The broad stock market does not seem to be in a rallying mood this week, but it also seems reluctant to make a strong move down. The S&P 500 and NASDAQ made new highs (barely) on Tuesday (but the DOW did not which could become a case of bearish intermarket divergence). The DOW is dropping a bit so we may be seeing the start of a correction here. Some short-term indicators are suggesting this, but directional momentum is still strongly bullish in all three indices so we'll just have to wait and see where this market goes over the next several days. The first week of July is a timing zone for a likely directional reversal in this market, so if we continue down into next week we could see a significant bottom then. Right now I am favoring the idea of a modest correction into next week and then a rally to new highs (or a double top) to sell short later in July. If instead the market rallies into next week then we may get an early setup for a strong correction down and a good opportunity to go short. Cycle studies and technical indicators are flashing signals of an imminent steep correction, but the question is whether it will be now or later in July. Market manipulators (such as the Federal Reserve) favor a bullish stock market, and they often seem to be able to delay (or even diminish) natural cycle corrections. This is one reason (among others) that I am favoring a steep correction later in July. The directional pattern of this market into next week will give us more information on when (and in what direction) to trade. Still on the sidelines.
Since their surge on June 19, gold and silver prices have leveled off, and both are now looking "toppy". In terms of timing, the next likely turning point for a major directional reversal in precious metal prices is in mid-July. Ideally this will be a low from which the market then turns up, and it will be an ideal buy spot. Short-term technical signals are suggesting some sort of correction now, so it is possible that prices could be down for the next few weeks into that time frame. There is room for gold to rise up a bit more before falling as long as prices remain below the $1330 - $1340 area. If gold prices move down and hold above the $1280 level, it may be a good entry point to buy. Because directional momentum remains mixed bullish and bearish in both gold and silver (as well as in the precious metal mining company stock indices), however, we can't rule out a deeper correction below $1280, possibly even to the $1100 area. Although I would prefer to see a major bottom in mid-July, there is a possibility of a moderate correction now, perhaps to the $1280 area, and then a rally into mid-July to a top that stays below $1400, and then a major correction to new lows. (Should this happen, the mid-July top in precious metals would probably accompany a major bottom in the broad stock market). I know these multiple scenarios can be confusing, but as we move into the first week of July the market directions should become more clear and point us to the appropriate trading strategy. The important thing to remember is that we are now at or close to the final long-term cycle bottoms in both gold and silver and our major strategy is to be bullish (i.e. looking to go long on any significant corrections). Still on the sidelines here and waiting to buy.
Is the U.S. Dollar Index giving us any clue as to where gold and silver are headed? Well, since June 10th the dollar has been falling as the precious metals have been rising, and both are now stabilizing and leveling off (gold and silver at a top and the dollar at a bottom). Significantly, a strong bearish signal appeared in the U.S. Dollar Index chart yesterday, so directional momentum is now mixed bullish and bearish for the dollar (as it is for gold and silver). Because gold and silver are now approaching resistance and the dollar is encountering support, it would be likely for both to reverse direction here, at least short-term. I should point out that the dollar has several layers of support all the way down to the 79 area (it is currently leveling off at 80.20). The 79 level is critical support for the U.S. Dollar, and should this level be clearly breached the dollar would be in trouble (and gold and silver would likely soar). Could this happen? One wonders when the latest Federal Reserve policy statement is suggestive of maintaining near zero interest rates indefinitely and even hints at the possibility of more QE (quantitative easing) if economic data justifies it. The dollar did not like the Fed's dovish statements made last week and fell sharply after they were released. We will have to wait and see to what level the Fed will allow inflation (and erosion of the U.S. Dollar) to go before making policy changes to control it.