The broad stock market has been falling this week, and we are entering the center of another reversal zone early next week so we should be watching for a bottom here. Equities were mostly flat today as investors were likely indecisive ahead of tomorrow's jobs report. We will wait and see how the market responds to the employment data. It may be a trigger for a reversal, but if not we could see equities move lower into early next week before turning back up. I would consider taking profits in our short position now, but this correction has been modest so far and technically has the potential to move considerably lower. On the other hand, directional momentum remains strongly bullish for the broad stock market, and we can assume the Fed wants to keep equities buoyant into the upcoming presidential election so perhaps we shouldn't expect a normal correction. Holding my short position in the broad stock market but looking to cover this position soon.
Gold and silver prices are also falling into next week's reversal zone but, as with the broad stock market, the correction hasn't been very deep. The COT (Commitment of Traders) charts are still very bearish for these precious metals which is suggesting a deeper correction. On the other hand, cycle analysis suggests that both gold and silver are "breaking out", and directional momentum in both metals is now strongly bullish. These mixed signals are keeping us on the trading sidelines for now. Let's wait and see if prices can go lower into next week before considering a long position. On the sidelines of both gold and silver for now.
In Monday's blog on the U.S. dollar I wrote:
"What happens to gold and silver now will depend on the U.S. dollar. Today the U.S. Dollar Index closed below important support at 93 which means that it is in danger of melting down. There is some support down to 92.5, and it is resting at that level now. Market volatility is high right now so this breakdown could also be a "fake-out". We have to see the dollar reverse back up soon to avert the danger of a more serious collapse. We will be watching this situation carefully."
On Tuesday, the U.S. Dollar Index plunged briefly to 91.88 but then snapped back up and closed above 92. It rallied today and closed above 93 so the breakdown could indeed be a "fake-out". If so, the dollar may be getting ready to start another strong rally, and this would likely push precious metal prices lower.
Crude oil prices are down this week and appear to be sinking into next week's reversal zone (which is especially relevant to crude); however, prices surged briefly today and came close to last week's high ($46.78 in June contract chart) before falling again and closing below $45. This makes me think that crude could still make a new high in the first half of next week closer to our target near $50 before making a significant correction. That would be an ideal spot to sell short if it happens next week. If prices continue to fall, we will instead look for a bottom to buy as the longer-term crude cycle seem to be turning bullish. Out of crude oil for now.