MARKETS UPDATE (5:45 pm EST)
Many market analysts that I follow are currently experiencing considerable frustration in their trading as most of the major financial markets have become nervous, indecisive and volatile over the last several weeks. This situation is undoubtedly being fueled by the increasing tension between Russia and Ukraine (and the Western nations supporting Ukraine) in a crisis that could easily escalate and lead to major geopolitical instability. In addition to this, Janet Yellen's comments last week suggesting a specific time to begin raising short-term interest rates (early 2015) just added more fear to the already jittery financial markets. Needless to say, it is difficult to call the markets in this kind of environment as technical and cycle parameters can become distorted and market moves can be quick and elusive. Even though I am not a day trader, some short-term trading is necessary under these market conditions, at least until longer term directional patterns become more clear.
The DOW has been bouncing between 16,200 and 16,400 over the last several days and seems indecisive as to whether or not it wants to break to a new all-time high or instead take a bigger correction. Another strong bearish signal appeared today in some NASDAQ charts, so directional momentum continues to be mixed in the NASDAQ and DOW (the S&P 500 is at the moment mostly bullish). This ambiguity continues to keep me on the sidelines of the broad stock market; however, if the DOW rallies into the end of the week without breaking too far above 16,500, it may present a good opportunity to sell short for a significant short-term profit. On the sidelines for now.
My recent reluctance to go long in precious metals has proven to be a wise decision as this market appears to be turning short-term bearish. Today's gold prices broke significantly below last week's low of $1320 and was accompanied by a strong bearish momentum signal. Technically this suggests more downside in prices for at least several more weeks. Significantly, strong bearish momentum signals are now also appearing in the two major gold and silver mining company stock indices HUI and XAU. Gold and silver mining company stocks often lead the prices of the metals themselves. Directional momentum in gold and silver metal and precious metal stocks is now mixed bullish and bearish. Does this mean that the longer term bull market in precious metals is aborting? No !
It may mean that the long-term cycle bottoms in gold and/or silver are not yet in. Even though there are strong technical and cycle studies suggesting that the $1183 (spot price) low of June, 2013 was the long-term cycle bottom in gold, this hasn't been confirmed yet, and it is still possible for that low to be be taken out. I do feel, however, that there is a good chance that it will hold and that this current correction will give us another good opportunity to go long near the cycle bottom. We are just going to have to wait and see how low this correction can go now in both gold and silver. A good sign of a bottom will be when both gold and silver's directional momentum turns strongly bullish again. Before that happens we may see some short-term opportunities to sell short, but my primary focus is still to go long near the long-term cycle bottom in gold somewhere between $1000 and $1300. It seems we are now going to have to wait a bit longer to do so, but it will most likely be before the summer begins here in the U.S. On the sidelines of gold and silver.
Relevant to precious metal prices is the recent behavior of the U.S. Dollar Index. From early February to mid-March the dollar appeared to be breaking down, falling steadily with its directional momentum reading nearly 100% bearish for over four weeks. Over the last two weeks, however, this index has found support in the 79.5 area, and following last week's Federal Reserve meeting and Janet Yellen's speech, the dollar shot up dramatically (some say that this was the Fed's intention). Of course, this sudden dollar surge is having the effect of pushing down gold and silver prices. How long will it last? The chart of the U.S. Dollar index flashed a strong bullish momentum signal today which makes its directional momentum now mixed bullish and bearish. In other words, we may be seeing the start of a dollar recovery here, although it is much too early to confirm this. While further rallying in the dollar could send precious metal prices lower, I would like to point out that the dollar and gold/silver do not always move in opposite directions (even though they frequently do). Under certain market conditions both the dollar and precious metal prices can rise together. This should kept in mind as a strong dollar doesn't necessarily spell doom for gold and silver.
Mixed technical signals have also been keeping me on the sidelines of the crude oil market. The recent mid-March correction in crude prices found support just above the $97 area. As I suggested in my last blog, if prices can fall lower over the next week or two, say to the $94 -$95 area, I may consider establishing a long position. Still on the sidelines of this market.
