MARKETS UPDATE (5:30 pm EDST)
In yesterday's blog on the broad stock market I wrote:
"If the Fed cuts (probably 1/4 point), equities will likely rally, but that also may depend on Powell's press conference statements.... if Powell suggests a "cut and wait" philosophy, it might take the wind from the sails of any rally."
Well, the market was relatively flat as a 1/4 point rate cut was announced, but as the press conference began, it started to fall - a lot. The DOW dropped over 400 points by 3:00 pm (EDST) but recovered a bit and ended the day with a 335 point loss. Mr. Powell did indeed suggest that this quarter point rate cut was NOT the start of a series of cuts as many had speculated, and the market reacted with a bit of a tantrum. We will have to wait and see if this was just a short-term tantrum. Because the rate cut was widely expected and markets have been buoyant over the last week or so, we may be seeing a case of "buy the rumor, sell the news" here. The DOW's plunge did not quite make it to our corrective target of 26,600 (it got to 26,719). If it pushes closer to that level over the next few days, we will consider buying (we are still in a reversal zone). Still on the sidelines of this market.
The U.S. Dollar Index may not have liked today's rate cut, but it seemed ecstatic over Mr. Powell's hawkish attitude toward future cuts. It soared from 98 to 98.68 (intraday) and ended the day at 98.59. The dollar is now making new highs for the year, but we note that we have just entered a reversal zone specifically for currencies (July 31 - Aug. 8). This rally may top soon and reverse back down. Our longer-term outlook for the U.S. dollar is still bearish as long as any rally stays below 100. A close above 100 would make us question this view. If Mr. Powell maintains a hawkish stance from this point on, that is a real possibility.
A bearish dollar longer-term would also support our current bullish view of the precious metals. Today's dollar surge, however, pushed gold and silver prices lower. We were expecting a short-term correction in these metals, and this may be the start of it. Let's see if prices can push lower into the end of this week or early next for a sub-cycle bottom to buy. Good target prices would be around $1400 in gold and $15.20 in silver. On the sidelines of gold and silver for now.
Despite today's dollar surge and plunge in the broad stock market, crude oil prices were fairly stable. Crude has rallied strongly this week which has been good for our long position (entered on July 22), but if today's equity plunge gains legs and the market takes a deeper dive, crude prices could follow. We will watch this closely. If the low of $55.12 on July 19 (Sept. contract chart) was a sub-cycle bottom as we suspect, crude prices could easily rally into the second week of August. Let's hold our long position in crude for now.
In yesterday's blog on the broad stock market I wrote:
"If the Fed cuts (probably 1/4 point), equities will likely rally, but that also may depend on Powell's press conference statements.... if Powell suggests a "cut and wait" philosophy, it might take the wind from the sails of any rally."
Well, the market was relatively flat as a 1/4 point rate cut was announced, but as the press conference began, it started to fall - a lot. The DOW dropped over 400 points by 3:00 pm (EDST) but recovered a bit and ended the day with a 335 point loss. Mr. Powell did indeed suggest that this quarter point rate cut was NOT the start of a series of cuts as many had speculated, and the market reacted with a bit of a tantrum. We will have to wait and see if this was just a short-term tantrum. Because the rate cut was widely expected and markets have been buoyant over the last week or so, we may be seeing a case of "buy the rumor, sell the news" here. The DOW's plunge did not quite make it to our corrective target of 26,600 (it got to 26,719). If it pushes closer to that level over the next few days, we will consider buying (we are still in a reversal zone). Still on the sidelines of this market.
The U.S. Dollar Index may not have liked today's rate cut, but it seemed ecstatic over Mr. Powell's hawkish attitude toward future cuts. It soared from 98 to 98.68 (intraday) and ended the day at 98.59. The dollar is now making new highs for the year, but we note that we have just entered a reversal zone specifically for currencies (July 31 - Aug. 8). This rally may top soon and reverse back down. Our longer-term outlook for the U.S. dollar is still bearish as long as any rally stays below 100. A close above 100 would make us question this view. If Mr. Powell maintains a hawkish stance from this point on, that is a real possibility.
A bearish dollar longer-term would also support our current bullish view of the precious metals. Today's dollar surge, however, pushed gold and silver prices lower. We were expecting a short-term correction in these metals, and this may be the start of it. Let's see if prices can push lower into the end of this week or early next for a sub-cycle bottom to buy. Good target prices would be around $1400 in gold and $15.20 in silver. On the sidelines of gold and silver for now.
Despite today's dollar surge and plunge in the broad stock market, crude oil prices were fairly stable. Crude has rallied strongly this week which has been good for our long position (entered on July 22), but if today's equity plunge gains legs and the market takes a deeper dive, crude prices could follow. We will watch this closely. If the low of $55.12 on July 19 (Sept. contract chart) was a sub-cycle bottom as we suspect, crude prices could easily rally into the second week of August. Let's hold our long position in crude for now.
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