In yesterday's blog on gold and silver I wrote:
"Traders who are alarmed by the bearish factors just mentioned may wish to sell their gold long positions now with little loss, but I am going to maintain my long position in gold with an automatic stop loss to be triggered on a move below $1255."
Well, gold prices plunged today and broke below $1255 in early morning trading so any traders who didn't sell their long positions yesterday should be stopped out of their longs now. This is tuning out to be a very difficult market to trade. We are right at the end of the current reversal zone for precious metals (technically, it ended yesterday) so it's still possible for both metals to bottom and turn up from here; however, both gold and silver have now broken below their Oct. 6 lows which negates our intermarket bullish divergence signal. If gold moves lower now, prices could easily continue dropping to a final cycle bottom near $1200 around the last week of December (the next reversal zone for precious metals). The middle of next week could also be a major turning point for gold so we will watch that as well. Silver prices are fast approaching a strong support area around $15.50. If that support holds, it could turn out to be the final cycle bottom for silver. We will have to wait and see. Out of both gold and silver for now.
The ever-buoyant broad stock market is rallying again today. Will holiday cheer and "irrational exuberance" bring us a Santa Claus rally after all? It is possible, but at the time of this writing (around 2:00 pm EST) all three market indices (DOW, S&P 500 and NASDAQ) have yet to make new highs. The next reversal zone for equities comes in the last two weeks of this month, and because a corrective bottom in the medium-term cycle of this market is due soon, we could easily see Santa give Wall Street a lump of coal and watch these indices fall into a final bottom at that time. The alternative scenario would be a jovial Santa Claus rally into the end of the month and then a steep correction to the final cycle bottom (perhaps starting after the New Year holiday). If this latter scenario plays out, we will definitely want to short sell the top of that Christmas rally. For now, however, I am going to hold my short position in the broad stock market until I see stronger signs of a new rally starting.