MARKETS UPDATE (2:00 pm EST)
Most of my trading decisions on the website are based primarily on information from technical analysis and cycle studies, and usually I only give secondary attention to political and economic news events that may impact the financial markets. The recent news, however, concerning the funding of Obamacare, the shutdown of the U.S. government, and the looming debt ceiling crisis are all weighing very heavily on the markets now. How these events unfold over the next several weeks will likely be a major factor impacting at least short and medium-term market direction. The budget battle and the government shutdown is now in its 7th day, and it appears that all sides are digging in their heels and refusing to budge. Republicans, Democrats and the President all seem unwilling to compromise their positions. While this stalemate over Obamacare funding and the government shutdown could continue, many analysts at the moment feel that there will likely be some compromise by Democrats giving in to budget cutting that does not affect Obamacare in order to coax Republicans into allowing the debt ceiling to be raised. All the players in this political chess game are aware of the serious negative impact a default on the U.S. debt would have on the economy and financial markets. Congress may therefore be less willing to continue their gridlock as we get closer to the October 17th deadline for the debt ceiling. At that time we will see if either side will compromise to avoid a U.S. debt default.
After a fairly steep correction over the last two weeks, the DOW is now pausing in a support zone around 14,900 -15,000. The chart for the DOW is showing a mixture of bull and bear indicators, but momentum is still mostly bullish (as it is for the S&P 500 and especially the NASDAQ) so a rally could commence now from the current support level, especially if a compromise is reached soon by Congress on the issues discussed above. On the other hand, continued congressional gridlock might discourage the markets this week and cause them to break down and move into a deeper correction. If the DOW breaks below 14,500, the correction could start to get very serious. The bottom line here is that the broad stock market seems to be at a major turning point for either a strong rally or a deeper correction, and the direction it takes will likely depend on how Washington resolves (or doesn't resolve) its fiscal problems. I am tempted to go long here because of the ongoing strong bullish momentum in the charts, but I want to see at least some indication of a break in Washington gridlock before committing to such a position. If the gridlock continues and this market starts to break down, I may decide to sell short. I am undecided at the moment and am going to remain on the sidelines while watching the political situation unfold a bit more.
Gold and silver prices are also resting at support levels (around $1300 in gold and $21 in silver) but, unlike the broad stock market, current momentum in these metals is somewhat bearish (especially in gold). But there are some bullish indicators in the precious metal charts as well, and the rally we have been anticipating for the last several weeks could commence from this point. It appears that this market is also waiting to take its cue from Washington events. How will this market react to a continuing congressional stalemate or to a resolution of the crisis? This is a good question because the government shutdown on Oct.1 seemed to send gold and silver prices tumbling (and stopped us out). It has been reported by several gold analysts, however, that precious metal prices were manipulated down that day to deter potential panic selling in the broad stock market due to the government shutdown. (The logic behind this manipulation supposedly was to show investors that the shutdown is no big deal because a falling gold price usually indicates confidence in the stock market). It may have worked as the DOW was remarkably stable on Oct. 1, but it fell for the rest of the week so the effect may have been short-lived. My main point here is that we shouldn't assume that more congressional stalemating or even the breakdown of equity markets will bring down the precious metals. Despite the possible manipulation of gold prices (which is a "wild card" factor we will now have to deal with), there are many reasons for gold and silver to rally if the broad stock market starts to break down. That said, the bearish momentum in both the gold and silver charts at the moment is enough to keep me on the sidelines today. I would like to see some change in this momentum before going long again. A close above last week's high in gold would also be an encouraging bullish signal. Still on the sidelines of this market.
The crude oil market is in much the same situation as the broad stock market. It seems poised to rally from a support level around $101- $102 but is potentially vulnerable to a deeper correction should that support break down. As with all the markets now, the direction crude prices take will likely be dictated by Washington's chess game. Directional momentum in crude is mixed bullish and bearish so I am remaining on the sidelines here.
