Yesterday's plunge in gold and silver prices caught us by surprise as there had been several strong bullish technical signals and patterns developing in the charts of both metals over the last several weeks. Nevertheless, the current precious metals market (like most financial markets right now) can be very volatile, and chart patterns can always "abort". When this happens we can turn to cycle patterns and timing to reanalyze the situation and get back on our feet with a new trading strategy. Up until yesterday's price drop, it had looked like gold started a new medium-term cycle on Sept. 1. That may still be the case, and if so gold would be very bearish now because prices have fallen below the start of the cycle ($1,303). But it's also possible that Sept. 1 was not the start of a new cycle and that gold is now correcting to the bottom of an older cycle which is due over the next two weeks. Next week is another reversal zone for gold and silver so that would be a good time for this bottom in gold to happen. Silver's chart pattern strongly suggests that it also started a new medium-term cycle in late August. If true, this would make silver also very bearish. Directional momentum in both metals is now almost 100% bearish which is not a good sign. We will stay out of this market for now and watch how prices move into next week's reversal zone. It may be more clear by then whether or not a longer-term bearish trend is developing. Out of gold and silver for now.
The broad stock market continues to be indecisive as it seesaws up and down in a very narrow trading range. It could be that this market is waiting for the results of the Nov. 8th presidential election before deciding in what direction it wants to move. Fear of a Donald Trump victory as well as a possible December interest rate hike are two factors that are a bearish weight on equities right now. The next reversal zone for this market is in the last week of October (a week before the election). We will remain on the sidelines of the broad stock market until we see a stronger directional trend.
Our crude oil trade is doing very well. We bought crude on Sept.26 and the price is up 10% in nine days. As I mentioned in Monday's blog, crude is now challenging its Aug. 19th high of $50 so it may pause here and consolidate a bit. It's a little early in crude's cycle to take a major correction, and the next reversal zone for crude is about two and a half weeks away. A good target for the current rally would be around $53 - $54. I am going to hold my long position here with the idea of seeing a top closer to that target.