Any low that forms over the next 2-5 weeks that stays above $47.50 may be a good spot to go long. Out of crude oil for now.
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