The broad stock market is still bouncing about without a clear trend as we near the end of a significant timing window for a trend reversal. I am going to allow this timing window to extend into Friday (and possibly next Monday) which still gives the market time to make a significant bottom or reverse from a top. Today a strong bullish momentum signal appeared in the charts of the NASDAQ making directional momentum in this index now 100% bullish. (The DOW and S&P 500 remain mixed bullish and bearish). This is a bullish sign, but the DOW and S&P 500 will have to follow suit soon to confirm a bullish trend in equities. One possible bullish scenario that I favor at the moment could see the market falling into Friday and finding support for the DOW around 17,600 - 17,650 and for the S&P 500 around 2050 - 2060. If this happens, I will look to buy. An alternative scenario could see the market rallying into Friday with one or two of the three major indices (DOW, S&P 500, NASDAQ) making a new yearly high, but not all three. As I've stated many times in my blogs, this would be a case of bearish intermarket divergence and would be a good signal to sell short. (Note that the NASDAQ made a new weekly high today at 5028 but still has not exceeded its yearly high of 5042 from March 20). Recent concerns about China's government placing restrictions on investors in its stock market to avoid a speculative bubble as well as fears about Greece defaulting on its bailout loan are making Wall Street nervous. This is creating a trading environment with a potential for high volatility so all trading over the next few weeks, short or long, should be done carefully using tight stop losses. Still on the sidelines.
Gold prices are up a bit today, but gold needs to start rallying strongly this week and exceed the $1224 level to avoid the possibility of a breakdown. The behavior of the U.S. dollar is critical here. The U.S. Dollar index is now pushing against resistance at 98 and looks poised to back down again. If it does, gold should rally; however, any break above 98 would likely send gold prices down. In terms of timing, next Monday could be a significant turning point for this market. We sold our silver long positions yesterday to minimize potential losses from a possible breakdown in precious metals (silver is more volatile than gold and can manifest significant losses quickly) but kept our long position in gold. I am maintaining this gold long position with a stop loss at $1180.
In my last blog on crude oil (April 16) I wrote: "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." Crude prices have backed down from that $57.42 high and we should now be looking for a good spot (and time) to buy. This may come over the next few days. On the sidelines and waiting to buy soon.