I had been looking to sell short the precious metals market, but today's price surge in both gold and silver is changing the cycle picture for these metals. In Sunday's blog I wrote:
"...there is a possibility that both metals already bottomed and began new cycles in early October and are still in their early stage. If that is the case then this market could turn bullish...This market is tricky to call right now. "
Gold and silver prices both surged to new weekly highs today and broke important resistance levels. This makes it much more likely that these metals started new medium-term cycles in early-mid October (Gold on Oct. 7 and silver on Oct. 7 or Oct. 19). If this is true, we could now see prices rally for several weeks (perhaps even months) as the new cycle attempts to match or exceed the previous cycle highs from June ($1,375 in gold and $21 in silver). Before we get too bullish, however, we need to recognize that the current highs are being made within a strong reversal zone specifically relevant to precious metals which extends through the end of this week. A price correction could therefore be imminent from any high between now and Friday. If gold and silver have indeed started new cycles then this correction shouldn't break below $1,240 in gold or $17 in silver. We will abandon our plan to sell short now and just focus on buying the bottom of any significant correction. If these are still older cycles then that bottom could be as low as $1,200 in gold and $16 in silver, but I think it's more likely prices will stay above those $1,240 and $17 lows from October. On the sidelines of gold and silver for now.
The broad stock market's significant drop today was likely being fueled by the increasing chances of a Trump presidency in the wake of more damaging email scandals surrounding Hillary Clinton and her associates. The DOW and S&P 500 both made new monthly lows and directional momentum in both charts switched from mixed bullish and bearish to 100% bearish (the NASDAQ is still mixed bullish and bearish). If these indices don't turn back up by the end of this week, it is likely they will continue down into and beyond the election to form a cycle bottom near the end of this month. That drop may not be that severe. Normal targets for this correction could be anywhere from 17,300 - 17,900 in the DOW and 2,030 - 2,060 in the S&P 500. If markets panic, however, it is possible we could see a more severe sell-off. Given the bizarre and tumultuous nature of the current presidential election and the high level of anxiety in markets, I think anything is possible. We sold this market short on Monday, and right now that seems like a good decision. We will stay short but will carefully watch for any significant turn up over the next three days as we are still in a reversal zone. Holding my short position in the broad stock market.
In Sunday's blog on crude oil I wrote:
"Crude oil prices now appear to be making a subcycle bottom in a strong reversal zone and are close to our target range of $47 - $48. A bearish signal just appeared in crude's Sunday night chart so I am going to wait and see if prices can move lower and more directly into our target zone early next week."
It looks like it was a good idea to delay buying crude as prices dropped dramatically this week. Crude closed today at $46.29 (December contract chart) which is a little below our target price but still in an acceptable range for a subcycle bottom. Directional momentum in crude charts is now mixed bullish and bearish, but it looks like a bottom is forming here. I may enter a long position tomorrow or Thursday if prices don't go below $45. Still on the sidelines here.