The U.S. Labor Department's jobs report on Friday was very disappointing. The U.S. economy created just 38,000 jobs in May, the weakest level of hiring in nearly six years. This unusually low number apparently frightened investors as equity markets dropped steeply in early trading on Friday, but that fear was short-lived, and the markets recovered by late afternoon. Of course, this dismal economic data may now curb the Fed's enthusiasm for raising interest rates. Wall Street investors most likely had this in mind today as equity markets rallied strongly. In fact, the DOW's directional momentum switched from mixed bullish and bearish to 100% bullish today. This means that the DOW, S&P 500 and NASDAQ are all 100% bullish now. This Wednesday is technically the last day of the current reversal period for the broad stock market and these markets continue to rise into it. The S&P 500 today broke above its yearly high of 2,111 while the DOW stayed below its yearly high of 18,167 so we are getting an intermarket bearish divergence signal in this reversal zone (until that 18,167 level is breached). In last Thursday's blog I wrote:
"I am going to wait and see how these markets respond to tomorrow's jobs report. If the data is disappointing, equities may rally and we could still see intermarket bearish divergence if the S&P 500 breaks above 2,111 and the DOW stays below 18,167 (or vice-versa). That could give us a good spot to sell short, but I am starting to think that any correction now will be minimal so we will also be looking to go long at any corrective bottom."
This is all happening, but today's strong bullish signals are making me reluctant to sell short right now. I may do it over the next two days if the DOW can stay under 18,167. If the DOW exceeds that high, however, we may just get a minor correction into the end of June which we will look to buy. Still on the sidelines of this market.
I also wrote in Thursday's blog:
"Tomorrow's jobs data may also have an effect on precious metal prices... A disappointing report could ease rate hike fears, push down the dollar and encourage a rally in the precious metals."
This is also happening. The U.S. Dollar Index plunged on Friday and this triggered a surge in gold and silver prices.
Unfortunately, this price movement is not clarifying the cycle pattern in these metals just yet. If gold continues to rally into the end of this week or early next week and stays under $1,290, we may have a good spot to sell short for a final correction into the end of the month. There is a possibility, however, that gold ended its old medium-term cycle and started a new one on May 29 with the low of $1,200. If this is the case, gold could be very bullish now and any rally would likely exceed $1,300. Silver's situation is similar to gold's and silver may also rally now, but if that rally stalls later this week or early next week, prices could fall again into a corrective low. Directional momentum is now mixed bullish and bearish for both metals which gives us no clue as to directional trend at the moment. Let's wait and see if gold prices can rally this week and watch how high they go. There is resistance in the $1,280 - $1,290 area. If gold gets there and stalls, and if the U.S. Dollar Index falls to a support zone around 92 - 93, we could see the precious metals reverse back down (and an opportunity to go short). On the other hand, if gold and silver prices edge downwards this week, we may look to buy for a reversal back up and a potentially bullish rally. Stay tuned. On the sidelines of gold and silver for now.
Crude oil prices are edging a bit higher today but are still below last week's high of $50.10 (July contract chart). The cycle picture for crude shows that a top is due and a sharp correction to the medium-term cycle bottom could start any time now (a correction could take prices to the $42 area). Next week is another reversal zone specifically for crude so it's possible prices could make a double top to last week's high or even make a new high into that time. We will try and maintain a stop loss for our current short position in crude around $51, but I may tolerate a slightly higher price, especially as we approach next week's reversal zone. Maintaining my short position in crude oil.