IMPORTANT UPDATES ON THE DOLLAR, GOLD, SILVER, AND THE BROAD STOCK MARKET (10:30 pm EST)
As I noted in Friday's blog, last week's breakdown of the U.S. Dollar Index below the support line of 90 is a potentially serious development. It could be signaling the start of a much deeper correction that could take the greenback as far down as 80 over the next few years. Two stops along the way are likely to be around 88 and 86, but a break below 86 would pretty much "green light" a plunge towards 80. For such a plunge to be averted, the dollar needs to break back above that former support area of 90 - 91 (which is now resistance). The chances of this happening are slim as the dollar chart looks quite grim with directional momentum nearly 100% bearish. Perhaps after realizing it was not a good idea to impose destructive trade tariffs and push the U.S. dollar off a cliff, President Trump attempted to "talk up" the dollar later in the week, and this may have contributed to the greenback's bounce up from 89 on Thursday. Can Trump get the dollar back above 91? I don't think so, but then again "Trumphoria" seems to be pushing the broad stock market beyond it's normal boundaries so I wouldn't rule out that possibility. A more likely scenario would see the dollar taking a "relief" rally back up to test that 90 - 91 band before resuming its descent. Such a top and reversal could happen in our next reversal zone in the first week of February so we will watch for it then.
If the dollar does rally now, it could easily push gold and silver prices back down and give us a good spot to buy. As I discussed in Friday's blog, this breakdown in the dollar is coinciding with an extremely bullish picture manifesting in the charts of both gold and silver (and also in the charts of many gold and silver mining company stocks). Gold and silver are both in the final stages of completing massive inverted "head and shoulders" chart formations that have been building since 2013. (I apologize for not including charts to illustrate this, but curious readers can Google "head and shoulders bottom" to see what this pattern looks like and compare it to the long-term charts of gold and silver.) This is a very bullish signal that is unlikely to abort as it is very near completion (especially in gold). Short-term, however, both metals now seem poised for a corrective dip. A good target price for gold would be close to $1300 (or even a bit below there). A good target for silver would be around $16.80, but it could possibly go as low as $16.00. It is very possible we could see these corrections into our next reversal zone in the first week of February.
Bottom line: we are waiting to go long in the precious metals soon as the potential breakdown of the dollar and the bullish chart formations in gold and silver are suggesting a very strong rally is imminent.
We are also getting a bit impatient to sell short the broad stock market as the current medium-term cycles in the DOW and S&P 500 are overdue for a top and correction to their final cycle bottoms. This correction should be substantial enough to be worth trading (with the DOW at least back to 25,000 - probably lower), but I don't think it will be the "crash" that some nervous analysts are expecting (although I would not completely rule that out in this current volatile market environment). In fact, the longer-term cycle structure in equities is pointing to new highs well into the second half of this year. We will therefore be looking to buy the broad stock market after this next corrective dip which could happen any time now. There is still the strong possibility of a much more serious correction in equities from a top later in the year. For now, we continue to watch for a short-term top and sell signal in this unusually bullish market. Still on the sidelines of the broad stock market.
As I noted in Friday's blog, last week's breakdown of the U.S. Dollar Index below the support line of 90 is a potentially serious development. It could be signaling the start of a much deeper correction that could take the greenback as far down as 80 over the next few years. Two stops along the way are likely to be around 88 and 86, but a break below 86 would pretty much "green light" a plunge towards 80. For such a plunge to be averted, the dollar needs to break back above that former support area of 90 - 91 (which is now resistance). The chances of this happening are slim as the dollar chart looks quite grim with directional momentum nearly 100% bearish. Perhaps after realizing it was not a good idea to impose destructive trade tariffs and push the U.S. dollar off a cliff, President Trump attempted to "talk up" the dollar later in the week, and this may have contributed to the greenback's bounce up from 89 on Thursday. Can Trump get the dollar back above 91? I don't think so, but then again "Trumphoria" seems to be pushing the broad stock market beyond it's normal boundaries so I wouldn't rule out that possibility. A more likely scenario would see the dollar taking a "relief" rally back up to test that 90 - 91 band before resuming its descent. Such a top and reversal could happen in our next reversal zone in the first week of February so we will watch for it then.
If the dollar does rally now, it could easily push gold and silver prices back down and give us a good spot to buy. As I discussed in Friday's blog, this breakdown in the dollar is coinciding with an extremely bullish picture manifesting in the charts of both gold and silver (and also in the charts of many gold and silver mining company stocks). Gold and silver are both in the final stages of completing massive inverted "head and shoulders" chart formations that have been building since 2013. (I apologize for not including charts to illustrate this, but curious readers can Google "head and shoulders bottom" to see what this pattern looks like and compare it to the long-term charts of gold and silver.) This is a very bullish signal that is unlikely to abort as it is very near completion (especially in gold). Short-term, however, both metals now seem poised for a corrective dip. A good target price for gold would be close to $1300 (or even a bit below there). A good target for silver would be around $16.80, but it could possibly go as low as $16.00. It is very possible we could see these corrections into our next reversal zone in the first week of February.
Bottom line: we are waiting to go long in the precious metals soon as the potential breakdown of the dollar and the bullish chart formations in gold and silver are suggesting a very strong rally is imminent.
We are also getting a bit impatient to sell short the broad stock market as the current medium-term cycles in the DOW and S&P 500 are overdue for a top and correction to their final cycle bottoms. This correction should be substantial enough to be worth trading (with the DOW at least back to 25,000 - probably lower), but I don't think it will be the "crash" that some nervous analysts are expecting (although I would not completely rule that out in this current volatile market environment). In fact, the longer-term cycle structure in equities is pointing to new highs well into the second half of this year. We will therefore be looking to buy the broad stock market after this next corrective dip which could happen any time now. There is still the strong possibility of a much more serious correction in equities from a top later in the year. For now, we continue to watch for a short-term top and sell signal in this unusually bullish market. Still on the sidelines of the broad stock market.
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