MARKETS UPDATE (4:00 pm EDT)
We have yet another FOMC meeting this week (Tuesday and Wednesday) when Fed officials will gather for another decision on interest rates. Most analysts are expecting another hike - to 5.3% - but the general consensus is that this will be the last increase for some time. It looks like the Fed's strategy will be to maintain this interest rate indefinitely in an effort to create a "soft landing" for the economy, i.e. curbing inflation without causing a deep recession). Only time will tell if this is going to work.
We start this week in the center of our current strong reversal zone (July 18 - 26) that technically ends on Wednesday, coincidentally the day the Fed ends its meeting and announces any interest rate changes and/or changes in monetary policy. Market behavior is always a bit difficult to call around FOMC meetings. We are overdue for a final top in the current medium-term cycles of our three market indices (DOW, S&P 500, and NASDAQ), and this current reversal zone would be the ideal time for it. Today the DOW pushed up to a new weekly high, but the S&P 500 and the NASDAQ did not, and that gives us a strong bearish divergence signal (until the latter two make new highs). So we have a set-up here for a top by Wednesday to be followed by a sharp correction down to the final medium-term cycle bottoms. If the market reacts positively to the Fed meeting, however, we might see a top postponed into the following week where we have a weaker reversal zone centered around Aug. 4. For now we will continue to hold our short position in the DOW as a top and reversal seem imminent. Our stop loss for this trade can now be based on the S&P 500 and NASDAQ both making new weekly highs, especially after Wednesday.
We are also now in the center of a reversal zone specifically for gold and silver (July 18 - 26, same as for the broad stock market). I had expected both metals to rally higher into this week, but instead prices seem to have peaked last Thursday, and they are now falling. This reversal zone ends Wednesday, and there is also a potential "pivot point" for gold Tuesday through Thursday. There's a good chance both metals are taking a sub-cycle corrective dip that will end by Thursday. Today silver is making a new weekly low without gold, so we already have a bullish divergence signal. Both metals are also approaching their 15-day moving averages which could offer some support. I am going to to hold my long position in gold for now and also consider going long in silver over the next few days.
The U.S. Dollar Index is rising steeply into another reversal zone for currencies (July 18 - 27) so it it could easily make a top by Thursday and correct back down. Any sharp drop in the greenback could trigger and give thrust to a reversal back up in the precious metals.
Crude oil prices rallied strongly today to just over $79 (Sept. contract chart). In last Tuesday's blog on crude I wrote:
"After last Thursday's high, crude prices dropped to $74 on Friday, and this week they are edging back up from there. That one day correction on Friday was too brief to be a significant sub-cycle low. This means we could see another top in our current reversal zone (July 18 - 26 - i.e. this week or next) followed by a significant sub-cycle correction, or we could see a deeper sub-cycle corrective bottom in this same time frame (or possibly both)."
Well, we are now in the last few days of this reversal zone, and prices have surged up to a new weekly (and monthly) high. A reversal could be imminent, so let's wait to see if it happens. Any significant sub-cycle correction should at least test the 15-day moving average (now at $74.62 and rising). We may be looking to buy any sub-cycle correction that doesn't go too low (say, below $70), but for now, we remain on the sidelines of crude.
We have yet another FOMC meeting this week (Tuesday and Wednesday) when Fed officials will gather for another decision on interest rates. Most analysts are expecting another hike - to 5.3% - but the general consensus is that this will be the last increase for some time. It looks like the Fed's strategy will be to maintain this interest rate indefinitely in an effort to create a "soft landing" for the economy, i.e. curbing inflation without causing a deep recession). Only time will tell if this is going to work.
We start this week in the center of our current strong reversal zone (July 18 - 26) that technically ends on Wednesday, coincidentally the day the Fed ends its meeting and announces any interest rate changes and/or changes in monetary policy. Market behavior is always a bit difficult to call around FOMC meetings. We are overdue for a final top in the current medium-term cycles of our three market indices (DOW, S&P 500, and NASDAQ), and this current reversal zone would be the ideal time for it. Today the DOW pushed up to a new weekly high, but the S&P 500 and the NASDAQ did not, and that gives us a strong bearish divergence signal (until the latter two make new highs). So we have a set-up here for a top by Wednesday to be followed by a sharp correction down to the final medium-term cycle bottoms. If the market reacts positively to the Fed meeting, however, we might see a top postponed into the following week where we have a weaker reversal zone centered around Aug. 4. For now we will continue to hold our short position in the DOW as a top and reversal seem imminent. Our stop loss for this trade can now be based on the S&P 500 and NASDAQ both making new weekly highs, especially after Wednesday.
We are also now in the center of a reversal zone specifically for gold and silver (July 18 - 26, same as for the broad stock market). I had expected both metals to rally higher into this week, but instead prices seem to have peaked last Thursday, and they are now falling. This reversal zone ends Wednesday, and there is also a potential "pivot point" for gold Tuesday through Thursday. There's a good chance both metals are taking a sub-cycle corrective dip that will end by Thursday. Today silver is making a new weekly low without gold, so we already have a bullish divergence signal. Both metals are also approaching their 15-day moving averages which could offer some support. I am going to to hold my long position in gold for now and also consider going long in silver over the next few days.
The U.S. Dollar Index is rising steeply into another reversal zone for currencies (July 18 - 27) so it it could easily make a top by Thursday and correct back down. Any sharp drop in the greenback could trigger and give thrust to a reversal back up in the precious metals.
Crude oil prices rallied strongly today to just over $79 (Sept. contract chart). In last Tuesday's blog on crude I wrote:
"After last Thursday's high, crude prices dropped to $74 on Friday, and this week they are edging back up from there. That one day correction on Friday was too brief to be a significant sub-cycle low. This means we could see another top in our current reversal zone (July 18 - 26 - i.e. this week or next) followed by a significant sub-cycle correction, or we could see a deeper sub-cycle corrective bottom in this same time frame (or possibly both)."
Well, we are now in the last few days of this reversal zone, and prices have surged up to a new weekly (and monthly) high. A reversal could be imminent, so let's wait to see if it happens. Any significant sub-cycle correction should at least test the 15-day moving average (now at $74.62 and rising). We may be looking to buy any sub-cycle correction that doesn't go too low (say, below $70), but for now, we remain on the sidelines of crude.
RSS Feed