MARKETS UPDATE (11:30 pm EST)
It was very frustrating to miss out on last week's stock market rally, especially since I had been expecting a bounce (but from a lower target level that was not reached). Again, we had a case of technical analysis being distorted by actions from the Federal Reserve. Nervous investors now seem to hang on every word and subtle nuance in the Fed's statements and Janet Yellen's speeches to the point of ridiculousness. The Fed and Ms.Yellen are aware of this and are very cautious about what they say and how they say it (a much more difficult task for Ms.Yellen as she has to improvise at a live press conference). This is why I was so cautious about going long early last week even though the timing was right for a reversal. Had the Fed or Ms.Yellen conveyed just a slightly more hawkish tone in their Wednesday statements, markets could have broken down with the same ferocity with which they instead rallied.
Fortunately, timing and cycle studies can always tell us what is the best strategy to take moving forward, even after missing a good buy spot. The broad stock market could reverse again early next week, but since we are now approaching the holidays (Christmas and New Year's) it is also possible for this 'Santa Claus" rally to continue into Jan. 5 before losing any steam. What we want to watch for now are signs of intermarket bearish divergence, that is, we want to see if the DOW, S&P 500, and NASDAQ can all break through their early December highs. If all three do, the market will likely be bullish for the next two weeks with the DOW possibly reaching the 19,000 level. But if one or two of these indices makes a new high but the other one or two cannot, it may be a bearish warning (bearish divergence) and a downturn would be imminent. Markets are still quite volatile, so for now I will be making short-term trading decisions based on the patterns that unfold day by day over the next few weeks. Still on the sidelines of the broad stock market.
We now have long positions in both gold and silver (entered last Wednesday). Both metals appear to be basing just above our stop loss levels ($1180 in gold and $15.50 in silver) and still look poised to rally short-term. We will keep a close eye on these stop loss areas as markets are still volatile and there is still the possibility of the precious metals turning down. Holding our long positions in gold and silver.
The U.S. Dollar Index continues to be extremely overbought and it may be forming a top now as we are in the middle of a timing window for a reversal in currencies. Such a reversal would lift precious metal prices, but if the dollar makes a strong break above the 90 area, it could lead to gold and silver turning down. We will watch the dollar carefully now for its effect on precious metal prices.
Crude oil looks poised to rally short-term and we have long positions here as well (but with a close stop loss on the recent low of $53.60). If prices can rally to the $59 area I will consider taking profits on this trade (and possibly selling short) as overall momentum in this market continues to be bearish. Holding a long position in crude oil.
It was very frustrating to miss out on last week's stock market rally, especially since I had been expecting a bounce (but from a lower target level that was not reached). Again, we had a case of technical analysis being distorted by actions from the Federal Reserve. Nervous investors now seem to hang on every word and subtle nuance in the Fed's statements and Janet Yellen's speeches to the point of ridiculousness. The Fed and Ms.Yellen are aware of this and are very cautious about what they say and how they say it (a much more difficult task for Ms.Yellen as she has to improvise at a live press conference). This is why I was so cautious about going long early last week even though the timing was right for a reversal. Had the Fed or Ms.Yellen conveyed just a slightly more hawkish tone in their Wednesday statements, markets could have broken down with the same ferocity with which they instead rallied.
Fortunately, timing and cycle studies can always tell us what is the best strategy to take moving forward, even after missing a good buy spot. The broad stock market could reverse again early next week, but since we are now approaching the holidays (Christmas and New Year's) it is also possible for this 'Santa Claus" rally to continue into Jan. 5 before losing any steam. What we want to watch for now are signs of intermarket bearish divergence, that is, we want to see if the DOW, S&P 500, and NASDAQ can all break through their early December highs. If all three do, the market will likely be bullish for the next two weeks with the DOW possibly reaching the 19,000 level. But if one or two of these indices makes a new high but the other one or two cannot, it may be a bearish warning (bearish divergence) and a downturn would be imminent. Markets are still quite volatile, so for now I will be making short-term trading decisions based on the patterns that unfold day by day over the next few weeks. Still on the sidelines of the broad stock market.
We now have long positions in both gold and silver (entered last Wednesday). Both metals appear to be basing just above our stop loss levels ($1180 in gold and $15.50 in silver) and still look poised to rally short-term. We will keep a close eye on these stop loss areas as markets are still volatile and there is still the possibility of the precious metals turning down. Holding our long positions in gold and silver.
The U.S. Dollar Index continues to be extremely overbought and it may be forming a top now as we are in the middle of a timing window for a reversal in currencies. Such a reversal would lift precious metal prices, but if the dollar makes a strong break above the 90 area, it could lead to gold and silver turning down. We will watch the dollar carefully now for its effect on precious metal prices.
Crude oil looks poised to rally short-term and we have long positions here as well (but with a close stop loss on the recent low of $53.60). If prices can rally to the $59 area I will consider taking profits on this trade (and possibly selling short) as overall momentum in this market continues to be bearish. Holding a long position in crude oil.
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