Next week we see another FOMC meeting (it ends Wednesday, Feb. 1 at 2:00 pm EST), and it is expected that the Fed will almost certainly raise interest rates another quarter point. There is now investor optimism on Wall Street because of a recent ease in inflation, and there are hopes that the Fed will take this as a sign to hold back interest rate hiking. But many analysts see the Fed trying to curb this enthusiasm, and they predict that the Fed will attempt to do this with more hawkish rhetoric after next week's meeting along with the quarter point rate hike. If that happens, it could turn the broad stock market down. However, if fear of this happening pushes the market down Monday, Tuesday, and Wednesday morning, we might see a case of "sell the rumor, buy the news" with equities snapping back after the official Fed announcement at 2 PM and the subsequent press conference. Whatever happens, we may steer clear of any trading until a day or two after the Fed meeting when we can better determine if any reaction to the Fed is going to be serious.
Our current cycle analysis of equity markets is also pointing to a possible sell-off next week. Last week the DOW never exceeded its high from the previous week while the S&P 500 and NASDAQ both did so early in the week. Also, the NASDAQ exceeded it's Dec.13 high, but the DOW and S&P 500 remained below their Dec. 13 highs (although the S&P 500 is close). Thus we enter this week with two bearish divergence signals, and all three indices are ripe for a final medium-term cycle top. Although we left a fairly strong reversal zone Friday, there is another weaker one that runs from Jan. 30 - Feb.7 which could also correlate with a top. Of course, we need to keep in mind that reversal zones sometimes correlate with break-outs (or break-downs) instead of reversals, although this is not very common. The bottom line here is that next week could be a volatile one for the broad stock market. We remain on the sidelines for now.
We are expecting gold to make an imminent sub-cycle correction to a low between its 45-day and 15-day moving averages (right now that would be between $1843 and $1918), and that low should be in by the end of this week. Silver should be making its final medium-term cycle low now between $20 and $22. Next week is the center of a reversal zone specifically for precious metals (Jan. 30 - Feb. 7), so that would be a good time to see both lows. There's a chance that silver completed its cycle bottom with last Monday's low at $22.81, but I think it is more likely to go lower this week. We are still on the sidelines gold and holding our short position in silver for now.