MARKETS UPDATE (11:30 pm EST)
The Federal Reserve, Janet Yellen, and Goldman Sachs (as well as a few other big banks) are three major factors influencing the markets right now, and we need to keep a close eye on all of them as we trade into the coming new year. My main concern with the Federal Reserve is whether or not it will start tapering QE (quantitative easing) and, if so, when it will start and how severe it will be. As anyone who has recently been following the broad stock market knows, the mere hint of the Fed scaling back QE is enough to send investors into panic selling. It is not unreasonable to assume that when QE tapering actually begins there will be a major correction (and very possibly a crash) in the stock market. Earlier this month at her nomination hearings, Janet Yellen, the likely successor to Ben Bernanke as chair of the Federal Reserve, made clear her enthusiastic approval of the current level of the Fed's bond purchasing program. She stated that there was "no set time" to begin QE tapering, which calmed the fears of many investors and sparked a strong rally on Wall Street. A week later, however, it was revealed that during its recent October meeting the Fed was seriously considering reductions in QE as soon as "at one of its next few meetings" even if no improvements are seen in the labor market. This, of course, spooked the markets, but they recovered quickly and continue to look bullish. Perhaps investors are feeling that the Fed is now bluffing with its taper threats (in order to appear fiscally responsible), and the market will not react strongly unless the threat is confirmed. Only time will tell how much influence the more austere voices at the Fed will have over Janet Yellen's dovish tone once she assumes the position of Fed chairwoman. Unfortunately, this means the issue of QE tapering is now a "wildcard" factor in trading the broad stock market and will have to be watched carefully.
The broad stock market is looking very bullish as we move into a holiday week. Holiday weeks tend to be bullish so I would not be surprised to see the DOW rally some more into Thursday. This week, however, is another time period when market reversals are likely (strongest on Wednesday), so we could see a rally top at any time. I am watching for any pullback now to go long as all technical signals in the charts of the DOW, S&P 500 and NASDAQ are very bullish. There is a strong support level in the DOW around 15,850, so any pullback that holds above that area would be a good buy spot. On the sidelines and waiting to buy.
Directional momentum in crude oil is still very bearish, although other short-term technical indicators suggest the possibility of rallying into next week. If prices do rally, I will be looking for a spot to sell short as long as momentum remains bearish. As I mentioned in my last blog on crude oil, the cycle picture of this market is not clear, and there is a possibility that crude is starting a new cycle now with the recent bottom near $93. We need to see more bullish momentum signals, however, for this idea to be supported. One thing to keep in mind is that the broad stock market and crude oil generally tend to move in the same direction (except for short-term divergences). The currently strong and bullish stock market may be foreshadowing a bullish change for crude. On the other hand, crude's strongly bearish momentum might be signaling an imminent correction in the DOW. Next week's price movements could tell us which market is correct. Standing aside crude oil for now.
Gold and silver are falling into next week's reversal zone and we may see a short-term bounce before the week is over. Such a bounce would most likely be weak but may give us a good entry point to short sell the precious metals. As I stated in my last blog, the technical and cycle picture for gold and silver has turned very bearish short-term, and we may now be witnessing the final downleg of a long-term cycle in precious metals before they reverse and turn very bullish. Goldman Sachs has recently been suggesting that investors get out of gold. I will explain in my next blog why I think they are saying this. (Hint: What big bank is likely responsible for the recent manipulation of gold prices down?). I am out of this market and possibly looking to sell short next week.
The Federal Reserve, Janet Yellen, and Goldman Sachs (as well as a few other big banks) are three major factors influencing the markets right now, and we need to keep a close eye on all of them as we trade into the coming new year. My main concern with the Federal Reserve is whether or not it will start tapering QE (quantitative easing) and, if so, when it will start and how severe it will be. As anyone who has recently been following the broad stock market knows, the mere hint of the Fed scaling back QE is enough to send investors into panic selling. It is not unreasonable to assume that when QE tapering actually begins there will be a major correction (and very possibly a crash) in the stock market. Earlier this month at her nomination hearings, Janet Yellen, the likely successor to Ben Bernanke as chair of the Federal Reserve, made clear her enthusiastic approval of the current level of the Fed's bond purchasing program. She stated that there was "no set time" to begin QE tapering, which calmed the fears of many investors and sparked a strong rally on Wall Street. A week later, however, it was revealed that during its recent October meeting the Fed was seriously considering reductions in QE as soon as "at one of its next few meetings" even if no improvements are seen in the labor market. This, of course, spooked the markets, but they recovered quickly and continue to look bullish. Perhaps investors are feeling that the Fed is now bluffing with its taper threats (in order to appear fiscally responsible), and the market will not react strongly unless the threat is confirmed. Only time will tell how much influence the more austere voices at the Fed will have over Janet Yellen's dovish tone once she assumes the position of Fed chairwoman. Unfortunately, this means the issue of QE tapering is now a "wildcard" factor in trading the broad stock market and will have to be watched carefully.
The broad stock market is looking very bullish as we move into a holiday week. Holiday weeks tend to be bullish so I would not be surprised to see the DOW rally some more into Thursday. This week, however, is another time period when market reversals are likely (strongest on Wednesday), so we could see a rally top at any time. I am watching for any pullback now to go long as all technical signals in the charts of the DOW, S&P 500 and NASDAQ are very bullish. There is a strong support level in the DOW around 15,850, so any pullback that holds above that area would be a good buy spot. On the sidelines and waiting to buy.
Directional momentum in crude oil is still very bearish, although other short-term technical indicators suggest the possibility of rallying into next week. If prices do rally, I will be looking for a spot to sell short as long as momentum remains bearish. As I mentioned in my last blog on crude oil, the cycle picture of this market is not clear, and there is a possibility that crude is starting a new cycle now with the recent bottom near $93. We need to see more bullish momentum signals, however, for this idea to be supported. One thing to keep in mind is that the broad stock market and crude oil generally tend to move in the same direction (except for short-term divergences). The currently strong and bullish stock market may be foreshadowing a bullish change for crude. On the other hand, crude's strongly bearish momentum might be signaling an imminent correction in the DOW. Next week's price movements could tell us which market is correct. Standing aside crude oil for now.
Gold and silver are falling into next week's reversal zone and we may see a short-term bounce before the week is over. Such a bounce would most likely be weak but may give us a good entry point to short sell the precious metals. As I stated in my last blog, the technical and cycle picture for gold and silver has turned very bearish short-term, and we may now be witnessing the final downleg of a long-term cycle in precious metals before they reverse and turn very bullish. Goldman Sachs has recently been suggesting that investors get out of gold. I will explain in my next blog why I think they are saying this. (Hint: What big bank is likely responsible for the recent manipulation of gold prices down?). I am out of this market and possibly looking to sell short next week.
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