MARKETS UPDATE (10:45 pm EST)
On Friday of last week the broad stock market reacted favorably to the report of the U.S. May job numbers which were slightly higher than expected. Interestingly, the unemployment rate also edged a bit higher, but this is considered desirable by Wall Street because it decreases the chances that the Federal Reserve will start to raise interest rates (a possibility that Ben Bernanke hinted at two weeks ago), and it seems that just the mention of higher rates can send waves of fear (and selling) through the stock market. The DOW had plunged as low as 14,850 on Thursday but was back above 15,000 on Friday (closing at 15,248). That low at 14,850 was well into the correction range we were considering buying into, so why didn't we go long? Because a strong bearish momentum signal appeared in the DOW chart on Wednesday, and until that changes we have to regard this market as bearish. The DOW may continue rising this week, but we will be looking to short any rallies now because of this bearish momentum (and also because I am expecting a more significant correction within the next month or two). If momentum switches back to bullish, we will consider going long again for a possible surge into July/August before that major correction (which could be as much as 10%). I know it is frustrating to be standing aside this market for such a long time, but I am mostly interested in major market moves and I am trying to avoid short-term day trading. Still on the sidelines here.
Crude oil prices also surged up last Friday, but momentum in this market also remains strongly bearish (even more so than the broad stock market). For this reason we will stay out of the current rally and watch for a signal to possibly sell short.
The U.S. jobs report on Friday was good news for the stock market, but it was likely also responsible for pushing down the price of precious metals. Gold dropped back below $1400 (a resistance level it seems to be struggling against) and silver broke below $22 (a strong support level it had been riding on top of for the last three weeks). Even though a major cycle bottom seems to be in the process of forming now in the precious metals market, we need to be cautious going long as the final bottom may end up being below the recent "crash" lows of $1321 in gold and $20 in silver (see blog entries on May 31 and June 3). As mentioned in those blogs, our strategy now will be to buy on a bullish momentum signal and stay long for any rallies to the resistance levels around $1500 in gold and $26 in silver and then step aside (or possibly sell short) until those resistances are cleared. At the moment, however, momentum is still strongly bearish in both metals, so we continue to stand aside.
The breakdown of the U.S. Dollar Index last week was quite serious, but it seemed to have little or no effect on gold and silver prices (i.e. it did not give them a boost). This could indicate that gold and silver markets are ignoring the U.S. Dollar right now, but it may also indicate a severe weakness in the precious metals that could lead to some more downside in prices, especially if the dollar bounces in a relief rally next week from its steep plunge last week. Any relief rally in the dollar, however, would probably be temporary as the chart of the U.S. Dollar Index now looks very bearish. We will keep a close eye on this, not only for its possible effect on gold and silver, but should this dollar breakdown follow through medium-term to long-term, it would be very bullish for the Swiss Franc which we would then consider reentering.
On Friday of last week the broad stock market reacted favorably to the report of the U.S. May job numbers which were slightly higher than expected. Interestingly, the unemployment rate also edged a bit higher, but this is considered desirable by Wall Street because it decreases the chances that the Federal Reserve will start to raise interest rates (a possibility that Ben Bernanke hinted at two weeks ago), and it seems that just the mention of higher rates can send waves of fear (and selling) through the stock market. The DOW had plunged as low as 14,850 on Thursday but was back above 15,000 on Friday (closing at 15,248). That low at 14,850 was well into the correction range we were considering buying into, so why didn't we go long? Because a strong bearish momentum signal appeared in the DOW chart on Wednesday, and until that changes we have to regard this market as bearish. The DOW may continue rising this week, but we will be looking to short any rallies now because of this bearish momentum (and also because I am expecting a more significant correction within the next month or two). If momentum switches back to bullish, we will consider going long again for a possible surge into July/August before that major correction (which could be as much as 10%). I know it is frustrating to be standing aside this market for such a long time, but I am mostly interested in major market moves and I am trying to avoid short-term day trading. Still on the sidelines here.
Crude oil prices also surged up last Friday, but momentum in this market also remains strongly bearish (even more so than the broad stock market). For this reason we will stay out of the current rally and watch for a signal to possibly sell short.
The U.S. jobs report on Friday was good news for the stock market, but it was likely also responsible for pushing down the price of precious metals. Gold dropped back below $1400 (a resistance level it seems to be struggling against) and silver broke below $22 (a strong support level it had been riding on top of for the last three weeks). Even though a major cycle bottom seems to be in the process of forming now in the precious metals market, we need to be cautious going long as the final bottom may end up being below the recent "crash" lows of $1321 in gold and $20 in silver (see blog entries on May 31 and June 3). As mentioned in those blogs, our strategy now will be to buy on a bullish momentum signal and stay long for any rallies to the resistance levels around $1500 in gold and $26 in silver and then step aside (or possibly sell short) until those resistances are cleared. At the moment, however, momentum is still strongly bearish in both metals, so we continue to stand aside.
The breakdown of the U.S. Dollar Index last week was quite serious, but it seemed to have little or no effect on gold and silver prices (i.e. it did not give them a boost). This could indicate that gold and silver markets are ignoring the U.S. Dollar right now, but it may also indicate a severe weakness in the precious metals that could lead to some more downside in prices, especially if the dollar bounces in a relief rally next week from its steep plunge last week. Any relief rally in the dollar, however, would probably be temporary as the chart of the U.S. Dollar Index now looks very bearish. We will keep a close eye on this, not only for its possible effect on gold and silver, but should this dollar breakdown follow through medium-term to long-term, it would be very bullish for the Swiss Franc which we would then consider reentering.
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