Technical signals and cycle studies are currently presenting a picture of confusion and a lack of decisive direction in equities, crude oil, and precious metals. This is not surprising considering investors and traders are being strongly influenced by the ongoing "Greek tragedy" playing out on the European financial stage. Early last week there seemed to be hope and optimism that Greece would negotiate a deal with the IMF and EU to avoid defaulting on their debt repayment (now due at the end of this month) and possibly having to exit the eurozone. Negotiations now seem to be floundering with a stalemate developing between an uncompromising Greek Prime Minister and annoyed EU officials. There are two weeks left for a resolution to this crisis, and financial markets could remain jittery until that happens (if it happens). Wall Street has another reason to be nervous this week. The Federal Reserve's June policy meeting this Tuesday and Wednesday will be watched carefully by investors as Fed Chairwoman Janet Yellen is expected to shed some light on the Fed's timetable for the first interest rate hike. Many analysts feel that hike will be in September, but global bankers fearing market instability have been urging the U.S. to delay a rate hike into 2016.
We will have to wait until Wednesday afternoon to see how hawkish or dovish Ms.Yellen's statements will be.
If Greek debt negotiations continue to break down, and the Fed's policy statement on Wednesday is hawkish (i.e. a rate hike sooner than later), equity markets could get a "one-two punch" and start falling. We will watch this situation carefully.
The DOW showed its disapproval of the Greek crisis today by dropping sharply early in the morning, but it managed to recover half of its losses by the end of the day. The DOW broke briefly a whisker below our stop loss of 17,700 but closed the day well above it at 17,791 so I decided to maintain my long position in the broad stock market. The DOW also broke below its low from last week, but the S&P 500 and NASDAQ did not. This is bullish intermarket divergence until the latter two indices make new lows. This market could still rally now, but if the DOW starts to close below 17,700, it will be a sign for us to close out our long position. Holding my long position in the broad stock market for now.
Like the broad stock market, gold and silver prices dropped early in today's trading but then recovered. Gold prices fell into the end of last week so our plan to sell short from a Friday high was thwarted. Directional momentum in gold is still strongly bearish, but it remains mixed bullish and bearish in silver. These metals could move either way right now. To be bullish, gold has to start closing above the $1190 - $1200 area. If it can't do that soon, prices will likely head lower. Silver would look more bullish if it could break and hold above $16.20. Otherwise, it too could move considerably lower. This ambiguous picture is keeping me on the sidelines of gold and silver for now.
A resolution of the Greek debt crisis would likely push precious metal prices higher as it would be bearish for the U.S. dollar.
Speaking of the dollar, the U.S. Dollar Index seems to be stabilizing just above 94. Directional momentum in its chart is now mixed bullish and bearish so it too could move either way here. A breakdown in Greek debt talks and Greece exiting the eurozone would jeopardize the euro and could trigger a major rally in the dollar. In such a scenario the greenback might even have another go at the 100 mark. We will have to wait and see how this plays out over the next few weeks.
For the last several weeks crude oil prices also seem reluctant to make a strong directional move up or down. Crude is probably moving into the later stage of a new cycle that started on March 18 so it could still start a correction from a high over the next week or two. The details of this cycle pattern, however, are not clear at the moment so we will remain on the sidelines of crude for now.