The broad stock market's "Santa Claus" rally continued unabated into the first day of the new year, but it took a breather today as the DOW gave up 135 points. This could be the start of the significant correction I've been expecting, however, directional momentum is still predominantly bullish in the DOW, S&P 500 and NASDAQ charts as we head towards the second week of January, and this leaves room for yet more rallying in these markets. I am waiting for a stronger signal to sell this market short. That signal may come over the next several trading days. Still on the sidelines of this market.
I was hoping crude oil would rally into the first half of next week as this could set up an ideal spot to sell short, but crude prices plummeted today (supposedly due to strength in the U.S. dollar) and dropped over $3 a barrel. Significantly, the plunge generated a strong bearish momentum signal in the crude charts so this market is now 100% bearish again. Because prices are now moving strongly down into a reversal zone for oil, we could see a short-term relief rally that would give us a second chance to go short. We will wait and see how prices move over the next few days before making any trade decision. Still out of this market.
GOLD TRADE ALERT ( 2:30 pm EST)
On Dec. 31 gold and silver contract prices (not spot prices) made new monthly lows and then snapped back up sharply and both rallied yesterday. This is bullish behavior in a major reversal zone, and we may be seeing a significant bottom forming here. There are several technical indicators now suggesting the start of a directional shift from bearish to bullish in the precious metals markets. Even though directional momentum is still bearish in the charts of gold and silver metal, strong bullish signals appeared today in the charts of some major gold and silver mining company stock indices and ETFs. Precious metal mining company stocks often lead the price of the metals themselves. The contract price of gold dipped to $1181 on Tuesday (Dec. 31st), which was just slightly above the range I wanted to see it move into ($1150 - $1180), but this was close enough to encourage me to cover my short position in gold. We are getting out with just a small profit here, but the main strategy now is to prepare to go long in both metals. I am holding my silver short position today because it is at a slight loss and we are moving into another strong reversal zone for the metals on Friday and next Monday. There is therefore a possibility of the price correcting back down to a better exit point. If there is a further correction down, this could also give us an ideal entry point to go long in both gold and silver. Covering short positions in gold today but maintaining short positions in silver.
I will update the other markets later this evening (see above).