MARKETS UPDATE (4:00 pm EDT)
We are getting close to the end of a highly volatile time period for most markets (it should end late next week), but today's sudden drop in the broad stock market tells us that it is not over yet. Is this market finally taking the big correction we've been waiting for? It's possible, but last Friday's high was not in a reversal zone (that window starts today and runs through late next week with the center at Sept. 9-10), and the present volatile climate can send markets back up as fast as it sends them down. If this market falls into the center of this reversal zone near the end of this week/early next week, we should be looking for a bottom to buy. That would be especially true if only one or two (not all three) of the major broad market indices (DOW, S&P 500, NASDAQ) make(s) a new low (intermarket bullish divergence). If all three indices make new lows, and especially if they start breaking their lows from Aug. 21, we might have a more serious correction on our hands. We will remain on the sidelines and watch how this market moves into the center of this reversal (Friday-Monday).
Gold and silver charts are looking increasingly bullish, and there are many technical configurations and patterns right now that suggest the longer-term trend in these precious metals is turning up. Both metals have been rising sharply, but they are now approaching resistance areas in their charts as we move into the center of a reversal zone late this week/early next week so a correction down could be imminent. We should consider any significant correction now as an opportunity to go long in both gold and silver. Ideally, we would like to see gold prices drop back to $1,300 or lower. Silver's drop (if it happens) could be more severe and might plunge into the $16.20 - $16.85 range. On the sidelines of gold and silver and waiting to go long.
As I've been saying in recent blogs, the U.S. Dollar Index could be in trouble. Last Tuesday I wrote:
"...the greenback is still in trouble and continues to look vulnerable to a serious plunge. A detailed technical analysis of the Dollar Index chart shows a strong support level at 92... If that breaks, there is a secondary line of support just above 90. Any break below 90 would likely lead to a serious plunge in the dollar. Such a plunge could ignite a fire under the precious metals and send prices much higher. That said, we could still see a short-term bounce in the dollar from the current support, but any rally would probably not get very far before turning back down again to challenge that 90 -92 area."
All of this still applies as the dollar continues to hover above that 92 support. This week's reversal zone also applies to currencies so we could see a temporary bounce in the greenback that could drive precious metal prices down towards those target areas mentioned above.
We sold our long position in crude oil last week as directional momentum in crude turned very bearish and opened up the possibility of a serious correction. Prices did correct down but only got as far as $45.58 (Oct. contract chart) before rising again. That low happened last Thursday and was very early in a reversal zone specifically for crude oil so that could have been a significant bottom. Prices have since risen sharply, and today they nearly touched $49. Crude's reversal zone continues into this Friday and maybe longer into early next week as it overlaps with our other reversal zone mentioned earlier (Sept. 5-14, centered on Sept. 9-10). This means we could see a top in crude this week or next and another correction down. Crude prices are now approaching a resistance line around $49 - $50 which could be a cap for this rally. We may have sold our long positions too early last week, but let's see if we get another correction down and how far it goes before we make another trade. Directional momentum in crude is still nearly 100% bearish so this recent rally may not get very far. On the sidelines of crude oil.
We are getting close to the end of a highly volatile time period for most markets (it should end late next week), but today's sudden drop in the broad stock market tells us that it is not over yet. Is this market finally taking the big correction we've been waiting for? It's possible, but last Friday's high was not in a reversal zone (that window starts today and runs through late next week with the center at Sept. 9-10), and the present volatile climate can send markets back up as fast as it sends them down. If this market falls into the center of this reversal zone near the end of this week/early next week, we should be looking for a bottom to buy. That would be especially true if only one or two (not all three) of the major broad market indices (DOW, S&P 500, NASDAQ) make(s) a new low (intermarket bullish divergence). If all three indices make new lows, and especially if they start breaking their lows from Aug. 21, we might have a more serious correction on our hands. We will remain on the sidelines and watch how this market moves into the center of this reversal (Friday-Monday).
Gold and silver charts are looking increasingly bullish, and there are many technical configurations and patterns right now that suggest the longer-term trend in these precious metals is turning up. Both metals have been rising sharply, but they are now approaching resistance areas in their charts as we move into the center of a reversal zone late this week/early next week so a correction down could be imminent. We should consider any significant correction now as an opportunity to go long in both gold and silver. Ideally, we would like to see gold prices drop back to $1,300 or lower. Silver's drop (if it happens) could be more severe and might plunge into the $16.20 - $16.85 range. On the sidelines of gold and silver and waiting to go long.
As I've been saying in recent blogs, the U.S. Dollar Index could be in trouble. Last Tuesday I wrote:
"...the greenback is still in trouble and continues to look vulnerable to a serious plunge. A detailed technical analysis of the Dollar Index chart shows a strong support level at 92... If that breaks, there is a secondary line of support just above 90. Any break below 90 would likely lead to a serious plunge in the dollar. Such a plunge could ignite a fire under the precious metals and send prices much higher. That said, we could still see a short-term bounce in the dollar from the current support, but any rally would probably not get very far before turning back down again to challenge that 90 -92 area."
All of this still applies as the dollar continues to hover above that 92 support. This week's reversal zone also applies to currencies so we could see a temporary bounce in the greenback that could drive precious metal prices down towards those target areas mentioned above.
We sold our long position in crude oil last week as directional momentum in crude turned very bearish and opened up the possibility of a serious correction. Prices did correct down but only got as far as $45.58 (Oct. contract chart) before rising again. That low happened last Thursday and was very early in a reversal zone specifically for crude oil so that could have been a significant bottom. Prices have since risen sharply, and today they nearly touched $49. Crude's reversal zone continues into this Friday and maybe longer into early next week as it overlaps with our other reversal zone mentioned earlier (Sept. 5-14, centered on Sept. 9-10). This means we could see a top in crude this week or next and another correction down. Crude prices are now approaching a resistance line around $49 - $50 which could be a cap for this rally. We may have sold our long positions too early last week, but let's see if we get another correction down and how far it goes before we make another trade. Directional momentum in crude is still nearly 100% bearish so this recent rally may not get very far. On the sidelines of crude oil.
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