There are major shifts occurring in all the financial markets right now that are most likely being triggered by the specter of sequestration - the government's fiscal policy procedure which forces cutbacks in spending on government programs to pay down the deficit. As many will recall, back in January Congress was unable to reach agreement on spending cuts, and the sequestration was delayed until March 2013 to avoid a full blown "fiscal cliff" disaster. As most people realize (except, perhaps, the U.S. Congress), when you kick a can down the road and continue to walk forward you will in short time encounter the same can again. So we now have another "fiscal cliff" deadline looming in March and, unfortunately, it seems like Congress has not made much progress in working out their disagreements. All of this can cause great nervousness in financial markets, and this is what we are seeing now.
But lets get back to managing our investments. Our gold and silver short positions are making excellent profits and the correction that we had expected is playing out well. We are now well within a reasonable price range in both metals for a likely bottom, and timing factors would suggest a reversal here as well. Nevertheless, we like to see more technical green light signals before trading, and we are not getting those just yet. In fact, gold and silver seem to have a stronger downward momentum today than they did yesterday which is why we are still holding our short positions. Please note that this situation could change rapidly and we need to pay close attention to this market over the next week or so (maybe days) and be very nimble here because we will also want to go long in both metals once it is more certain the bottom prices are in. There is very strong support around $1500 in gold and $26 in silver, so these may turn out to be the bottom points (breaking signifcantly below these levels would indicate a much more serious breakdown in precious metals and would be a very bearish development). Gold and silver mining stocks are also showing great weakness right now which is likely related to bearish developments in the broad stock market as well.
After weeks of indecisiveness, the broad stock market flashed some strong bearish signals today (especially the DOW and NASDAQ) and it is starting to look like we may see a significant correction here that is worth selling short. We had been waiting for a shallow correction to give us a good entry point to go long, but today's bearish shift changes that, and our strategy now is to look to sell short what could be a major correction down. Significantly, crude oil, which tends to move in the same direction as the broad stock market, has fallen steeply this week and could be leading the way in a downturn for both. The industrial metal copper is also looking very weak over the last few days, and because the copper market is often a reliable bellwether for the economy in general, this also does not bode well for the broad stock market right now. I would like to see the S&P 500 give a strong bearish signal (the DOW and NASDAQ have already done so) before shorting the broad stock market and this may come tomorrow, so we will wait until then to decide.
We were spooked out of our crude oil short positions a little too early last week and so have been unable to capture a profit on crude's recent downturn. Like the broad stock market, crude oil has suddenly turned bearish (at least short to medium term) and is now looking like it is capable of taking a major turn downward. Because the recent drop is already significant, I am hesitant to go short right here but will keep an eye out for any short-term rallies or pauses that may present another opportunity to go short. On the other hand, it may be best at this time to focus our short selling efforts on the broad stock market as any instability in the Middle East (which seems increasingly likely these days) can potentially send the price of crude soaring. This sort of wild card in the trading game can severely disrupt normal trading strategies. We will continue to stand aside crude oil for now.
In my last blog on the Swiss Franc (Feb. 17) I speculated that "...this currency may yet take that deeper correction.", and it looks like that is what it is doing now. The Swiss Franc has fallen significantly over the last two days and a strong bearish momentum signal appeared in the chart analysis today. We will now watch for the bottom which will be the end of a significant cycle in this market and will be a good entry point to go long.