Last week the Federal Reserve did not raise interest rates and announced that it would only be raising them two times this year (a pull back from their previous plan of four rate hikes in 2016). This followed the announcement from Mario Draghi the week before that the European Central Bank will drop their interest rates further into negative territory and implement another QE bond buying program (although Mr. Draghi emphasized that this will be the final stimulus measure from the ECB). These accommodative monetary policies seem to be injecting new life into U.S. and global equity markets just when they need it. Technical analysis and cycle studies had recently suggested that these markets were about to roll over and make a major correction, but it looks like that correction may be delayed (or minimized) now that governments are again intervening in the "free market" process. As I've mentioned before on this website, market manipulation of this sort can distort cycle patterns and technical parameters, but it does not eliminate them. We just need to incorporate this "wildcard" factor into our trading strategies when it has a strong influence on the markets, as it seems to be having now. Once again central banks seem intent on keeping stock markets propped up, even at the expense of more inflation. In addition to influencing stock markets through central bank policies, people in high positions have likely manipulated gold prices (more covertly) within the last several years to keep equity markets stable. A strong rally in gold tends to scare Wall Street as it can be seen as a potential harbinger of a severe market sell off (i.e. frightened investors fleeing the stock market for the safe haven of gold). For this reason gold prices could also be manipulated (suppressed) to discourage panic selling in the stock market. It is interesting that recently gold (and silver) have been very bullish yet prices seem reluctant (so far) to break above a longer-term downtrend in these metals that has been in place since 2013.
Speaking of gold and silver, it is looking like a good time to short both. Yes, I know we were "whipsawed" out of our silver short position last week, but Friday's high in silver ($16.145) looks like the cycle top. That was a new weekly high in silver as gold remained below its high from the previous week which is another case of intermarket bearish divergence. Furthermore, as I've mentioned in recent blogs, COT charts are now extremely bearish for both metals, and this suggests a significant correction is imminent. Let's enter a short position in gold now (for tomorrow's opening) with a stop loss on a clear break over the recent cycle high at $1282 (spot price) if silver also breaks its high at $16.145. Some short-term technical signals in the silver charts are suggesting its price might edge up a bit more so we will hold off shorting silver now but may do so early next week (even tomorrow).
The damage done to the U.S. Dollar Index after the Fed's relatively "dovish" policy statement last week may be over as the dollar's plunge seems to have halted at strong support just above 94. Last week was also a strong reversal zone for currencies, so the dollar could bounce here and begin another upward trek. We will have to wait and see if any rally can gain significant momentum, but even a modest rally now could push precious metal prices down into the corrective cycle bottom we are hoping for.
Crude oil could have made a short-term subcycle top on Friday at $41.20 (April contract), but we are still in a strong reversal zone for crude which extends into Friday so prices could push higher. The likely target for any correction now would be around $33. We will try to sell short this week, especially if prices edge higher into Wednesday. Out of crude for now.
Notwithstanding my bullish argument for the broad stock market above, next week is another strong reversal zone for equities, and a subcycle correction is due in all three market indices (DOW, S&P 500, NASDAQ). For this reason we should be looking for a spot to sell short next week for what will likely be a short-term trade but could nevertheless be significant. (The DOW could fall to the 16,600 area and the S&P 500 towards 1,950). Longer-term traders may wish to bypass this trade and wait to buy the bottom of any correction as it looks like the current medium-term cycle is turning bullish and could rally into the end of April or possibly longer. Out of the broad stock market for now.