MARKETS UPDATE (3:00 pm EST)
Monday was a holiday (Martin Luther King Jr. Day), and stock markets were closed in the U.S.
We are now moving out of last week's strong reversal zone for the broad stock market. The DOW's all-time high of 19,999 on Jan.6 was right in the center of that reversal zone, as was the S&P 500's all-time high of 2,282 that same day. On Friday last week (Jan.13 - the last day of the reversal zone) the NASDAQ made a new all-time high while the DOW and S&P 500 stayed below their Jan. 6th highs. Thus we have another case of bearish intermarket divergence (unless all three indices make new highs this week). Under normal circumstances, we would expect a reversal from these tops and a correction to follow, and that may happen now; however, we need to consider Donald Trump's inauguration coming up this Friday as many analysts see that day as a possible pivot point for a downturn in equity markets. We know that the recent rally in stocks has been fueled by Wall Street's approval of what they perceive to be Mr. Trump's pro-business policies, but this rally could easily become a case of "buy the rumor, sell the event" with the inauguration being the event that the market has already factored in with its strong rally. These markets may start falling ahead of Friday's inauguration, but if they do rally some more, they may not get far because Friday is also the center of another reversal zone for equities. It is a minor one and not nearly as strong as last week's set-up, but the presidential inauguration may give it more significance. We will hold our current short position in the broad stock market unless the DOW, S&P 500, and NASDAQ all make new highs this week.
It still is not clear as to whether the precious metals are breaking out now or are about to take a substantial correction. In last Thursday's trade alert we sold gold short and I stated :
"There is strong resistance for gold in the $1,200 - $1,220 range so we can base our stop loss on a close above $1,220. If prices edge up tomorrow but remain under $1,220, we can set our stop loss next week on any break above tomorrow's high."
Gold didn't make any new highs on Friday, but today prices are rising above last Thursday's high of $1,206.30. Silver is also making a new weekly high today so we have no case of intermarket bearish divergence. Nevertheless, both metals are now approaching strong resistance zones ($1,200 - $1,220 in gold and $17 - $17.50 in silver) and Wednesday and Friday this week could be pivot points (lesser reversal zones) specifically for gold. What we don't want to see is gold closing above $1,220. I am going to hold my short position in gold for now (we are out of silver) with a stop loss on a close above $1,220. Even if gold is breaking out, prices may back off a bit this week and give us a better price to cover our short position.
I have rarely seen the precious metals market giving so many mixed (bullish and bearish) technical signals. Cycle analysis is also presenting an ambiguous picture now which could allow for a breakout or breakdown in prices. One factor that could be bullish for gold is today's drop in the U.S. Dollar Index. The dollar had been holding above a strong support level at 101, but today it broke that important support and has also moved out of a strong uptrend channel that had been in place since last October. Unless the dollar can snap back up quickly, this is looking bearish for the dollar and bullish for gold.
The charts for crude oil are also looking ambiguous. Crude's directional momentum is now mixed bullish and bearish. Last week crude rallied from $51 (it did not get close enough to our $49 - $50 target to tempt us to buy), but the rally so far cannot seem to close above $53 (Feb. contract chart). If prices can stay above last week's low of $50.75, we may see new highs above $55 shortly. But if prices break below $50.75, they would likely be headed for a subcycle bottom which could be anywhere from $45 to $49. If we see that happen by the end of this week or early next week, it may be a good spot to buy. On the sidelines of crude for now.
Monday was a holiday (Martin Luther King Jr. Day), and stock markets were closed in the U.S.
We are now moving out of last week's strong reversal zone for the broad stock market. The DOW's all-time high of 19,999 on Jan.6 was right in the center of that reversal zone, as was the S&P 500's all-time high of 2,282 that same day. On Friday last week (Jan.13 - the last day of the reversal zone) the NASDAQ made a new all-time high while the DOW and S&P 500 stayed below their Jan. 6th highs. Thus we have another case of bearish intermarket divergence (unless all three indices make new highs this week). Under normal circumstances, we would expect a reversal from these tops and a correction to follow, and that may happen now; however, we need to consider Donald Trump's inauguration coming up this Friday as many analysts see that day as a possible pivot point for a downturn in equity markets. We know that the recent rally in stocks has been fueled by Wall Street's approval of what they perceive to be Mr. Trump's pro-business policies, but this rally could easily become a case of "buy the rumor, sell the event" with the inauguration being the event that the market has already factored in with its strong rally. These markets may start falling ahead of Friday's inauguration, but if they do rally some more, they may not get far because Friday is also the center of another reversal zone for equities. It is a minor one and not nearly as strong as last week's set-up, but the presidential inauguration may give it more significance. We will hold our current short position in the broad stock market unless the DOW, S&P 500, and NASDAQ all make new highs this week.
It still is not clear as to whether the precious metals are breaking out now or are about to take a substantial correction. In last Thursday's trade alert we sold gold short and I stated :
"There is strong resistance for gold in the $1,200 - $1,220 range so we can base our stop loss on a close above $1,220. If prices edge up tomorrow but remain under $1,220, we can set our stop loss next week on any break above tomorrow's high."
Gold didn't make any new highs on Friday, but today prices are rising above last Thursday's high of $1,206.30. Silver is also making a new weekly high today so we have no case of intermarket bearish divergence. Nevertheless, both metals are now approaching strong resistance zones ($1,200 - $1,220 in gold and $17 - $17.50 in silver) and Wednesday and Friday this week could be pivot points (lesser reversal zones) specifically for gold. What we don't want to see is gold closing above $1,220. I am going to hold my short position in gold for now (we are out of silver) with a stop loss on a close above $1,220. Even if gold is breaking out, prices may back off a bit this week and give us a better price to cover our short position.
I have rarely seen the precious metals market giving so many mixed (bullish and bearish) technical signals. Cycle analysis is also presenting an ambiguous picture now which could allow for a breakout or breakdown in prices. One factor that could be bullish for gold is today's drop in the U.S. Dollar Index. The dollar had been holding above a strong support level at 101, but today it broke that important support and has also moved out of a strong uptrend channel that had been in place since last October. Unless the dollar can snap back up quickly, this is looking bearish for the dollar and bullish for gold.
The charts for crude oil are also looking ambiguous. Crude's directional momentum is now mixed bullish and bearish. Last week crude rallied from $51 (it did not get close enough to our $49 - $50 target to tempt us to buy), but the rally so far cannot seem to close above $53 (Feb. contract chart). If prices can stay above last week's low of $50.75, we may see new highs above $55 shortly. But if prices break below $50.75, they would likely be headed for a subcycle bottom which could be anywhere from $45 to $49. If we see that happen by the end of this week or early next week, it may be a good spot to buy. On the sidelines of crude for now.
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