BROAD STOCK MARKET TRADE ALERT and MARKETS UPDATE (11:30 pm EDT)
The broad stock market has certainly given traders a wild ride over the last two days with a nervous Wall Street jumping at comments made by Federal Reserve officials in the news. Hawkish Fed comments last week led to a dramatic Friday selloff (the DOW dropped 394 points), but today dovish Federal Reserve Gov. Lael Brainard called for "prudence" in raising interest rates. This triggered a surge in equities which negated more than half of Friday's loss (the DOW rose 239 points). Several analysts are speculating that the Fed was testing the market's reaction with their hawkish rhetoric last week and that when they saw it was not good they had Ms. Brainard calm the waters with her dovish statements today. Another theory being postulated by more conspiracy minded analysts is that the Fed deliberately tanked an overbought market last week to relieve selling pressure and set the stage for more rallying into the November presidential election. If either theory is correct, it appears to have worked - so far. We still have a week and a half of trading before the next Fed meeting tells us what the Fed will do with interest rates.
Both the DOW and S&P 500 got close to our target levels for a correction on Friday, and this is within the current reversal zone for this market. Was that the bottom of the correction? It could be, but Friday's steep plunge in the DOW was preceded by a fairly large "gap down" which now can act as resistance going back up. We can also see that there was a "gap up" on September 2 which, when combined with Friday's "gap down" forms a "bearish island reversal" signal. (The "island" would be the DOW's trading days between the gap up and gap down). This chart pattern puts downward pressure on any rally until the market can overcome the gap down area. In this case that would be 18,400 - 18,450 in the DOW. This has me concerned, especially as Friday was very early for a corrective bottom (the current reversal zone extends into the middle of next week). Because today's rally brought the DOW back up to that 18,400 gap line, we could easily see it fall again to a new low this week or into next week. Also, we should be aware of the fact that a market that falls and rises over 200 points in two days is extremely volatile and is susceptible to panic selling. This brings me to what we should do with our current long position in the broad stock market (entered on July 6). Since I think another downswing is possible, I am going to take profits now in these long positions and watch how the market moves this week into early next week. If it does make a new low that stays above 17,800 in the DOW and 2,040 in the S&P 500, we will consider going long again for a strong rally into the election. If the DOW manages to break through that "gap down" area and close above 18,450 at the end of this week, we will also consider getting back in with a close stop loss just beneath the gap down line. This strategy will allow us to capture some profits now and avoid the risk of being caught in another (possibly severe) selloff. It also gives us clear entry points for reentering if the market turns bullish. I am placing an order tonight to unload (sell) my long position in the broad stock market at tomorrow's (Tuesday's) open.
After hawkish Fed comments boosted the U.S. dollar and pushed precious metal prices down on Friday I wrote:
"Gold is remaining well above $1,300 and silver above $19 ... today's dollar rally may just be a knee-jerk reaction to the Fed's comments. I am holding my long position in both metals today as we are expecting prices to turn up and start to rally any time between now and the end of next week."
Gold and silver prices pushed a bit lower in early trading today (silver moved briefly below our $19 stop loss area), but the Fed's dovish comments in the afternoon caused them to snap right back up (as the U.S. dollar weakened). Friday's drop may indeed have been a knee-jerk reaction to the Fed, but today's rally may be another one. We therefore need to be cautious here. Today's low in gold and silver, however, is right at the dead center of a strong reversal zone for the precious metals so there is a good chance that we will see more rallying. It still looks like silver started a new medium-term cycle on Aug. 28, and that is bullish as long as prices stay above $18.40. Holding my long position in gold and silver.
Crude oil charts are looking a little ambiguous right now, and it is not clear if prices want to move lower or break higher. We are also now in the center of a reversal zone for crude. Prices made an isolated low on Sunday, but this reversal zone extends into the end of this week so there is still time for crude to make a new low (or a double bottom to the $43 low from Sept. 1) by Friday. That would be an ideal setup to buy, especially if prices can stay above $42.
