IMPORTANT UPDATE ON THE BROAD STOCK MARKET and PRECIOUS METALS and
COMMENT ON THIS WEEK'S FED MEETING (11:45 pm EDT)
The next two weeks may may see more than one significant financial market reversal which could present us with some very good trading opportunities, but it will not be easy to call these trades because we are now seeing strong mixed signals in several markets, especially equities and the precious metals. Market directions may become more decisive next week, however, as the next Federal Reserve meeting is scheduled for Tuesday/Wednesday, and investors will be waiting to see if the Fed decides to continue on the path of raising short-term interest rates. Many market analysts are expecting the Fed to hold back another rate hike at least until June to avoid crashing an overbought and nervous stock market. Nevertheless, some investors are concerned that the damage inflicted on the U.S. dollar last week from a surging euro may prompt the Fed to be more hawkish and perhaps surprise the markets with a second rate hike. Such a surprise hike could turn down the current rally in equities.
Although we have been anticipating a strong correction in the broad stock market, there are some technical factors now suggesting that equities could be turning bullish and that any correction now may be modest. This recent market bullishness was why I set a very tight stop loss on last week's short position in the broad stock market. All short traders should have been stopped out by Friday's close with very small losses (the NASDAQ closed above 4,746 on Friday so all three indices - DOW, S&P 500 and NASDAQ - made new highs for the week and negated our intermarket bearish divergence signal). Note that I am saying the market may be turning bullish. Cycle patterns still indicate that we should be getting some sort of correction over the next few weeks, and March 16 and March 23 -25 could be significant turning points for a market reversal (note the Fed meeting concludes on March 16). For this reason I will continue to look for a spot to sell short (with a tight stop loss) over the next two weeks for what could be a significant (but maybe short-term) correction in the broad stock market indices. Longer-term traders that are uncomfortable with this kind of trading may wish to stand aside this market until a clear directional trend becomes established. For long-term investors, two "lines in the sand" for the S&P 500 would now be at 2,116 and 1,810. A break above 2,116 would mean a bullish market into the summer with new all-time highs. Any break below 1,810, however, would indicate a breakdown (and possibly a "meltdown") in the current medium-term cycle with a severe market correction over the next few months. Equivalent high and low points in the DOW would be 17,977 and 15,370.
Still on the sidelines of the broad stock market.
Precious metal prices also seem to be "teetering on the brink" of either a significant correction or a push to new highs for the current medium-term cycle. Gold and silver are both due (overdue) for a significant corrective dip as they are near the end of their current medium-term cycles, but their current bullishness could push prices higher over the next week or two before dropping. We are now in the middle of a significant reversal zone, and last week gold made a new monthly high while silver remained below its February high for another case of intermarket bearish divergence. For these reason's we should now be looking to sell short both gold and silver. As with all the markets next week, a strong turning point may come after the Fed's interest rate decision on Wednesday so I am going to try and hold off selling short until then. If the Fed does announce another rate hike, it could be the trigger for a strong correction in these metals. On the sidelines of both gold and silver for now.
COMMENT ON THIS WEEK'S FED MEETING (11:45 pm EDT)
The next two weeks may may see more than one significant financial market reversal which could present us with some very good trading opportunities, but it will not be easy to call these trades because we are now seeing strong mixed signals in several markets, especially equities and the precious metals. Market directions may become more decisive next week, however, as the next Federal Reserve meeting is scheduled for Tuesday/Wednesday, and investors will be waiting to see if the Fed decides to continue on the path of raising short-term interest rates. Many market analysts are expecting the Fed to hold back another rate hike at least until June to avoid crashing an overbought and nervous stock market. Nevertheless, some investors are concerned that the damage inflicted on the U.S. dollar last week from a surging euro may prompt the Fed to be more hawkish and perhaps surprise the markets with a second rate hike. Such a surprise hike could turn down the current rally in equities.
Although we have been anticipating a strong correction in the broad stock market, there are some technical factors now suggesting that equities could be turning bullish and that any correction now may be modest. This recent market bullishness was why I set a very tight stop loss on last week's short position in the broad stock market. All short traders should have been stopped out by Friday's close with very small losses (the NASDAQ closed above 4,746 on Friday so all three indices - DOW, S&P 500 and NASDAQ - made new highs for the week and negated our intermarket bearish divergence signal). Note that I am saying the market may be turning bullish. Cycle patterns still indicate that we should be getting some sort of correction over the next few weeks, and March 16 and March 23 -25 could be significant turning points for a market reversal (note the Fed meeting concludes on March 16). For this reason I will continue to look for a spot to sell short (with a tight stop loss) over the next two weeks for what could be a significant (but maybe short-term) correction in the broad stock market indices. Longer-term traders that are uncomfortable with this kind of trading may wish to stand aside this market until a clear directional trend becomes established. For long-term investors, two "lines in the sand" for the S&P 500 would now be at 2,116 and 1,810. A break above 2,116 would mean a bullish market into the summer with new all-time highs. Any break below 1,810, however, would indicate a breakdown (and possibly a "meltdown") in the current medium-term cycle with a severe market correction over the next few months. Equivalent high and low points in the DOW would be 17,977 and 15,370.
Still on the sidelines of the broad stock market.
Precious metal prices also seem to be "teetering on the brink" of either a significant correction or a push to new highs for the current medium-term cycle. Gold and silver are both due (overdue) for a significant corrective dip as they are near the end of their current medium-term cycles, but their current bullishness could push prices higher over the next week or two before dropping. We are now in the middle of a significant reversal zone, and last week gold made a new monthly high while silver remained below its February high for another case of intermarket bearish divergence. For these reason's we should now be looking to sell short both gold and silver. As with all the markets next week, a strong turning point may come after the Fed's interest rate decision on Wednesday so I am going to try and hold off selling short until then. If the Fed does announce another rate hike, it could be the trigger for a strong correction in these metals. On the sidelines of both gold and silver for now.
RSS Feed