After the conclusion of this week's FOMC meeting on Wednesday, the Fed, to no one's surprise, left interest rates unchanged and reiterated the idea of keeping rates near zero indefinitely (or until our economy starts to recover from the ill effects of COVID-19 - i.e. not soon). This dovish rhetoric is not new news from the Fed so its effect on equity markets may be somewhat muted. Indeed, even though the broad stock market rallied strongly on Wednesday immediately after the Fed's announcement (around 2pm) into the closing bell, the DOW took a 500+ point dive early this morning. It then recovered about half of this loss by the end of the day. Both the S&P 500 and NASDAQ also dropped steeply this morning. Like the DOW, the S&P 500 recovered a little over half its loss, but the NASDAQ recovered fully and closed with a slight gain - reinforcing the idea that the NASDAQ is a bit more bullish than the other two indices at this time.
This market is still nervous and indecisive. Our preferred labeling for the current medium-term cycles in all three indices says that these cycles are coming to an end and are now taking a steep correction down to their final cycle bottoms. We are betting on that with our current short position in this market. We will stay with that idea unless we see the DOW exceed 27,071 and the S&P 500 exceed 3,280 (our stop loss points). Holding my short position in the broad stock market for now.
It looks like gold and silver prices may be finally topping out after "breaking out" and accelerating up since early last week. As I wrote in Monday's blog:
"We enter a new general reversal zone AND a reversal zone specifically for the precious metals this week (BOTH from July 28 to August 4). That would be a good time for prices to top out and start a corrective move down. Let's watch for that and a buying opportunity."
We will watch carefully now for a corrective low to buy in both metals, especially in silver. There is a strong support zone for silver around $21 so ideally that would be a good buy spot. Gold may not drop very much (there is likely some support around $1900) so we will probably use silver's target to gauge any decision to buy. On the sidelines of both metals for now.
Crude oil is most likely taking its cues from the broad stock market which means it too seems to be indecisive in its direction. Crude seems to be taking a corrective sub-cycle dip from its high of $42.51 (Sept. contract chart) on July 21. If that's true, prices could get down to the $33 area, but if crude is bullish, the correction may just test the 45-day moving average (now around $39.50). In fact, it did test that moving average today and closed back above it. Before getting too bullish on crude, however, we have to keep in mind the huge plunge crude prices took back in April which could be indicative of a bearish longer-term trend. There are several other bearish patterns appearing in crude's longer-term charts that should make us cautious with this commodity. Needless to say, if the COVID-19 pandemic continues to weaken the global economy, and the broad stock market takes a severe correction then demand for oil will decrease and crude prices will suffer. Let's stay on the sidelines of crude for now.