We entered a long position in gold on July 26 expecting a strong rally. We did get a rally, but it was not as strong as I would have liked, and short-term technical signals are suggesting that it is topping out. We could now see a sharp short-term correction that could take prices down to the $1240 - $1250 area (or possibly lower). Because prices are still above our entry point (which was around $1260), I am going to sell this long position now (putting in a sell order for tomorrow's market open). Yes, it is still possible for prices to push higher this week and into early next week, but we are in a general reversal zone for all markets and there is a good chance of a sharp correction here. If we do get a correction to $1240 - $1250, we will look to buy again as the overall trend of this market is still potentially very bullish (assuming a new cycle started on July 10 at $1205). Some traders may wonder why I don't just hold my long position here and "ride out" the correction to that $1240 - $1250 area. The reason is that there is still a small chance we are in an older cycle that could form a bottom below that $1205 low over the next few weeks. Any move below $1240 would support that idea. For now, however, we will go with the more bullish picture of a brief (but sharp) correction and then another strong rally. We will step aside (sell our longs) tomorrow morning to avoid that correction (and the possibility of it becoming more serious). Silver also seems to be correcting now, and as with gold, we will watch this metal's price for a spot to buy as long as prices stay above the $15.22 low from July 10 (likely the start of silver's new cycle).
Selling my long position in gold and still out of silver.
The U.S. Dollar Index is now "teetering on the brink" of a major breakdown. This index is now testing a "last-ditch" major support line roughly between 92 -93. If this breaks, there is another weaker support around 90, and if that is breached, the dollar is in danger of "free fall" to much lower levels. Should this scenario unfold, gold and silver prices would take off strongly. To avoid this situation, the dollar needs to start closing consistently well above 94. It may have the opportunity to do that now as the first three weeks of August happens to be a strong reversal zone specifically for currencies. We will watch this situation carefully as the dollar usually moves opposite the price of gold and silver. (We should also keep in mind, however, that occasionally precious metals and the dollar will rise together, and that unusual situation could be setting up now.)
The DOW made a record all-time high today as it broke and closed above the 22,000 mark for the first time. The S&P 500, however, is still below last week's high (it is close), and so is the NASDAQ so we still have an intermarket bearish divergence signal in the middle of a reversal zone (which ends next Tuesday). If the S&P 500 and NASDAQ make new highs, we will have to abandon our short position and will look to the next strong reversal centered around Aug. 21 for a top and turn down in the broad stock market. Until that happens, I am going to hold my short position. This market seems reluctant to rally strongly this week, and that is suggesting an imminent reversal; however, the DOW breaking 22,000 today could trigger an "irrational exuberance" in traders that could propel equities higher into that Aug. 21 reversal. We need to watch these markets carefully and be ready to cover our short position if necessary.
It still looks like the June 21st low at $42.27 in crude oil (Sept. contract chart) was the start of a new medium-term (and possibly longer-term) cycle. If that is the case, this market is turning bullish, and a good target for a sub-cycle correction now would be in the $45 -$47 range. We will watch for this and a possible opportunity to go long. Still on the sidelines of crude oil.