Ambiguity and mixed technical signals continue to manifest in the broad stock market, but momentum has recently become very strongly bullish in all three of the major indices we follow (the DOW, NASDAQ, and S&P 500), and cycle analysis is also now indicating the possibility of these markets rallying to considerably higher price levels.
Last Friday's positive news of a drop in the U.S. unemployment rate and an increase in jobs fueled strong rallying in the broad stock market as did comments from Ben Bernanke earlier in the week that short-term interest rates would remain near zero. Positive sentiment is very strong in this market right now, but emotionally driven rallies should be viewed with caution, especially when long-term cycles and technical analyses indicate the potential for major corrections. As discussed in previous blogs, market manipulation is also a factor we cannot afford to ignore in our trading analysis, and this is almost surely another bullish force operating at the moment in these markets. Based on all the above, I am taking a cautiously bullish view of the broad stock market right now and to be nimble will trade it relatively short-term with a watchful eye on any shifts in market direction. For this week we will look to buy in the 14,800 area of the DOW (or 1585 area of the S&P 500) if offered with stop losses just a little below those prices. Still on the sidelines for today.
Even though the momentum in gold and silver is still strongly bearish and prices are not likely to break through their strong resistance areas ($1500 in gold and $26 in silver) right away, there are several factors now indicating the establishment of a stability in both metals that may prevent a secondary breakdown in prices below the recent lows at $1321 in gold and $22 in silver. This development is requiring us to change our strategy here as there is now less chance of a big profit with short selling. A likely scenario at this juncture would be for prices to move back towards those recent lows before rising again and possibly breaking through the upper resistance zones. We will therefore maintain our short positons with the idea of moving out of them somewhere above the recent lows (maybe around the $1400 area in gold and $23 area in silver). Note that silver is looking less bearish than gold at the moment, and though it may fall to that $22 level, we will be safer covering our short positions at $23. (Silver is more volatile than gold and can change directions quickly). I realize that this is an abrupt change in our strategy, but when market forces shift and technical signals change we have to go with the flow and align ourselves with the most likely probabilities as they unfold.
In my last blog on crude oil I stated that we are "...looking to go long now (with caution)... ", which is the same strategy we now have in the broad stock market. Momentum is presently short-term to medium-term bullish, and we will look to go long in the $91-$92 area this week if offered, but standing aside this market for today.