MARKETS UPDATE (11:30 pm EDT)
Precious metals are at an interesting crossroads right now and could turn bullish or bearish over the next week or two depending on the strength of the U.S. dollar. There are three probable short-term scenarios for both gold and silver at the moment, and unfortunately, the two most likely ones are bearish.
Scenario 1 (bearish): Gold and silver rally a bit more (perhaps from a low early this week) with gold prices approaching the $1240 - $1250 area (and possibly $1280) but then turn down dramatically with gold possibly breaking below the $1140 area that began the current cycle.
Scenario 2 (bearish): Gold and silver continue to fall this week with little or no rallying leading to a break below the $1140 level.
Scenario 3 (bullish): Gold and silver rally strongly (perhaps after a brief dip towards $1180 in gold and $16 in silver) with gold eventually breaking through the $1280 area and clearing the $1300 high from made in January.
At the moment it appears that 1 is the most likely scenario and 3 is the least likely. As I stated initially, the behavior of the U.S. dollar will likely determine the direction gold and silver will take. The U.S. Dollar Index is starting to look very bullish again after last week's strong rally. Prior to last week, the dollar had been correcting down from a mid-March high at 100, and a strong bearish momentum signal had appeared in its chart implying a significant correction had started. That may be changing now as last week's strong bounce from the 96 level keeps the dollar above a clearly defined parabolic uptrend that has been in place since last summer. If this parabolic uptrend continues to support the dollar, we could see that 100 mark broken soon, and this would be very bearish for precious metal prices.
I am still holding my long position in both metals with tight stop loss points at $16 in silver and $1180 in gold. Although a break below $16 would give us a small loss in our silver trade, our entry point in gold was around $1160 so even if the $1180 stop is triggered, we should end up ahead with the trade. I may sell these long positions any time next week if things start looking bearish.
Last week the broad stock market was bullish and rose steadily into Friday so we did not get any new lows for the week. But we also didn't get any new highs (or even double tops) by the DOW, S&P 500 or NASDAQ. Last week was the center of our reversal zone, but the timing for a reversal could extend into this week. Technical signals are looking somewhat bullish, but directional momentum remains mixed bullish and bearish in all three indices so it is still hard to tell what this market wants to do. Sometimes a reversal zone will correlate with a breakout (or breakdown) of a market instead of a direction change, and this might be happening now (breakout) as suggested by bullish technical signals. We still, however, want to watch for a possible case of bearish intermarket divergence over the next week or two. That's when one or two of the broad stock market indices make(s) a new yearly high, but not all three. That could give us a bearish signal to sell short. If all three indices make new highs, we would have to switch to a bullish trading strategy. Still on the sidelines of this ambiguous market.
Precious metals are at an interesting crossroads right now and could turn bullish or bearish over the next week or two depending on the strength of the U.S. dollar. There are three probable short-term scenarios for both gold and silver at the moment, and unfortunately, the two most likely ones are bearish.
Scenario 1 (bearish): Gold and silver rally a bit more (perhaps from a low early this week) with gold prices approaching the $1240 - $1250 area (and possibly $1280) but then turn down dramatically with gold possibly breaking below the $1140 area that began the current cycle.
Scenario 2 (bearish): Gold and silver continue to fall this week with little or no rallying leading to a break below the $1140 level.
Scenario 3 (bullish): Gold and silver rally strongly (perhaps after a brief dip towards $1180 in gold and $16 in silver) with gold eventually breaking through the $1280 area and clearing the $1300 high from made in January.
At the moment it appears that 1 is the most likely scenario and 3 is the least likely. As I stated initially, the behavior of the U.S. dollar will likely determine the direction gold and silver will take. The U.S. Dollar Index is starting to look very bullish again after last week's strong rally. Prior to last week, the dollar had been correcting down from a mid-March high at 100, and a strong bearish momentum signal had appeared in its chart implying a significant correction had started. That may be changing now as last week's strong bounce from the 96 level keeps the dollar above a clearly defined parabolic uptrend that has been in place since last summer. If this parabolic uptrend continues to support the dollar, we could see that 100 mark broken soon, and this would be very bearish for precious metal prices.
I am still holding my long position in both metals with tight stop loss points at $16 in silver and $1180 in gold. Although a break below $16 would give us a small loss in our silver trade, our entry point in gold was around $1160 so even if the $1180 stop is triggered, we should end up ahead with the trade. I may sell these long positions any time next week if things start looking bearish.
Last week the broad stock market was bullish and rose steadily into Friday so we did not get any new lows for the week. But we also didn't get any new highs (or even double tops) by the DOW, S&P 500 or NASDAQ. Last week was the center of our reversal zone, but the timing for a reversal could extend into this week. Technical signals are looking somewhat bullish, but directional momentum remains mixed bullish and bearish in all three indices so it is still hard to tell what this market wants to do. Sometimes a reversal zone will correlate with a breakout (or breakdown) of a market instead of a direction change, and this might be happening now (breakout) as suggested by bullish technical signals. We still, however, want to watch for a possible case of bearish intermarket divergence over the next week or two. That's when one or two of the broad stock market indices make(s) a new yearly high, but not all three. That could give us a bearish signal to sell short. If all three indices make new highs, we would have to switch to a bullish trading strategy. Still on the sidelines of this ambiguous market.
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