MARKETS UPDATE (4:30 pm EDT)
In my last blog I described three possible scenarios for precious metals this week:
Scenario 1 (bearish): Gold and silver rally a bit more (perhaps from a low early this week) with gold prices approaching the $1240 - $1250 area (and possibly $1280) but then turn down dramatically with gold possibly breaking below the $1140 area that began the current cycle.
Scenario 2 (bearish): Gold and silver continue to fall this week with little or no rallying leading to a break below the $1140 level.
Scenario 3 (bullish): Gold and silver rally strongly (perhaps after a brief dip towards $1180 in gold and $16 in silver) with gold eventually breaking through the $1280 area and clearing the $1300 high from made in January.
Both gold and silver have been rallying this week so we can rule out Scenario 2. It is most likely that Scenario 1 is playing out, however, the rally does not seem that strong and may not reach the levels described above. There is resistance for gold at the $1224 high achieved on April 6, so I at least want to see prices approach that high. If that happens tomorrow or early next week, I will consider taking profits in long gold and silver positions. Though less likely, we cannot completely rule out Scenario 3, which would be a very bullish breakout of gold and silver. There are some technical signals right now that support this bullish picture. For example, this week the two precious metal mining company stock indices HUI and XAU both showed strong bullish signals in their charts, with directional momentum in the HUI now 100% bullish (XAU is mixed bullish and bearish). As I've mentioned before on the site, gold and silver mining company stock prices often lead the price of the actual metals.
Another bullish influence on precious metals right now is the U.S. Dollar Index. In my last blog on the dollar (Sunday) I stated that : "...last week's strong bounce from the 96 level keeps the dollar above a clearly defined parabolic uptrend that has been in place since last summer. If this parabolic uptrend continues to support the dollar, we could see that 100 mark broken soon..." This week the U.S. Dollar Index opened at 99.5 on Monday but has been falling since then and today is closing around 97.5, which is right at the parabolic uptrend line. There are some technical signals now suggesting the dollar could break below this level. If it does, it could mean the dollar is starting a more serious correction, and that would be very bullish for gold and silver prices. It may be that the U.S. dollar is losing its appeal to global investors who are now questioning how serious the Fed is about raising interest rates. The dollar needs to bounce up now to avoid breaking that parabolic uptrend line. We will watch this carefully over the next few trading days.
I am holding my long positions in both gold and silver for now.
As we move into the end of a long potential reversal zone for the broad stock market (it ends early next week), the DOW, S&P 500, and NASDAQ are all rising, but not one has made a new yearly high (yet). I would like to see a bearish intermarket divergence signal now (one or two of these indices making a new high, but not all three) to sell short; however, if this reversal zone instead corresponds to a breakout with all three indices making new highs then we will switch to a bullish trading strategy (i.e. look for a good buy spot). This market is still ambiguous so we will remain on the sidelines for now.
My last update on Crude Oil was on April 6 when I wrote: "It is still not clear if the new crude cycle started in late January or more recently in mid-March. Any rally over the next three weeks that exceeds the $55 area would suggest a mid-March start to the cycle, and this could mean the market is turning bullish." Today crude prices rallied to $57.42 and a strong bullish momentum signal appeared in crude charts making directional momentum now 100% bullish. It looks like the new cycle started in mid-March and the trend is now bullish. We will now switch to a bullish trading strategy which means we should look to buy any corrective price dips. We may not have to wait long as we are now in the center of a reversal zone for crude. Prices could start to back down a bit over the next five trading days. Still on the sidelines but now looking to buy.
In my last blog I described three possible scenarios for precious metals this week:
Scenario 1 (bearish): Gold and silver rally a bit more (perhaps from a low early this week) with gold prices approaching the $1240 - $1250 area (and possibly $1280) but then turn down dramatically with gold possibly breaking below the $1140 area that began the current cycle.
Scenario 2 (bearish): Gold and silver continue to fall this week with little or no rallying leading to a break below the $1140 level.
Scenario 3 (bullish): Gold and silver rally strongly (perhaps after a brief dip towards $1180 in gold and $16 in silver) with gold eventually breaking through the $1280 area and clearing the $1300 high from made in January.
Both gold and silver have been rallying this week so we can rule out Scenario 2. It is most likely that Scenario 1 is playing out, however, the rally does not seem that strong and may not reach the levels described above. There is resistance for gold at the $1224 high achieved on April 6, so I at least want to see prices approach that high. If that happens tomorrow or early next week, I will consider taking profits in long gold and silver positions. Though less likely, we cannot completely rule out Scenario 3, which would be a very bullish breakout of gold and silver. There are some technical signals right now that support this bullish picture. For example, this week the two precious metal mining company stock indices HUI and XAU both showed strong bullish signals in their charts, with directional momentum in the HUI now 100% bullish (XAU is mixed bullish and bearish). As I've mentioned before on the site, gold and silver mining company stock prices often lead the price of the actual metals.
Another bullish influence on precious metals right now is the U.S. Dollar Index. In my last blog on the dollar (Sunday) I stated that : "...last week's strong bounce from the 96 level keeps the dollar above a clearly defined parabolic uptrend that has been in place since last summer. If this parabolic uptrend continues to support the dollar, we could see that 100 mark broken soon..." This week the U.S. Dollar Index opened at 99.5 on Monday but has been falling since then and today is closing around 97.5, which is right at the parabolic uptrend line. There are some technical signals now suggesting the dollar could break below this level. If it does, it could mean the dollar is starting a more serious correction, and that would be very bullish for gold and silver prices. It may be that the U.S. dollar is losing its appeal to global investors who are now questioning how serious the Fed is about raising interest rates. The dollar needs to bounce up now to avoid breaking that parabolic uptrend line. We will watch this carefully over the next few trading days.
I am holding my long positions in both gold and silver for now.
As we move into the end of a long potential reversal zone for the broad stock market (it ends early next week), the DOW, S&P 500, and NASDAQ are all rising, but not one has made a new yearly high (yet). I would like to see a bearish intermarket divergence signal now (one or two of these indices making a new high, but not all three) to sell short; however, if this reversal zone instead corresponds to a breakout with all three indices making new highs then we will switch to a bullish trading strategy (i.e. look for a good buy spot). This market is still ambiguous so we will remain on the sidelines for now.
My last update on Crude Oil was on April 6 when I wrote: "It is still not clear if the new crude cycle started in late January or more recently in mid-March. Any rally over the next three weeks that exceeds the $55 area would suggest a mid-March start to the cycle, and this could mean the market is turning bullish." Today crude prices rallied to $57.42 and a strong bullish momentum signal appeared in crude charts making directional momentum now 100% bullish. It looks like the new cycle started in mid-March and the trend is now bullish. We will now switch to a bullish trading strategy which means we should look to buy any corrective price dips. We may not have to wait long as we are now in the center of a reversal zone for crude. Prices could start to back down a bit over the next five trading days. Still on the sidelines but now looking to buy.
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