In Tuesday's blog I wrote:
"The DOW is currently at 26,774. I would like to see it at least near 27,000 and a little closer to Oct. 5 before selling short. Let's see if it rallies a bit more tomorrow. We may enter a short position in the broad stock market either tomorrow or Thursday unless the S&P 500 makes a new high."
BINGO! The DOW approached 27,000 on Wednesday and the S&P 500 did not make a new high so we went short near the top of this rally and are seeing a very steep fall today. We now need to watch carefully how far the correction goes. If the final top of the current medium-term cycle is in then it could be quite steep, and equites would move lower after next Monday. If the correction levels off by Monday (say, close to 26,000 in the DOW), however, it may only be a sub-cycle dip and, we could see another rally commence to a new (final) cycle high. We will watch this carefully. We are now holding a short position in the broad stock market.
This week's reversal zone seems to be working for the precious metals as well as for equity markets. Both gold and silver prices have retreated from highs on Tuesday, but so far have not fallen very much. There are some technical signals suggesting a significant low in gold could happen between now and next Wednesday with a strong rally to follow. We are watching for this. But we need to be careful here. We don't want to see silver break significantly below $13.95 and gold move below $1161. The precious metals market could go either way right now (bullish or bearish). My bias at the moment is bullish, but gold needs to start closing above $1220 to confirm this. Still on the sidelines of gold and silver.