The sudden specter of a Russian military threat to Ukraine caused some knee-jerk reactions in several markets yesterday. This is yet another demonstration of just how volatile financial markets are these days, and this is, unfortunately, a situation I feel is going to persist at least through the first half of this year. It is important to keep this in mind as we do not want abrupt market movements triggered by news events to cause us to "jump the gun" with our trading decisions (which I base mostly on technical signals).
The broad stock market closed yesterday with a 153 point loss in the DOW but today this index has recovered all of that, and at the time of this writing (2:30 pm EST) the DOW is up over 200 points. As I stated in my last blog, the turning point for a significant reversal in most major markets should occur before the end of this week. With the market's plunge yesterday it appeared that Friday was a likely peak, but today's healthy bounce may push the market higher over the next few days. The DOW has still not exceeded its all-time high of 16,588 (but it is getting close). The S&P 500 and NASDAQ have already made new yearly highs. Until the DOW exceeds that high, we have a strong bearish signal that is supporting the idea of an imminent correction. This correction could send the DOW back down towards the 15,400 area and give us a good entry point to go long as momentum continues to be generally bullish in the broad stock market. Should the DOW break significantly below the Feb. 5th low at 15,340, however, we could see the market turning bearish and a much more serious correction unfold. Until that happens, I am going to be looking for a modest correction here and an opportunity to go long in the broad stock market shortly. Still on the sidelines.
Gold and silver prices also responded to the Ukraine news and shot up (at least briefly) yesterday. This is not surprising as the threat of any serious global political instability usually encourages a flight from equities into hard assets. Precious metal prices are back down again today, however, and there are some technical signals still suggesting a little more downside in this market before we have an ideal entry point to buy. Significantly, the U.S. Dollar Index is back above the 80 level (after breaking briefly below last week) suggesting at least some short-term strength that could push metal prices a bit lower. I continue to watch this index carefully as its chart momentum is currently very bearish, and a clear breakdown of the dollar now could trigger a gold and silver breakout. On the sidelines of gold and silver and waiting to buy.
Crude oil surged to a new high at $105.22 with yesterday's news, but dropped back towards $103 today. As with the broad stock market, I am anticipating a peak in crude prices before the end of the week. We may have just seen it with Monday's high, but there is still time to make another before Friday. Directional momentum in this market continues to be strongly bullish, so my strategy here is still to wait and go long on any corrections. Out of this market for now.