The U.S. Labor Department jobs report comes out tomorrow, and since we are about to enter a potential turning point in markets in the second week of June, investor reaction to this data may have some impact on directional trends. Most analysts are not expecting this report to deliver any data that would support delaying the Fed's QE tapering program (in which bond purchasing is expected to cease by the end of the year), but numbers that point to a stable economy also means that we are on track for the raising of interest rates in 2015, something that investors are dreading. The fear of rising interest rates is a potentially bearish factor in the stock market that we need to be increasingly aware of as we approach 2015.
The DOW finally made a new all-time high on Monday and is rising a bit more today. After analyzing the charts of the broad stock market over the last few days, I am starting to think that any significant correction in this market may be pushed into July. In other words, it may be a little too early to think about selling short. Any dips now, I suspect, will be minor and followed by more rallying into July. This scenario is supported by the fact that both the DOW and S&P 500 have now made new all-time highs (negating the bearish intermarket divergence signal from last week) and by directional momentum that remains strongly bullish in both indices. If this market continues to push higher tomorrow and into next week there will be a good chance for a reversal, but, as stated above, I think it is likely to be short-lived and followed by higher prices into July. If the DOW reacts poorly to tomorrow's jobs report we could also see a brief dip in the market that could bottom next week and serve as the base for a reversal and rally into July. We will have to wait and see how this plays out, but for now, barring a major bearish shift in directional momentum, I am anticipating a major top to sell short in July. Depending on the nature of any short-term dips over the next week or two, we may also see an opportunity to go long for a rally into July. On the sidelines for now.
In my last blog I wrote, "...Short-term, we may see an opportunity over the next few weeks to sell short these metals [gold and silver] as there could be a brief rally before prices move to their final bottoms."
We may be seeing the start of that rally now as both gold and silver rose sharply today. This rally could be substantial, but the technical and cycle picture is suggesting it will be of brief duration and followed by a strong decline into July. As long as directional momentum remains strongly bearish in the precious metals market (the bearish conditions described in Sunday's blog are essentially unchanged), I am looking to sell short any significant rally now with the expectation of a final cycle bottom in July. Still on the sidelines.
In May the U.S. Dollar Index was manifesting a "breakout" pattern with directional momentum remaining strongly bullish which suggested that the breakout was not a "fake out''. Today, however, the dollar surged to 81 then fell sharply and closed the day around 80.34 near the bottom of the day's range, which is very bearish behavior (at least short-term). After rallying strongly for the last four weeks, the dollar was entitled to a break, but today's volatile movements might be a 'blow-off" pattern suggesting an imminent breakdown. My primary concern here is the inverse correlation between the dollar and precious metal prices. Ideally, this dollar correction will be brief (but perhaps steep) and will help drive gold and silver prices to a top that can be sold short when the dollar starts to bounce back. The dollar's directional momentum is still strongly bullish (for now) so I am favoring (and hoping for) this scenario. If the dollar does start to seriously break down, however, it would likely trigger major rallying in precious metals and I would be looking to go long in gold and silver instead of selling short. I will be watching the dollar index carefully over the next several weeks.
Crude oil prices have been fairly flat this week and cycle and chart patterns in crude remain ambiguous. Momentum is still strongly bullish. If momentum remains bullish and prices start to fall into next week, we may have a good set up to go long. Still on the sidelines.