MARKETS UPDATE and Comments on the Upcoming Fed Meeting (5:00 pm EDT)
We are approaching another FOMC meeting this week (Tuesday-Wednesday) and many financial markets are waiting with bated breath to see if the Federal Reserve will raise interest rates this time around. This meeting is especially significant because there will not be another one until Nov. 1 - 2, just a week before the U.S. presidential election. As I've been saying on this website for several weeks now, I think the current political establishment does not want a major market crash to happen before the election as that could favor the anti-establishment candidate (Trump). It remains to be seen whether or not the Fed (and others) can keep markets buoyant (or at least stable) into the end of the year, but recent history has shown that it is not wise to bet against them. Cycle and timing studies of the broad stock market currently allow for a rally into the end of the year so market manipulators may indeed be able to delay a major market correction past the election.
Next week's Fed meeting falls right at the end of a major reversal zone for all the markets we follow so the
Fed's decision on a rate hike (or not) may be the trigger for reversals in these markets. Most of these markets have been moving down into this reversal zone so it seems likely the Fed will hold back an interest rate hike to lift equity markets back up (a move that would also favor gold, silver and crude oil prices). Markets are extremely volatile at the moment, however, so if the Fed's rhetoric is too hawkish these markets might continue lower and breakdown instead of reverse up (less likely during a reversal period but still possible). The general consensus among analysts right now is that the Fed will not raise rates because of weak economic data, but there are some who are saying a surprise rate hike is possible.
Considering all of the above, it is probably best that we are now on the sidelines of the broad stock market (we took profits in our long positions last week). We will now be able to watch from a neutral position how this market moves before and after the Fed meeting and can plan our trading accordingly. It is possible that last Wednesday's low in the DOW and last Monday's low in the S&P 500 were significant bottoms and that the reversal up has now started. Dovish rhetoric from the Fed this Wednesday (i.e. no rate hike) could accelerate this incipient rally. If these indices make new lows over the next few days, however, a dovish Fed announcement on Wednesday could trigger a dramatic reversal up. If that happens, it could be a good spot to go long again with a close stop loss just below the turning points. We can't get too bullish, though, until we overcome that "gap down" resistance area in the DOW at 18,400 -18,450 (see last week's discussion of a "bearish island reversal" signal in the chart of the DOW). Of course, if the Fed decides to surprise everyone with a rate hike we could see equity markets really start to break down.
Based on the information I've presented here I think this scenario is unlikely. Still on the sidelines of the broad stock market.
Unlike our neutral position in the broad stock market, we are still holding our long positions in gold and silver. Both metals are rallying a bit from bottoms made on Friday (which was within the current reversal zone), but the rallies seem a bit weak at the moment. The cycle structures of these metals are ambiguous now and allow for a few different interpretations. If silver's August 28 low at $18.40 was the start of a new medium-term cycle (still possible), then this market should be bullish and will soon rally and break above $20. If silver didn't start a new cycle on Aug. 28 then this could be an older cycle that hasn't bottomed yet (but will soon), and prices could move below $18.40. This scenario could possibly play out if the Fed decides to raise interest rates (which would boost the dollar and depress the precious metals). Even if silver falls lower, however, it would still be close to a cycle bottom and we would be looking for a spot to buy. Earlier this month gold rallied to $1,352, but prices have been edging down since then. There is key support for gold at $1,300. If prices break and close below there, gold could move down to $1,280 or even lower. A hawkish Fed statement on Wednesday (i.e. an interest rate hike) could trigger this scenario. So the key supports to watch now would be $18.40 in silver and $1,300 in gold. If we break below both these levels then it is bearish, but if gold breaks below $1,300 and silver stays above $18.40 (or if silver breaks below $18.40 and gold stays above $1,300) then we would have a strong case of bullish intermarket divergence, and that could be very bullish and lead to a strong rally. Despite the bearish speculations I have presented here, I am favoring the bullish scenario. There are technical signals in this market that suggest a bottom is forming now, we are in a reversal zone, and it seems likely that the Fed will not raise interest rates. Let's hold on to our long positions in gold and silver for now and watch for a case of intermarket bullish divergence as described above. Stay tuned for updates as we move into Wednesday's Fed meeting.
Crude oil prices made a new monthly low on Friday at $42.74 (October contract chart) which is within a reversal zone so that could be the bottom of a subcycle correction that is due this week or next. Directional momentum in crude is now strongly bearish, however, and today prices surged briefly above $44 before losing all of the day's gains and falling back to close the day with a 1.3% loss (at $43.25). This is bearish behavior. Like the other markets, crude's direction could be determined by the Fed's decision on Wednesday. Another delayed rate hike would not only lift equities but likely crude prices as well. We are already in a good target range for a bottom in crude ($42 - $44), but I am uncomfortable right now with all the bearish technical signals. It looks like prices could fall lower into Wednesday which could be an ideal setup to buy (assuming the Fed does not hike interest rates). Let's remain on the sidelines for now and see how prices move into Wednesday.