Many market analysts that I follow are currently experiencing considerable frustration in their trading as most of the major financial markets have become nervous, indecisive and volatile over the last several weeks. This situation is undoubtedly being fueled by the increasing tension between Russia and Ukraine (and the Western nations supporting Ukraine) in a crisis that could easily escalate and lead to major geopolitical instability. In addition to this, Janet Yellen's comments last week suggesting a specific time to begin raising short-term interest rates (early 2015) just added more fear to the already jittery financial markets. Needless to say, it is difficult to call the markets in this kind of environment as technical and cycle parameters can become distorted and market moves can be quick and elusive. Even though I am not a day trader, some short-term trading is necessary under these market conditions, at least until longer term directional patterns become more clear.
The DOW has been bouncing between 16,200 and 16,400 over the last several days and seems indecisive as to whether or not it wants to break to a new all-time high or instead take a bigger correction. Another strong bearish signal appeared today in some NASDAQ charts, so directional momentum continues to be mixed in the NASDAQ and DOW (the S&P 500 is at the moment mostly bullish). This ambiguity continues to keep me on the sidelines of the broad stock market; however, if the DOW rallies into the end of the week without breaking too far above 16,500, it may present a good opportunity to sell short for a significant short-term profit. On the sidelines for now.
My recent reluctance to go long in precious metals has proven to be a wise decision as this market appears to be turning short-term bearish. Today's gold prices broke significantly below last week's low of $1320 and was accompanied by a strong bearish momentum signal. Technically this suggests more downside in prices for at least several more weeks. Significantly, strong bearish momentum signals are now also appearing in the two major gold and silver mining company stock indices HUI and XAU. Gold and silver mining company stocks often lead the prices of the metals themselves. Directional momentum in gold and silver metal and precious metal stocks is now mixed bullish and bearish. Does this mean that the longer term bull market in precious metals is aborting? No !
It may mean that the long-term cycle bottoms in gold and/or silver are not yet in. Even though there are strong technical and cycle studies suggesting that the $1183 (spot price) low of June, 2013 was the long-term cycle bottom in gold, this hasn't been confirmed yet, and it is still possible for that low to be be taken out. I do feel, however, that there is a good chance that it will hold and that this current correction will give us another good opportunity to go long near the cycle bottom. We are just going to have to wait and see how low this correction can go now in both gold and silver. A good sign of a bottom will be when both gold and silver's directional momentum turns strongly bullish again. Before that happens we may see some short-term opportunities to sell short, but my primary focus is still to go long near the long-term cycle bottom in gold somewhere between $1000 and $1300. It seems we are now going to have to wait a bit longer to do so, but it will most likely be before the summer begins here in the U.S. On the sidelines of gold and silver.
Relevant to precious metal prices is the recent behavior of the U.S. Dollar Index. From early February to mid-March the dollar appeared to be breaking down, falling steadily with its directional momentum reading nearly 100% bearish for over four weeks. Over the last two weeks, however, this index has found support in the 79.5 area, and following last week's Federal Reserve meeting and Janet Yellen's speech, the dollar shot up dramatically (some say that this was the Fed's intention). Of course, this sudden dollar surge is having the effect of pushing down gold and silver prices. How long will it last? The chart of the U.S. Dollar index flashed a strong bullish momentum signal today which makes its directional momentum now mixed bullish and bearish. In other words, we may be seeing the start of a dollar recovery here, although it is much too early to confirm this. While further rallying in the dollar could send precious metal prices lower, I would like to point out that the dollar and gold/silver do not always move in opposite directions (even though they frequently do). Under certain market conditions both the dollar and precious metal prices can rise together. This should kept in mind as a strong dollar doesn't necessarily spell doom for gold and silver.
Mixed technical signals have also been keeping me on the sidelines of the crude oil market. The recent mid-March correction in crude prices found support just above the $97 area. As I suggested in my last blog, if prices can fall lower over the next week or two, say to the $94 -$95 area, I may consider establishing a long position. Still on the sidelines of this market.
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