BROAD STOCK MARKET TRADE ALERT and PRECIOUS METALS UPDATE (10:45 pm EDT)
It looks like Draghi's somewhat dovish comments last Thursday (i.e. hinting that the ECB could drop interest rates further) did have a negative impact on the euro as that currency was down significantly on Friday. The U.S. dollar benefited from this as the U.S. Dollar Index rallied back up and closed just above the 95 level that it attempted to break the previous week. If this rally gains strength now, it will put negative pressure on gold and silver prices.
Both gold and silver surged up strongly last Thursday (especially silver) but then both backed down and closed the day with little or no gain. This was a strong bearish signal suggesting that prices are about to turn down. Silver made a new yearly high last week but gold did not (it has to exceed $1,282) so we still have a case of intermarket bearish divergence, and we are now in the dead center of a strong reversal zone for the precious metals. For these reasons (and others stated in my recent blogs) it looks like a good time to short the precious metals; however, the cycle patterns in both gold and silver charts are still ambiguous. Silver appears to have started a new medium-term cycle on April 1 (although this isn't confirmed yet), but gold may still be completing an older cycle (also not confirmed). The difference between an old cycle and new cycle is important here because if prices are about to fall, an old cycle's correction would be much deeper than a correction in a new cycle. Because silver seems to be in a new cycle, we may want to avoid selling it short for now and just focus on gold. (Silver is also more volatile than gold and therefore a riskier trade.) Gold's correction might only get to the $1,200 level, but it's possible it could get as far as $1,140. The current spot price is around $1,230, and there is some support at $1,210 - $1,220. Let's try to sell short early this week, especially if prices bounce from this support level but remain under the yearly high of $1,282. Out of both metals for now but looking to enter a short position in gold this week.
We got a short-term sell signal in equity indices on Friday (DOW, S&P 500, and NASDAQ), and we are also at the center of a strong reversal zone for the broad stock market. The DOW exceeded the high of its previous medium-term cycle last week, but the S&P 500 did not (it has to break 2,116 but it only got to 2,111) so here too we have a case of intermarket bearish divergence in a reversal zone. As with the precious metals market, this looks like a good point to sell short. We could get a significant correction now, but we have to be careful on the short side as it seems central banks and especially the Fed would like to keep equity markets buoyant into the U.S. presidential election. Let's enter a short position in the broad stock market now with a tight stop loss based on both the DOW and S&P 500 breaking above their highs from last week (18,168 in the DOW and 2,111 in the S&P 500). It is OK if only one makes a new weekly high as that would be another case of bearish divergence, but if the S&P 500 exceeds 2,116 we may still want to cover our positions even if the DOW stays under 18,168.
It looks like Draghi's somewhat dovish comments last Thursday (i.e. hinting that the ECB could drop interest rates further) did have a negative impact on the euro as that currency was down significantly on Friday. The U.S. dollar benefited from this as the U.S. Dollar Index rallied back up and closed just above the 95 level that it attempted to break the previous week. If this rally gains strength now, it will put negative pressure on gold and silver prices.
Both gold and silver surged up strongly last Thursday (especially silver) but then both backed down and closed the day with little or no gain. This was a strong bearish signal suggesting that prices are about to turn down. Silver made a new yearly high last week but gold did not (it has to exceed $1,282) so we still have a case of intermarket bearish divergence, and we are now in the dead center of a strong reversal zone for the precious metals. For these reasons (and others stated in my recent blogs) it looks like a good time to short the precious metals; however, the cycle patterns in both gold and silver charts are still ambiguous. Silver appears to have started a new medium-term cycle on April 1 (although this isn't confirmed yet), but gold may still be completing an older cycle (also not confirmed). The difference between an old cycle and new cycle is important here because if prices are about to fall, an old cycle's correction would be much deeper than a correction in a new cycle. Because silver seems to be in a new cycle, we may want to avoid selling it short for now and just focus on gold. (Silver is also more volatile than gold and therefore a riskier trade.) Gold's correction might only get to the $1,200 level, but it's possible it could get as far as $1,140. The current spot price is around $1,230, and there is some support at $1,210 - $1,220. Let's try to sell short early this week, especially if prices bounce from this support level but remain under the yearly high of $1,282. Out of both metals for now but looking to enter a short position in gold this week.
We got a short-term sell signal in equity indices on Friday (DOW, S&P 500, and NASDAQ), and we are also at the center of a strong reversal zone for the broad stock market. The DOW exceeded the high of its previous medium-term cycle last week, but the S&P 500 did not (it has to break 2,116 but it only got to 2,111) so here too we have a case of intermarket bearish divergence in a reversal zone. As with the precious metals market, this looks like a good point to sell short. We could get a significant correction now, but we have to be careful on the short side as it seems central banks and especially the Fed would like to keep equity markets buoyant into the U.S. presidential election. Let's enter a short position in the broad stock market now with a tight stop loss based on both the DOW and S&P 500 breaking above their highs from last week (18,168 in the DOW and 2,111 in the S&P 500). It is OK if only one makes a new weekly high as that would be another case of bearish divergence, but if the S&P 500 exceeds 2,116 we may still want to cover our positions even if the DOW stays under 18,168.
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