We are about to move into a very significant market timing zone during the first half of next week where there is a high probability for all markets to make a reversal in directional trend. Because of this we want to be especially aware of market directions moving into Monday-Wednesday and any short-term trading signals that could indicate a top or bottom.
The broad stock market is continuing its erratic behavior this week with the DOW dropping over 100 points yesterday morning, recovering by day's end, and today leaping another 100 points to attain a new all-time high. Directional momentum is now 100% bullish in the DOW, S&P 500 and NASDAQ, but the market is very overbought, looking "toppy", and there are several technical indicators suggesting some sort of correction now. A moderate correction here would give us a better entry point to go long (assuming momentum remains bullish) so I am going to wait for this. I had been expecting a major correction in the broad stock market before the end of the year, but based on my recent analysis of cycles and the opinions of several other analysts, I am starting to think this may be pushed into early next year. One possible scenario that could play out for this market would be a brief correction now followed by a "Santa Claus" rally into Christmas and the New Year holidays and then a more significant correction sometime in January. As always, cycles, timing factors, and technical signals will tell us how to trade the market as we move forward. I am still on the sidelines here but I am now looking to go long on any short-term correction as long as momentum remains bullish.
Gold and silver have been very stable so far this week with gold staying above $1300 and silver hovering just below $22. Gold needs to start closing above $1330 (or even $1350) soon or there is a risk of prices falling back into a deeper correction. The upcoming reversal period mentioned above could be the launching point of a rally if precious metal prices fall a bit more into early next week, but if instead they rise and can't clear the $1330-$1350 level I may consider getting out of my long positions in both gold and silver. We will have to wait and see how this plays out. I again want to emphasize that I am short-term trading these metals right now, and should I exit my longs, I would be looking to go back in on any deeper correction in gold that holds above $1100. Still holding long positions in gold and silver.
Crude oil appears to be bouncing today from a low around $93 yesterday after steeply falling since last week. We may be getting an ideal setup to short crude oil if prices can rally into the middle of next week and momentum remains strongly bearish. Stay tuned. Still on the sidelines here but possibly looking to go short next week.