Most of my trading decisions on the website are based primarily on information from technical analysis and cycle studies, and usually I only give secondary attention to political and economic news events that may impact the financial markets. The recent news, however, concerning the funding of Obamacare, the shutdown of the U.S. government, and the looming debt ceiling crisis are all weighing very heavily on the markets now. How these events unfold over the next several weeks will likely be a major factor impacting at least short and medium-term market direction. The budget battle and the government shutdown is now in its 7th day, and it appears that all sides are digging in their heels and refusing to budge. Republicans, Democrats and the President all seem unwilling to compromise their positions. While this stalemate over Obamacare funding and the government shutdown could continue, many analysts at the moment feel that there will likely be some compromise by Democrats giving in to budget cutting that does not affect Obamacare in order to coax Republicans into allowing the debt ceiling to be raised. All the players in this political chess game are aware of the serious negative impact a default on the U.S. debt would have on the economy and financial markets. Congress may therefore be less willing to continue their gridlock as we get closer to the October 17th deadline for the debt ceiling. At that time we will see if either side will compromise to avoid a U.S. debt default.
After a fairly steep correction over the last two weeks, the DOW is now pausing in a support zone around 14,900 -15,000. The chart for the DOW is showing a mixture of bull and bear indicators, but momentum is still mostly bullish (as it is for the S&P 500 and especially the NASDAQ) so a rally could commence now from the current support level, especially if a compromise is reached soon by Congress on the issues discussed above. On the other hand, continued congressional gridlock might discourage the markets this week and cause them to break down and move into a deeper correction. If the DOW breaks below 14,500, the correction could start to get very serious. The bottom line here is that the broad stock market seems to be at a major turning point for either a strong rally or a deeper correction, and the direction it takes will likely depend on how Washington resolves (or doesn't resolve) its fiscal problems. I am tempted to go long here because of the ongoing strong bullish momentum in the charts, but I want to see at least some indication of a break in Washington gridlock before committing to such a position. If the gridlock continues and this market starts to break down, I may decide to sell short. I am undecided at the moment and am going to remain on the sidelines while watching the political situation unfold a bit more.
Gold and silver prices are also resting at support levels (around $1300 in gold and $21 in silver) but, unlike the broad stock market, current momentum in these metals is somewhat bearish (especially in gold). But there are some bullish indicators in the precious metal charts as well, and the rally we have been anticipating for the last several weeks could commence from this point. It appears that this market is also waiting to take its cue from Washington events. How will this market react to a continuing congressional stalemate or to a resolution of the crisis? This is a good question because the government shutdown on Oct.1 seemed to send gold and silver prices tumbling (and stopped us out). It has been reported by several gold analysts, however, that precious metal prices were manipulated down that day to deter potential panic selling in the broad stock market due to the government shutdown. (The logic behind this manipulation supposedly was to show investors that the shutdown is no big deal because a falling gold price usually indicates confidence in the stock market). It may have worked as the DOW was remarkably stable on Oct. 1, but it fell for the rest of the week so the effect may have been short-lived. My main point here is that we shouldn't assume that more congressional stalemating or even the breakdown of equity markets will bring down the precious metals. Despite the possible manipulation of gold prices (which is a "wild card" factor we will now have to deal with), there are many reasons for gold and silver to rally if the broad stock market starts to break down. That said, the bearish momentum in both the gold and silver charts at the moment is enough to keep me on the sidelines today. I would like to see some change in this momentum before going long again. A close above last week's high in gold would also be an encouraging bullish signal. Still on the sidelines of this market.
The crude oil market is in much the same situation as the broad stock market. It seems poised to rally from a support level around $101- $102 but is potentially vulnerable to a deeper correction should that support break down. As with all the markets now, the direction crude prices take will likely be dictated by Washington's chess game. Directional momentum in crude is mixed bullish and bearish so I am remaining on the sidelines here.
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