I would like to make a comment about the U.S. Dollar Index and its relationship to the price of gold and silver. Under normal market conditions within a fairly stable global economy, precious metal prices generally move opposite the U.S. dollar - if one goes up, the other goes down, and vice-versa. Of course, the global economy is far from stable right now, investors and traders are very nervous, market conditions are not "normal", and financial markets have been very volatile. Under such conditions it is possible to see gold and silver prices rally with the dollar. If equity markets start to fail, many investors today could see both gold and the dollar as a safe haven. Yes, the U.S. economy may not be doing that well, but many other economies around the world (e.g. the eurozone) are worse, and the U.S. dollar is still the world's reserve currency. I bring this up now because the U.S. Dollar Index may be stabilizing and getting ready to mount another assault on the 100 mark and maybe even break above it (perhaps to the 110 area), but this may not necessarily put a damper (as it normally would) on precious metal prices. Gold and silver also seem to be turning bullish, and it is possible that December was the longer-term cycle bottom in both metals (though not confirmed yet). These metals could rally hand in hand with a bullish dollar. If instead the dollar continues to break down, this would give a stronger kick to any rally in precious metals. If Janet Yellen and the Fed back off on raising interest rates and return to more dovish fiscal policy, we could indeed see the dollar break down.
A critical area of support for the dollar is around 93. If the U.S. Dollar Index breaks clearly below 93, the greenback will be in big trouble and could be headed down for the next several years (or longer).
Gold and silver rallied strongly today (especially gold) so the dip we had expected may be over - maybe. Silver's correction stopped a considerable distance above our target of $14.50, and prices could still back down closer to that level as this is a highly volatile market right now. If we did miss the corrective bottom, we may just wait for a secondary top sometime next week that could equal or exceed last week's high of $1263 in gold and $15.95 in silver. That could end up being a good place to sell short for another short-term correction. If prices fall tomorrow, however, we will go back to our strategy of looking for a bottom to buy in our original target areas ($1190 in gold and $14.50 in silver). There are many short-term variables now that point to frequent price swings in the precious metals market which could persist over the next two weeks. We therefore need to be flexible and nimble in any short-term trading here. Once we are more confident that gold and silver's longer-term cycle bottoms are in, we can be more comfortable with buying and holding for longer periods of time. The cycles should become more clear over the next several weeks. Still on the sidelines of gold and silver.
We are now at the center of another (mild) reversal zone and the broad stock market is rallying into it so we should be looking for a good spot to go short; however, it now looks like last week's new low of 1810 in the S&P 500 could be the start of the new medium-term cycle (instead of the 1812 low of Jan.20). If that's the case, it is too early for the new cycle to peak, and we could see at least another week of rallying. (To confirm the cycle low of 1810 we need to see the S&P 500 close above 1950.) Furthermore, even though the DOW is entering into the lower part of our target range (16,400 - 17,000), the S&P 500 is still below our target of 1950 - 2000. The DOW's chart also manifested a strong bullish signal this week which turned its directional momentum from 100% bearish to mixed bullish and bearish (the S&P 500 and NASDAQ are still 100% bearish). For all of these reason's I am remaining on the sidelines of the broad stock market for now.
Despite crude oil's drop below $28 earlier this week, prices now seem to be holding above $30 which is supporting the idea that the Feb. 11 low at $26.13 was the start of a new medium-term and maybe even longer-term cycle in crude. This would mean that this market is about to turn bullish. We need to see prices break above $32 and especially $35 to start confirming this bullish picture. Otherwise, there is the danger of crude dropping below $26.13 which would mean the medium and longer-term cycle lows are still forming. Still holding my long position in crude.