As I stated in Monday night's blog, it is going to be tricky to pick a top (or bottom) in markets within the current reversal period which can extend through the end of next week. In the broad stock market, a good target to sell short would be around 18,500 in the DOW and 2160 in the S&P 500, and a good target to go long would be around 17,700 in the DOW and 2080 in the S&P 500. The market highs on Monday and Tuesday did not reach the upper targets, and these indices are falling today so we may see the bottom targets first. If the indices stall near those lower targets, we will look to buy for a potentially strong rally into early April. Directional momentum in the DOW, S&P 500 and NASDAQ remains strongly bullish which favors this idea of more rallying into April. Momentum can change rapidly, however, and we need to keep in mind that an important top could form anytime between now and the first week of April (it may have formed already Monday and Tuesday) from which a major market correction could start. For now, we will use the target areas stated above to guide our trading strategy. But if the market breaks below those lower target areas and/or directional momentum turns bearish, it could mean a serious correction has started. Still on the sidelines.
Gold prices seem to be stabilizing at $1200 and are remaining above last week's low ($1191) while silver prices made a new low today near $16. Thus, a case of intermarket bullish divergence is still in place for this market and is an encouraging sign to go long. We are also now in the exact center of a reversal zone for the precious metals. Based on all this I am going to enter a long position in gold today. We will place a stop loss at last week's low of $1191 (breaking below this would negate the bullish divergence signal). This is only $10 away from the current price and thus gives us an excellent risk/reward ratio. I may go long in silver tomorrow or Friday (if gold's $1191 low holds). I am more cautious trading silver because of its high volatility, and I would like to see a few more short-term buy signals before going long in this metal. Silver prices could fall a bit more, but as long as gold stays above that $1191 price, we have a strong signal to buy this week. Going long in gold today but staying out of silver for now.
We are still not getting a new weekly low in crude oil prices; in fact, prices are rising a bit this week. That means that this week's reversal zone could coincide with a high, not a low. If we get a rally to the $55 level, I may consider selling short. I would still prefer to see a new low this week (perhaps to the $47 - $48 area) for a place to go long as this appears to be the start of a new long-term cycle in crude. Still on the sidelines.