After last Wednesday's 300 point DOW rally in response to the Fed's announcement of a "mini" taper in QE to begin in January, the broad stock market slowed its upward acceleration and leveled off a bit into Friday. Interestingly, directional momentum also switched back to 100% bullish in the DOW, S&P 500, and NASDAQ charts showing just how volatile these markets are right now. With the resumption of this bullish momentum we may now get a seasonal "Santa Claus" rally into the new year. Even though there are strong technical, cycle and timing signals pointing to a strong reversal right now, this week and the following week have big holidays, so that reversal may be pushed into the first and possibly second week of January. There is certainly enough optimisim in the markets at the moment to sustain a rally into that time frame. My strategy now will be to watch for a peak to form sometime before January 8th and possibly sell short then on bearish momentum signals. Note that a sell-off is possible right at the end of the year as investors may be motivated by tax strategies. Still out of this market.
Crude oil is another market that may now be setting up a good opportunity for short selling. The timing and seasonal factors described above for the broad stock market applies as well to crude, and so I will be looking for a peak in oil prices into the start of the new year. If prices break above $100 we may see them rise towards $102-$105. Any break over $105 would be a bullish signal that would negate any short selling strategies. Directional momentum in the crude charts is still mixed bullish and bearish. On the sidelines of this market.
As we move into the end of the month, gold and silver prices may be approaching significant bottoms in their cycles that will present a very good opportunity to go long. Our trading strategy here is a little tricky as we are holding short positions in both metals. Technical signals in the precious metals markets are still strongly bearish so gold and silver prices could easily move lower this week and possibly the following week as well. If we see gold move into the $1150 -$1180 range I will consider covering all short positions and going long. Currently short in both gold and silver.