MARKETS UPDATE (3:15 pm EDT)
Equity markets continue to rally this week and are now challenging our bearish view of the broad stock market. The DOW has exceeded its Sept.17 high and is very close to our stop loss point of 17,000. Nevertheless, we are now in a strong reversal zone for this market so there is a good chance of it turning down between now and the middle of next week. The DOW's rally is already encountering strong resistance at 16,800, and even though it is making a new monthly high today, the S&P 500 and NASDAQ are not so we now have a case of intermarket bearish divergence which supports the idea of an imminent reversal. I should point out that sometimes a reversal zone will see a directional trend accelerate instead of reverse. This is not common, but we should keep it in mind as a possibility, especially as it is still possible the Aug. 24 lows represent the final bottom of the recent correction in this market. For now, however, I am sticking with the idea of a reversal starting this week or next that could take equities back down to their Aug. 24 lows or lower by the end of the month. Should the market instead turn bullish, our stop loss at 17,000 would get us out with very little or no loss, and we would then switch to bullish strategies and look to buy. Holding my short position in the broad stock market for now.
Silver rallied strongly yesterday and exceeded its August high while gold prices did not. This could be a case of bearish intermarket divergence (until gold makes a new high), but it could also mean that the precious metals are starting to turn bullish because the cycle pattern in silver charts is now pointing up. We want to pay close attention to how gold and silver prices move into the end of the week which is a strong reversal zone for both metals. If they move down into Friday, I may bail out of my short position in gold and go long. A rally into Friday may still be a good signal to short these metals (or stay short), as long as gold does not exceed $1170. Stay tuned as our strategy in this market could change quickly over the next several days. Holding my short position in gold but still out of silver.
In my last blog on crude oil (Sunday) I wrote: "There are currently some short-term chart patterns that are suggesting an imminent rally in crude oil prices; however, directional momentum is still very bearish for crude so we can't be certain if they are valid. Should such a rally materialize, we could see prices go as high as $54."
That rally did materialize this week as crude prices came close to $50 today and directional momentum changed from bearish to mixed bearish and bullish. I would still like to see that $50 mark exceeded before thinking about a short position. Crude oil's reversal zone extends into the end of next week so there is still time for prices to go higher before turning down. On the sidelines of crude oil for now.
Equity markets continue to rally this week and are now challenging our bearish view of the broad stock market. The DOW has exceeded its Sept.17 high and is very close to our stop loss point of 17,000. Nevertheless, we are now in a strong reversal zone for this market so there is a good chance of it turning down between now and the middle of next week. The DOW's rally is already encountering strong resistance at 16,800, and even though it is making a new monthly high today, the S&P 500 and NASDAQ are not so we now have a case of intermarket bearish divergence which supports the idea of an imminent reversal. I should point out that sometimes a reversal zone will see a directional trend accelerate instead of reverse. This is not common, but we should keep it in mind as a possibility, especially as it is still possible the Aug. 24 lows represent the final bottom of the recent correction in this market. For now, however, I am sticking with the idea of a reversal starting this week or next that could take equities back down to their Aug. 24 lows or lower by the end of the month. Should the market instead turn bullish, our stop loss at 17,000 would get us out with very little or no loss, and we would then switch to bullish strategies and look to buy. Holding my short position in the broad stock market for now.
Silver rallied strongly yesterday and exceeded its August high while gold prices did not. This could be a case of bearish intermarket divergence (until gold makes a new high), but it could also mean that the precious metals are starting to turn bullish because the cycle pattern in silver charts is now pointing up. We want to pay close attention to how gold and silver prices move into the end of the week which is a strong reversal zone for both metals. If they move down into Friday, I may bail out of my short position in gold and go long. A rally into Friday may still be a good signal to short these metals (or stay short), as long as gold does not exceed $1170. Stay tuned as our strategy in this market could change quickly over the next several days. Holding my short position in gold but still out of silver.
In my last blog on crude oil (Sunday) I wrote: "There are currently some short-term chart patterns that are suggesting an imminent rally in crude oil prices; however, directional momentum is still very bearish for crude so we can't be certain if they are valid. Should such a rally materialize, we could see prices go as high as $54."
That rally did materialize this week as crude prices came close to $50 today and directional momentum changed from bearish to mixed bearish and bullish. I would still like to see that $50 mark exceeded before thinking about a short position. Crude oil's reversal zone extends into the end of next week so there is still time for prices to go higher before turning down. On the sidelines of crude oil for now.
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