We are approaching another FOMC meeting this week (Tuesday-Wednesday) and many financial markets are waiting with bated breath to see if the Federal Reserve will raise interest rates this time around. This meeting is especially significant because there will not be another one until Nov. 1 - 2, just a week before the U.S. presidential election. As I've been saying on this website for several weeks now, I think the current political establishment does not want a major market crash to happen before the election as that could favor the anti-establishment candidate (Trump). It remains to be seen whether or not the Fed (and others) can keep markets buoyant (or at least stable) into the end of the year, but recent history has shown that it is not wise to bet against them. Cycle and timing studies of the broad stock market currently allow for a rally into the end of the year so market manipulators may indeed be able to delay a major market correction past the election.
Next week's Fed meeting falls right at the end of a major reversal zone for all the markets we follow so the
Fed's decision on a rate hike (or not) may be the trigger for reversals in these markets. Most of these markets have been moving down into this reversal zone so it seems likely the Fed will hold back an interest rate hike to lift equity markets back up (a move that would also favor gold, silver and crude oil prices). Markets are extremely volatile at the moment, however, so if the Fed's rhetoric is too hawkish these markets might continue lower and breakdown instead of reverse up (less likely during a reversal period but still possible). The general consensus among analysts right now is that the Fed will not raise rates because of weak economic data, but there are some who are saying a surprise rate hike is possible.
Considering all of the above, it is probably best that we are now on the sidelines of the broad stock market (we took profits in our long positions last week). We will now be able to watch from a neutral position how this market moves before and after the Fed meeting and can plan our trading accordingly. It is possible that last Wednesday's low in the DOW and last Monday's low in the S&P 500 were significant bottoms and that the reversal up has now started. Dovish rhetoric from the Fed this Wednesday (i.e. no rate hike) could accelerate this incipient rally. If these indices make new lows over the next few days, however, a dovish Fed announcement on Wednesday could trigger a dramatic reversal up. If that happens, it could be a good spot to go long again with a close stop loss just below the turning points. We can't get too bullish, though, until we overcome that "gap down" resistance area in the DOW at 18,400 -18,450 (see last week's discussion of a "bearish island reversal" signal in the chart of the DOW). Of course, if the Fed decides to surprise everyone with a rate hike we could see equity markets really start to break down.
Based on the information I've presented here I think this scenario is unlikely. Still on the sidelines of the broad stock market.
Unlike our neutral position in the broad stock market, we are still holding our long positions in gold and silver. Both metals are rallying a bit from bottoms made on Friday (which was within the current reversal zone), but the rallies seem a bit weak at the moment. The cycle structures of these metals are ambiguous now and allow for a few different interpretations. If silver's August 28 low at $18.40 was the start of a new medium-term cycle (still possible), then this market should be bullish and will soon rally and break above $20. If silver didn't start a new cycle on Aug. 28 then this could be an older cycle that hasn't bottomed yet (but will soon), and prices could move below $18.40. This scenario could possibly play out if the Fed decides to raise interest rates (which would boost the dollar and depress the precious metals). Even if silver falls lower, however, it would still be close to a cycle bottom and we would be looking for a spot to buy. Earlier this month gold rallied to $1,352, but prices have been edging down since then. There is key support for gold at $1,300. If prices break and close below there, gold could move down to $1,280 or even lower. A hawkish Fed statement on Wednesday (i.e. an interest rate hike) could trigger this scenario. So the key supports to watch now would be $18.40 in silver and $1,300 in gold. If we break below both these levels then it is bearish, but if gold breaks below $1,300 and silver stays above $18.40 (or if silver breaks below $18.40 and gold stays above $1,300) then we would have a strong case of bullish intermarket divergence, and that could be very bullish and lead to a strong rally. Despite the bearish speculations I have presented here, I am favoring the bullish scenario. There are technical signals in this market that suggest a bottom is forming now, we are in a reversal zone, and it seems likely that the Fed will not raise interest rates. Let's hold on to our long positions in gold and silver for now and watch for a case of intermarket bullish divergence as described above. Stay tuned for updates as we move into Wednesday's Fed meeting.
Crude oil prices made a new monthly low on Friday at $42.74 (October contract chart) which is within a reversal zone so that could be the bottom of a subcycle correction that is due this week or next. Directional momentum in crude is now strongly bearish, however, and today prices surged briefly above $44 before losing all of the day's gains and falling back to close the day with a 1.3% loss (at $43.25). This is bearish behavior. Like the other markets, crude's direction could be determined by the Fed's decision on Wednesday. Another delayed rate hike would not only lift equities but likely crude prices as well. We are already in a good target range for a bottom in crude ($42 - $44), but I am uncomfortable right now with all the bearish technical signals. It looks like prices could fall lower into Wednesday which could be an ideal setup to buy (assuming the Fed does not hike interest rates). Let's remain on the sidelines for now and see how prices move into Wednesday.
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