Still on the sidelines of crude oil.
The broad stock market has certainly given traders a wild ride over the last two days with a nervous Wall Street jumping at comments made by Federal Reserve officials in the news. Hawkish Fed comments last week led to a dramatic Friday selloff (the DOW dropped 394 points), but today dovish Federal Reserve Gov. Lael Brainard called for "prudence" in raising interest rates. This triggered a surge in equities which negated more than half of Friday's loss (the DOW rose 239 points). Several analysts are speculating that the Fed was testing the market's reaction with their hawkish rhetoric last week and that when they saw it was not good they had Ms. Brainard calm the waters with her dovish statements today. Another theory being postulated by more conspiracy minded analysts is that the Fed deliberately tanked an overbought market last week to relieve selling pressure and set the stage for more rallying into the November presidential election. If either theory is correct, it appears to have worked - so far. We still have a week and a half of trading before the next Fed meeting tells us what the Fed will do with interest rates.
Both the DOW and S&P 500 got close to our target levels for a correction on Friday, and this is within the current reversal zone for this market. Was that the bottom of the correction? It could be, but Friday's steep plunge in the DOW was preceded by a fairly large "gap down" which now can act as resistance going back up. We can also see that there was a "gap up" on September 2 which, when combined with Friday's "gap down" forms a "bearish island reversal" signal. (The "island" would be the DOW's trading days between the gap up and gap down). This chart pattern puts downward pressure on any rally until the market can overcome the gap down area. In this case that would be 18,400 - 18,450 in the DOW. This has me concerned, especially as Friday was very early for a corrective bottom (the current reversal zone extends into the middle of next week). Because today's rally brought the DOW back up to that 18,400 gap line, we could easily see it fall again to a new low this week or into next week. Also, we should be aware of the fact that a market that falls and rises over 200 points in two days is extremely volatile and is susceptible to panic selling. This brings me to what we should do with our current long position in the broad stock market (entered on July 6). Since I think another downswing is possible, I am going to take profits now in these long positions and watch how the market moves this week into early next week. If it does make a new low that stays above 17,800 in the DOW and 2,040 in the S&P 500, we will consider going long again for a strong rally into the election. If the DOW manages to break through that "gap down" area and close above 18,450 at the end of this week, we will also consider getting back in with a close stop loss just beneath the gap down line. This strategy will allow us to capture some profits now and avoid the risk of being caught in another (possibly severe) selloff. It also gives us clear entry points for reentering if the market turns bullish. I am placing an order tonight to unload (sell) my long position in the broad stock market at tomorrow's (Tuesday's) open.
After hawkish Fed comments boosted the U.S. dollar and pushed precious metal prices down on Friday I wrote:
"Gold is remaining well above $1,300 and silver above $19 ... today's dollar rally may just be a knee-jerk reaction to the Fed's comments. I am holding my long position in both metals today as we are expecting prices to turn up and start to rally any time between now and the end of next week."
Gold and silver prices pushed a bit lower in early trading today (silver moved briefly below our $19 stop loss area), but the Fed's dovish comments in the afternoon caused them to snap right back up (as the U.S. dollar weakened). Friday's drop may indeed have been a knee-jerk reaction to the Fed, but today's rally may be another one. We therefore need to be cautious here. Today's low in gold and silver, however, is right at the dead center of a strong reversal zone for the precious metals so there is a good chance that we will see more rallying. It still looks like silver started a new medium-term cycle on Aug. 28, and that is bullish as long as prices stay above $18.40. Holding my long position in gold and silver.
Crude oil charts are looking a little ambiguous right now, and it is not clear if prices want to move lower or break higher. We are also now in the center of a reversal zone for crude. Prices made an isolated low on Sunday, but this reversal zone extends into the end of this week so there is still time for crude to make a new low (or a double bottom to the $43 low from Sept. 1) by Friday. That would be an ideal setup to buy, especially if prices can stay above $42.
Still on the sidelines of crude oil.
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