We stepped to the sidelines of the broad stock market last Wednesday with the idea of waiting to see if it would rally into the next reversal zone coming up May 25 - June 5 (likely) or instead fall a bit more into that time and hit our targets for a sub-cycle corrective bottom (or even fall a lot more to an older cycle bottom). Equities remained mostly flat Thursday and Friday so we still have no clue as to which scenario will unfold. If the DOW pushes down into the 24,400 - 24,500 area for a bottom early this week, then rallies strongly into the following week, that would be a good set-up for a top to sell short. There is still a possibility of this market falling steeply into this next reversal zone, possibly as low as 23,300 (that would be a buy spot). This week should tell us which scenario is unfolding and how to trade. On the sidelines for now.
Gold and silver are proving very difficult to trade right now. We were stopped out of our long positions last week when a surge in the U.S. Dollar Index triggered a price plunge in both metals. That plunge verified that gold did not start a new medium-term cycle on May 1 (as we had speculated) and is instead completing the final bottom of an older cycle. The bad news is we took a loss last week by going long in this market prematurely. The good news is that we are now more certain of an imminent cycle bottom in gold and can go long again soon with more self-confidence. Unlike gold, silver's plunge did not break below its May 1 low so that could still be the start of a new medium-term cycle in silver. If so, silver will be bullish and rally now. Because gold made a new low but silver did not, we also have a case of bullish divergence which could lift both metals from here. If silver breaks below its May 1 low ($16.06) this week, however, that would negate the bullish divergence signal, and both silver and gold would likely move lower into the next reversal zone for precious metals (May 24 - June 2).
So how do we trade these metals from here? If silver breaks below $16.06 this week then both gold and silver will likely make lows into the May 24 - June 2 reversal zone and we can look to buy both metals again then. If silver stays above $16.06 and rallies into the reversal zone, we would probably wait for a small correction (that stays above $16.06) and then buy. Gold rallying into the end of this week (or the following week) would also be a set-up for a small corrective dip and a possible buying opportunity. I will be watching both metals carefully and will post appropriate trade alerts if and when they arise. Out of gold and silver for now.