There was a lot of fearmongering present in the media last week concerning the sequestration deadline and the negative effect federal budget cuts could have on the functioning of the country. The stock markets mirrored this fear when the DOW dropped over 200 points on Monday; however, the fear seemed to melt away as the week progressed, and the DOW was making a new multimonth high by Thursday. The dreaded sequester kicked in Friday night as both the White House and congressional Republicans refused to compromise their positions, and so it appears there will now be indiscriminate across the board spending cuts in the federal government taking place over the next seven months. It is still a little too early to judge the full impact this may have on financial market sentiment, especially as the decision to go forward with the sequester cuts came so late in the week.
From the viewpoint of technical analysis, cycle studies, and various timing factors, the broad stock market is poised to make a major move, but at the moment it is not clear whether it will be up or down. This is why we are still on the sidelines and waiting for a clear bullish or bearish signal. Lingering fears about the sequestration cuts could kick this market down into a severe correction. On the other hand, there could now be a collective sigh of relief because the deadline has come and gone without much trouble, and this might trigger an optimistic rally. (Note that stock markets often rise and fall according to the collective emotional state of investors, and these movements often have little to do with the true state of the economy).
The precious metals market continues to look good and is flashing a lot of bullish signals at this time. We went long gold and silver on Friday and will continue to hold these positions in anticipation of a major rally now. Our stop loss points are around $1500-$1530 in gold and $26-$27 in silver.
As expected, the Swiss Franc continues to correct downward and we are watching carefully here for a bottom which we will buy.
We are staying out of crude oil for now because, as with the broad stock market, the chart analysis of crude prices is revealing a mixture of both bullish and bearish signals. Crude oil may be at the beginning of a significant new cycle which would be bullish, but we need to wait at least a few more weeks to be reasonably certain of this.