Fears of QE tapering have definitely been on the minds of investors this week as we approach the Federal Reserve meeting scheduled to take place next Tuesday and Wednesday. Also, this week's surprising cooperation between Democrats and Republicans to quickly approve a budget in the U.S. Congress has exacerbated those fears as it looks like we will not be having another government shutdown that might have delayed tapering. The DOW has been falling and has now broken below that strong support level at 15,800. Some bearish directional momentum signals have appeared this week in the DOW and S&P 500 and these markets are now mixed bullish and bearish. This has increased the likelihood of a deeper correction into the holidays. If apprehension about the Fed meeting continues to push the market down, it is possible we could see a rebound soon after the meeting depending on what the Fed does (small taper or no taper). We will watch the broad stock market carefully for a possible bottom to buy into at the end of next week or into the following week. Still on the sidelines for now.
It looks like taper fears also touched the precious metals market yesterday causing a sharp drop in prices. This is not surprising as tapering is actually good for the long-term health of the economy and strengthens the dollar (which surged up yesterday), and these things discourage investment in gold. As with the broad stock market, we want to watch carefully the direction of gold and silver into the end of next week. A new low forming then could be a signal to cover our short positions and go long. If instead we see another surge up into the holidays (that stays below $1300 in gold and $21-22 in silver) it would likely be followed by a correction towards a new bottom sometime early next year. Still holding short positions in gold and silver.
The charts for crude oil are still showing ambiguous technical signals. Prices are falling with the broad stock market, and one thing to watch for here is any break below the Nov. 27 bottom at $91.77. This would likely indicate the new cycle is turning bearish again. For now, mixed bullish and bearish momentum in this market is keeping us on the sidelines. Still out of this market.