We covered our silver short position yesterday at our entry price and got out with no (or very little) loss. This was a good move as silver prices surged again today, this time breaking the $16 level and making a new monthly high (intraday) at $16.16. This confirms the idea of silver starting a new medium-term cycle from its $14.85 low on April 1.
New cycles are always initially bullish, but this current rally may encounter strong resistance beginning later this week and continuing into the last two weeks of this month which is a strong reversal zone for many markets including the precious metals. While silver made a new monthly high today, gold did not and remained below its March 11 high of $1,282. We thus have a case of intermarket bearish divergence until gold breaks that high. Gold prices also briefly poked above our stop loss point at $1,260 for our short position but closed below that level. I am going to hold my short position in gold a bit longer on the chance that it will dip down closer to $1,200 or below. Gold's March 27 low at $1208 might be the medium-term cycle bottom, but there is also a good chance gold could make this bottom below $1,208 sometime over the next week or two (even as early as late this week). Any traders that were stopped out of their short position in gold should remain on the sidelines as the cycle bottom could already be in. Holding my short position in gold but out of silver.
The U.S. Dollar Index has broken below 94.5 but now seems to be finding support around 94. The dollar has strong support down to 93, but this is a critical support zone. If the U.S. Dollar Index breaks and closes below 93, it could mean big trouble for the greenback. Recent policy statements from central banks and the Federal Reserve have smacked the dollar down, but if this index can stay above 93, the U.S. dollar could stage a comeback rally soon. A strong reversal zone for currencies is coming up next week so that might be the turning point. A sudden rally in the dollar would likely push precious metal prices back down. On the other hand, a breakdown in the dollar (i.e. the U.S. Dollar Index falling below 93) would cause gold and silver prices to soar. We will watch the dollar carefully now to help us gauge the direction of the precious metals.
In last Sunday's blog I wrote:
"the broad stock market is very ambiguous right now and is giving us many mixed signals. Even though last week's correction was modest, it may have been enough to temporarily unwind the overbought market, and we could see a rally now.'"
Equity markets rose strongly today so we might be getting that rally. What we should watch for now is a case of intermarket bearish divergence where one or two (but not all three) of the major market indices (DOW, S&P 500, NASDAQ) make(s) (a) new monthly high(s), especially if this happens into next week's strong reversal zone. All three indices are close to doing this. This is the last week for filing tax returns in the U.S. so many investors could be making last minute contributions to the mutual funds in their retirement accounts which could help drive an equity rally into Friday. We will remain on the sidelines of the broad stock market until we see how it moves into next week's reversal zone.
We unfortunately missed a good buy spot in crude oil last week when prices made a subcycle bottom at $35.24 on Tuesday (April 5). In Thursday's blog I wrote:
"It is not clear at the moment on whether the current cycle in crude is bullish or bearish. If it is bullish, the rally starting now could exceed last month's high of $42.49. If bearish, however, this rally could be brief and could start turning back down well below last month's high. If we were more certain of a bullish cycle, we would buy now, but if this cycle is turning bearish, it would be better to sell short the top of any rally. If prices back down over the next several trading days and hold above Tuesday's low, I may consider going long."
Well, prices didn't back down so we didn't buy, and crude surged to $42.25 today, challenging the $42.49 high from last month. This surge triggered a major bullish momentum signal so directional momentum in this market is now mixed bullish and bearish (it had been 100% bearish). A clear break above $42.49 would suggest the trend is turning bullish. If that happens, our trading strategy will be to buy any short-term dips as the target for a bullish rally could be as high as $51. The strong reversal zone coming up next week may put a temporary damper on any strong rally and give us an opportunity to buy. On the sidelines of crude oil for now.