MARKETS UPDATE and IMPORTANT UPDATE ON PRECIOUS METALS (11:30 pm EST)
Friday's strong rally in the U.S. dollar and plunge in gold and silver prices was a potentially serious development that could alter our recent bullish view of these precious metals. As readers may recall, I recently discussed the fact that both gold and silver charts are showing the near completion of giant inverted "head and shoulders" chart patterns that have been forming since 2013 (see blog on gold and silver from April 30). While this is a strong bullish pattern, like all chart patterns, it can abort. Last week's drop in gold and silver is taking prices close to important support levels that, if broken, could lead to those head and shoulders formations aborting. We really don't want to see gold break and close below $1264 or silver break and close below $15.60.
Fortunately, we took profits in our silver long positions just before prices fell, but we are still holding long positions in gold. Although there now seems to be an increasing danger of those head and shoulders patterns aborting, they don't have to, and if they hold, our bullish view of the precious metals will remain intact. Next week is a strong reversal zone for precious metals so we may be near a bottom, and a reversal back up in prices may be imminent. As I mentioned on Friday, we also have a strong intermarket bullish divergence signal until silver breaks below its $16.06 low from May 1. I am going to hold my gold long position for now with a stop loss on a close below $1264, especially if silver moves below $16.06.
What could be the cause of this sudden turnaround in the precious metals? Well, there are some analysts speculating that we could now be on the verge of a giant selloff in many markets, especially equity markets, very similar to the "crash" of 2008 -2009 when frightened investors liquidated commodities and equities and fled to the U.S. dollar for safety. Because the new Federal Reserve chairman Jerome Powell appears to be more hawkish than the previous chairwoman Janet Yellen, investors could see this as a signal to liquidate risky assets and buy U.S. dollars. This is all pure speculation, of course, and we will have to wait and see how this plays out. We note, however, that our cycle analysis of the broad stock market is warning us of a severe correction that could be coming later this year or early next year.
Speaking of the broad stock market, last Monday I wrote:
"...the DOW and S&P 500...will likely be rallying into next week's reversal zone (June 15 - 26)... If equities take a minor dip this week, we may consider going long for a short-term rally into the target areas [25,500 - 26,200 in the DOW and 2,800 - 2,900 in the S&P 500]..."
Well, equities did take a dip - right into Friday. This opens up the possibility of a low forming in next week's reversal zone instead of a high. As I mentioned last week, the S&P 500 and NASDAQ are both late in their medium-term-cycles and are due to top out and fall to their final cycle bottoms any time now. It's possible one or both could have topped out last week and will fall steeply this week. If so, we will wait for the bottom to buy. It is also possible we could see one or two (but not all three) indices (DOW, S&P 500, NASDAQ) make a new high next week for a case of intermarket bearish divergence in a strong reversal zone. If that happens, we will look to sell short for a steep correction to the cycle bottom. Stay tuned for trade alerts next week. On the sidelines for now.
We are still long in crude oil based on the idea that a cycle bottom occurred on June 5 at $64.22 (July contract chart). Tonight (Sunday - weekend market) it appears that crude prices are dropping a bit below that low so it looks like the cycle bottom may not have been on June 5 and will form in next week's reversal zone or crude is making a double bottom here (which would be a bullish signal). Because our stop loss is based on a close below $64.22, we may need to bail out of our long position tomorrow (Monday) if it closes significantly below there. There are some strong technical signals suggesting a reversal in crude early next week so I am a bit reluctant to abandon this long position too soon. Holding my long position for now.
Friday's strong rally in the U.S. dollar and plunge in gold and silver prices was a potentially serious development that could alter our recent bullish view of these precious metals. As readers may recall, I recently discussed the fact that both gold and silver charts are showing the near completion of giant inverted "head and shoulders" chart patterns that have been forming since 2013 (see blog on gold and silver from April 30). While this is a strong bullish pattern, like all chart patterns, it can abort. Last week's drop in gold and silver is taking prices close to important support levels that, if broken, could lead to those head and shoulders formations aborting. We really don't want to see gold break and close below $1264 or silver break and close below $15.60.
Fortunately, we took profits in our silver long positions just before prices fell, but we are still holding long positions in gold. Although there now seems to be an increasing danger of those head and shoulders patterns aborting, they don't have to, and if they hold, our bullish view of the precious metals will remain intact. Next week is a strong reversal zone for precious metals so we may be near a bottom, and a reversal back up in prices may be imminent. As I mentioned on Friday, we also have a strong intermarket bullish divergence signal until silver breaks below its $16.06 low from May 1. I am going to hold my gold long position for now with a stop loss on a close below $1264, especially if silver moves below $16.06.
What could be the cause of this sudden turnaround in the precious metals? Well, there are some analysts speculating that we could now be on the verge of a giant selloff in many markets, especially equity markets, very similar to the "crash" of 2008 -2009 when frightened investors liquidated commodities and equities and fled to the U.S. dollar for safety. Because the new Federal Reserve chairman Jerome Powell appears to be more hawkish than the previous chairwoman Janet Yellen, investors could see this as a signal to liquidate risky assets and buy U.S. dollars. This is all pure speculation, of course, and we will have to wait and see how this plays out. We note, however, that our cycle analysis of the broad stock market is warning us of a severe correction that could be coming later this year or early next year.
Speaking of the broad stock market, last Monday I wrote:
"...the DOW and S&P 500...will likely be rallying into next week's reversal zone (June 15 - 26)... If equities take a minor dip this week, we may consider going long for a short-term rally into the target areas [25,500 - 26,200 in the DOW and 2,800 - 2,900 in the S&P 500]..."
Well, equities did take a dip - right into Friday. This opens up the possibility of a low forming in next week's reversal zone instead of a high. As I mentioned last week, the S&P 500 and NASDAQ are both late in their medium-term-cycles and are due to top out and fall to their final cycle bottoms any time now. It's possible one or both could have topped out last week and will fall steeply this week. If so, we will wait for the bottom to buy. It is also possible we could see one or two (but not all three) indices (DOW, S&P 500, NASDAQ) make a new high next week for a case of intermarket bearish divergence in a strong reversal zone. If that happens, we will look to sell short for a steep correction to the cycle bottom. Stay tuned for trade alerts next week. On the sidelines for now.
We are still long in crude oil based on the idea that a cycle bottom occurred on June 5 at $64.22 (July contract chart). Tonight (Sunday - weekend market) it appears that crude prices are dropping a bit below that low so it looks like the cycle bottom may not have been on June 5 and will form in next week's reversal zone or crude is making a double bottom here (which would be a bullish signal). Because our stop loss is based on a close below $64.22, we may need to bail out of our long position tomorrow (Monday) if it closes significantly below there. There are some strong technical signals suggesting a reversal in crude early next week so I am a bit reluctant to abandon this long position too soon. Holding my long position for now.
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