Yesterday I made some tricky trading calls in the broad stock market and in precious metals. One was good, but unfortunately, the other was not.
We bought gold and silver yesterday as several technical signals were suggesting that new medium-term cycles had started in both metals on May 1. While that still may be true for silver, gold is most likely completing the end of an older cycle with a final bottom below $1300. Even if silver started a new cycle on May 1, if its price falls below the low from that day ($16.06) that would mean the cycle is turning bearish with significantly lower prices ahead. Both metal prices are falling steeply today and both have now broken below last week's lows so our stop loss points have been triggered. If not already out, long positions in both metals should be unloaded (sold) now. We are taking a loss of about 2% on each here, but there is a risk of further significant downside if we hold.
Fortunately, today's gains from our short position in the broad stock market should offset some of our loss in the precious metals. Even though yesterday's rally in equities was strong enough to negate any bearish divergence signal for the week, the rally made new highs in a strong reversal zone. I suspected a turn down was imminent and decided to hold my short position. Today the market has turned down strongly, and it looks like we could be starting a multi-day corrective dip. If this correction gets close to 24,100 in the DOW and 2,640 in the S&P 500, we will consider covering our short positions and going long. There is a small chance this correction could go much deeper, but that is less likely now that it appears a new cycle started on April 2. Holding my short position in the broad stock market for now.