This week could be a turning point for many markets. There are several strong technical, cycle and timing factors that point towards the end of this week (possibly extending into the following week) for significant reversals in all major markets. When reversal signals are strong there is often an event that triggers the reversal, and this week's Federal Reserve meeting could be that event. To taper QE or not to taper QE: that is the question, and more specifically, when to taper and by how much. The Fed should be giving answers to these questions by Thursday, and markets may react strongly. We want to now watch how the markets react into the end of the week before making any trading decisions.
The broad stock market is up strongly today, but it is entitled to a bounce after last week's steep fall. Momentum is still mixed bullish and bearish in the DOW and S&P 500 so this market could still move lower if taper fears are stirred up. We will wait until the end of the week to gauge our trading strategy here. A drop towards the 15,500 area in the DOW by Friday could present a good entry point to go long. On the other hand, if the market rises into the end of the week, it could be setting up for a more serious plunge into the new year. On the sidelines for now.
Gold and silver were also up a bit today, but momentum and other technical indicators continue to look very bearish in the precious metals sector so I am still holding my short positions in both these metals. As with the broad stock market, we want to pay attention to the end of the week and how gold prices react to the Fed meeting. Any sharp plunge in prices now could present an ideal buy spot for the precious metals (maybe even the long-term cycle bottom that we've been waiting for). That bottom could come as soon as Friday if prices fall steeply this week. We will have to wait and see how the Fed meeting is going to affect this market.
As I stated in my last blog, the technical picture for crude oil is a little unclear right now so I am still standing on the sidelines of this market. I suspect oil prices will follow the broad stock market this week and will be susceptible to plunging on taper fears. If prices fall below the recent Nov. 27 low of $91.77, it would signal the market turning bearish again. Still on the sidelines of this market.