MARKETS UPDATE and COMMENT ON THIS WEEK'S FOMC MEETING (11:00 pm EST)
We have an interesting situation coming up this week. The Federal Reserve meeting on Tuesday and Wednesday is the last FOMC meeting for this year. Investors and analysts seem to have mixed views in their perception of the Fed's current monetary policy. They are debating on whether the Fed's tone going into the new year will be dovish or more hawkish. This week we also have a situation in our market cycles where significant highs (broad stock market, U.S. Dollar Index) and significant lows (gold, silver, crude oil) are being made inside significant reversal zones (very strong general reversal zone Dec. 12 - 21, gold and silver reversal Dec. 13- 21, crude oil reversal Dec. 5 - 13, and U.S. Dollar reversal Dec. 6 - 18). What all of this suggests is that the Fed's statement at the conclusion of this week's meeting Wednesday afternoon and the subsequent press conference by Fed Chairman Jerome Powell could have a substantial impact on any or all of these markets that are ripe for a sharp downturn or upturn.
The broad stock market is perhaps the most vulnerable to Fed rhetoric right now as a steep rally has been in progress since late October without any substantial corrective dips. A sub-cycle top and correction down is due (overdue) as we enter a strong general reversal zone tomorrow (Dec. 12 -21). A significant top could be imminent inside this time frame. All three of our market indices (DOW, S&P 500, NASDAQ) made new weekly highs today, so we will not see any bearish divergence signals between them this week (although we could get that next week). This market is looking very bullish right now, and we can't rule out a "break-out" pattern instead of a reversal inside this new "reversal" zone. But the bearish factors just mentioned may rule the day and at least put a temporary damper on the current "Santa Claus" rally.
Many market analysts (and investors) expect the Fed to start lowering interest rates as early as March next year (in fact, this belief may be driving the current rally in equities), but other analysts are less optimistic and feel economic and inflation data will not support an interest rate cut until at least June. If the Fed's post-meeting statement and Mr. Powell's press conference statements on Wednesday support this more hawkish view (i.e. no early rate cuts), it could bust the bubble of many investor's expectations and turn the Santa Claus rally back down for at least 3-8 days (maybe more).. Even if Wednesday's rhetoric turns out to be dovish, we may still get a brief downturn based on the principle of "buy the rumor (of a dovish Fed) and sell the news (dovish Fed statements on Wednesday). We will remain on the sidelines as we watch how this plays out. Even a small corrective dip - say between 35,000 and 35,500 in the DOW - may be a good buying opportunity as this market appears very bullish right now.
Both gold and silver prices fell steeply last week and should be approaching significant sub-cycle bottoms now. We note that we are entering a reversal zone specifically for precious metals Wednesday (Dec.13 - 21) which also overlaps with our strong general reversal zone (Dec. 12 - 21). A sub-cycle bottom would ideally be inside this time frame (this week or next). A good target for gold could be between $1900 and $1950 and for silver around $22. We will consider buying if prices get to those levels later this week or early next week. For now we remain on the sidelines of both metals.
Crude oil may have ended an old medium-term cycle (and started a new one) with its deep low of $68.80 last Thursday as that was near the center of a reversal zone specifically for crude (Dec. 5- 13). But that reversal zone continues into Wednesday, and it is also overlapping with our strong general reversal zone for all markets (Dec. 12 - 21). This means that the old medium-term cycle may not be over yet, and prices could still fall lower. I will analyze this market in more detail later, but for now we will stay on the sidelines until we can confirm the bottom and start of a new cycle with more confidence.
We have an interesting situation coming up this week. The Federal Reserve meeting on Tuesday and Wednesday is the last FOMC meeting for this year. Investors and analysts seem to have mixed views in their perception of the Fed's current monetary policy. They are debating on whether the Fed's tone going into the new year will be dovish or more hawkish. This week we also have a situation in our market cycles where significant highs (broad stock market, U.S. Dollar Index) and significant lows (gold, silver, crude oil) are being made inside significant reversal zones (very strong general reversal zone Dec. 12 - 21, gold and silver reversal Dec. 13- 21, crude oil reversal Dec. 5 - 13, and U.S. Dollar reversal Dec. 6 - 18). What all of this suggests is that the Fed's statement at the conclusion of this week's meeting Wednesday afternoon and the subsequent press conference by Fed Chairman Jerome Powell could have a substantial impact on any or all of these markets that are ripe for a sharp downturn or upturn.
The broad stock market is perhaps the most vulnerable to Fed rhetoric right now as a steep rally has been in progress since late October without any substantial corrective dips. A sub-cycle top and correction down is due (overdue) as we enter a strong general reversal zone tomorrow (Dec. 12 -21). A significant top could be imminent inside this time frame. All three of our market indices (DOW, S&P 500, NASDAQ) made new weekly highs today, so we will not see any bearish divergence signals between them this week (although we could get that next week). This market is looking very bullish right now, and we can't rule out a "break-out" pattern instead of a reversal inside this new "reversal" zone. But the bearish factors just mentioned may rule the day and at least put a temporary damper on the current "Santa Claus" rally.
Many market analysts (and investors) expect the Fed to start lowering interest rates as early as March next year (in fact, this belief may be driving the current rally in equities), but other analysts are less optimistic and feel economic and inflation data will not support an interest rate cut until at least June. If the Fed's post-meeting statement and Mr. Powell's press conference statements on Wednesday support this more hawkish view (i.e. no early rate cuts), it could bust the bubble of many investor's expectations and turn the Santa Claus rally back down for at least 3-8 days (maybe more).. Even if Wednesday's rhetoric turns out to be dovish, we may still get a brief downturn based on the principle of "buy the rumor (of a dovish Fed) and sell the news (dovish Fed statements on Wednesday). We will remain on the sidelines as we watch how this plays out. Even a small corrective dip - say between 35,000 and 35,500 in the DOW - may be a good buying opportunity as this market appears very bullish right now.
Both gold and silver prices fell steeply last week and should be approaching significant sub-cycle bottoms now. We note that we are entering a reversal zone specifically for precious metals Wednesday (Dec.13 - 21) which also overlaps with our strong general reversal zone (Dec. 12 - 21). A sub-cycle bottom would ideally be inside this time frame (this week or next). A good target for gold could be between $1900 and $1950 and for silver around $22. We will consider buying if prices get to those levels later this week or early next week. For now we remain on the sidelines of both metals.
Crude oil may have ended an old medium-term cycle (and started a new one) with its deep low of $68.80 last Thursday as that was near the center of a reversal zone specifically for crude (Dec. 5- 13). But that reversal zone continues into Wednesday, and it is also overlapping with our strong general reversal zone for all markets (Dec. 12 - 21). This means that the old medium-term cycle may not be over yet, and prices could still fall lower. I will analyze this market in more detail later, but for now we will stay on the sidelines until we can confirm the bottom and start of a new cycle with more confidence.
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