Our decision to short silver this morning seems to be a good one as both gold and silver prices are falling, but it is too early to tell for sure. We need to see both metals follow through to lower prices over the next several days to confirm that a significant correction is underway. If it is, we expect gold to get at least down to $1850 (possibly much lower) and silver into the $20 - $22 range. Let's hold our short position in silver and keep our stop loss at a close above $25 for now.
The broad stock market seems a bit shaky as we start a new trading week today following Monday's holiday. The DOW took a steep tumble this morning, but the S&P 500 and NASDAQ seem relatively stable. At the time of this writing (2:00 pm EST), those latter two indices have made new weekly highs, but the DOW has not (unless it can recover over the next two hours and do so). We may be getting a bearish divergence signal, and we are in a reversal zone and close to one of our potential "pivot points", so yes, the market could reverse now. But this reversal zone continues into the end of next week, and there are also some bullish technical signals right now that make me reluctant to sell short. If the DOW and S&P 500 can push higher and exceed their Dec. 13 highs (34,712 and 4,101, respectively) this week or next, it would confirm that the current medium-term cycle is still bullish with more rallying ahead. But if those highs can't be exceeded and the market turns back down now, we could be headed into a very deep correction. We will remain on the sidelines for now as we wait to see if today's tumble in the DOW is the start of a serious downturn or just a short corrective dip.
In last Wednesday's blog on crude oil I stated:
"...prices are now approaching the 45-day moving average. Any close above there, and then a close above $81.50 (the high of Jan. 30) would be a bullish sign and would suggest the low of Dec. 9 at $70.31 was a significant cycle or sub-cycle bottom."
Well, prices have now closed above the 45-day moving average, but they still seem to be finding a lot of resistance at $80. Prices are rising sharply and they made a new weekly high today, but this is happening in a strong reversal zone at that $80 resistance line. A downturn could be imminent. I would still like to see prices fall back down to $70 or lower this week or next to confirm an older cycle bottom and give us a good spot to buy. But if prices continue to rally and close above $81.50, we may have to abandon that idea. Let's remain on the sidelines of this market for now.