MARKETS UPDATE (5:30 am EST)
Last week we saw steep falls not only in the U.S. stock market, but in many global markets as well. This demonstrates just how skittish and volatile global economies are these days. Bullish optimism can quickly turn to bearish fear at the drop of a hat. In the U.S. some of that fear may be coming from apprehension about next week's Federal Open Markets Committee (FOMC) meeting when the Fed decides if the reduction of its bond purchasing program (QE tapering) will continue into February. In December the Fed announced it would begin this tapering by reducing bond purchases by $10 billion a month starting in January and continuing each month until the program expires at the end of the year. Fed Chairman Ben Bernanke, however, has pointed out that this plan is not set in stone and that the Fed can stop the tapering process at any time if economic data indicates a weakening economy. Recent negative economic data (e.g. the disappointing December labor market report) may have some investors worried (or hopeful) that the Fed will change its mind about tapering. The stock market dislikes uncertainty, so we may see more losses as we head into the middle of this week when the FOMC meeting is scheduled.
From a technical, cycle and timing standpoint, the middle to end of this week is also when the likelihood of market reversals can be high. We could therefore see this steep correction in the broad stock market bottom out and start to turn back up. My original target for the correction was the 15,800 area in the DOW, and we are just about there now. There is also support around 15,600, so the market may bottom there by the middle or end of the week. We will have to wait and see how low it will go. Our short positions are doing very well, but we may want to take profits some time next week if it looks like the correction has run its course. Holding short positions in the broad stock market for now.
As I mentioned in my last blog, gold and silver could be volatile this week so prices could be making significant moves up or down, or both. We are currently holding a long position in gold and still waiting for a stronger signal to buy silver. If these metals move lower into the end of the week with silver staying above $19 and gold above $1200, it will be a good set up for a strong rally and probably a good point to go long in silver. On the other hand, a rally into Friday could indicate an imminent deeper correction and we would probably want to take profits in our gold longs and stand aside. There are technical signals supporting both scenarios now.
Directional momentum continues to be strongly bearish in crude oil charts, but the cycle picture is a little unclear at the moment so I am currently on the sidelines of this market. If prices rise into the end of this week and remain below $99, we may have another good opportunity to sell the market short.
Last week we saw steep falls not only in the U.S. stock market, but in many global markets as well. This demonstrates just how skittish and volatile global economies are these days. Bullish optimism can quickly turn to bearish fear at the drop of a hat. In the U.S. some of that fear may be coming from apprehension about next week's Federal Open Markets Committee (FOMC) meeting when the Fed decides if the reduction of its bond purchasing program (QE tapering) will continue into February. In December the Fed announced it would begin this tapering by reducing bond purchases by $10 billion a month starting in January and continuing each month until the program expires at the end of the year. Fed Chairman Ben Bernanke, however, has pointed out that this plan is not set in stone and that the Fed can stop the tapering process at any time if economic data indicates a weakening economy. Recent negative economic data (e.g. the disappointing December labor market report) may have some investors worried (or hopeful) that the Fed will change its mind about tapering. The stock market dislikes uncertainty, so we may see more losses as we head into the middle of this week when the FOMC meeting is scheduled.
From a technical, cycle and timing standpoint, the middle to end of this week is also when the likelihood of market reversals can be high. We could therefore see this steep correction in the broad stock market bottom out and start to turn back up. My original target for the correction was the 15,800 area in the DOW, and we are just about there now. There is also support around 15,600, so the market may bottom there by the middle or end of the week. We will have to wait and see how low it will go. Our short positions are doing very well, but we may want to take profits some time next week if it looks like the correction has run its course. Holding short positions in the broad stock market for now.
As I mentioned in my last blog, gold and silver could be volatile this week so prices could be making significant moves up or down, or both. We are currently holding a long position in gold and still waiting for a stronger signal to buy silver. If these metals move lower into the end of the week with silver staying above $19 and gold above $1200, it will be a good set up for a strong rally and probably a good point to go long in silver. On the other hand, a rally into Friday could indicate an imminent deeper correction and we would probably want to take profits in our gold longs and stand aside. There are technical signals supporting both scenarios now.
Directional momentum continues to be strongly bearish in crude oil charts, but the cycle picture is a little unclear at the moment so I am currently on the sidelines of this market. If prices rise into the end of this week and remain below $99, we may have another good opportunity to sell the market short.
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