MARKETS UPDATE (11:40 pm EDT)
Although the broad stock market rallied strongly last Wednesday following the release of the FOMC policy statement (after a two day meeting), it lost its upward momentum on Thursday and fell significantly on Friday. Perhaps it took investors a little time to realize that delaying a rate hike another month or two is not really cause for celebration, especially when equity markets are so overbought. I had been hoping for a top and signs of a pullback last week (the final week of our reversal zone) and we may have gotten it on Friday. The bearish technical signals that I mentioned in last Wednesday's blog still apply: "Directional momentum is still mixed bullish and bearish for all three major stock indices (DOW, S&P 500, and NASDAQ), the S&P 500 is approaching very strong resistance underneath the bottom of a gigantic "dome top" as well as completing a large "head and shoulders top" formation in its chart..."
To maintain our (short-term) bearish view we don't want to see more rallying in these markets past the middle of this week. There is very strong resistance around 17,800 in the DOW and 2100 in the S&P 500, and I am now expecting the markets to correct down a bit more before breaking and closing above those levels. A good target for this correction would be around 16,700 for the DOW and 1960 for the S&P 500. If we reach those levels soon, we will likely take profits in our short positions and then reverse our trading strategy and look to go long as the medium-term cycle appears to have turned bullish (see my blog on Oct. 24 and Oct.13). If instead equity markets do not fall and continue to rally past Wednesday, we will use a close above 2135 in the S&P 500 as our general stop loss point for our short positions. Holding my short position for now.
Gold and silver are very tricky to trade at the moment. A bearish momentum signal appeared tonight in the charts of both metals, and this makes directional momentum now mixed bullish and bearish (it had been mostly bullish). This is strengthening the idea that we should be watching for an opportunity to sell short the top of any short-term rally now as both gold and silver are in the last half of their current respective cycles. Prices should therefore be moving lower into a corrective bottom within the next month or two. Shorter term, a brief but tradable rally could start any day now if gold and silver prices find some support next week. We will watch for this. Silver may be an especially good buy if it drops below $15. On the sidelines of gold and silver for now.
Last week crude oil pushed down into our target range ($40 - $45) for a short-term cycle bottom. On Tuesday prices got down to $42.58. They then rallied strongly on Wednesday and leveled off on Thursday and Friday, closing the week just above $46. A short-term technical bull signal was triggered in crude charts, but overall directional momentum remains bearish which suggests caution in going long. We could see a rally now towards $50 or higher; however, crude prices would have to break above $51 to even consider the possibility of the current cycle trend turning bullish. If prices back down a bit next week towards $45 (or lower), I will consider going long for a short-term (possibly longer) rally. Out of crude oil for now.
Although the broad stock market rallied strongly last Wednesday following the release of the FOMC policy statement (after a two day meeting), it lost its upward momentum on Thursday and fell significantly on Friday. Perhaps it took investors a little time to realize that delaying a rate hike another month or two is not really cause for celebration, especially when equity markets are so overbought. I had been hoping for a top and signs of a pullback last week (the final week of our reversal zone) and we may have gotten it on Friday. The bearish technical signals that I mentioned in last Wednesday's blog still apply: "Directional momentum is still mixed bullish and bearish for all three major stock indices (DOW, S&P 500, and NASDAQ), the S&P 500 is approaching very strong resistance underneath the bottom of a gigantic "dome top" as well as completing a large "head and shoulders top" formation in its chart..."
To maintain our (short-term) bearish view we don't want to see more rallying in these markets past the middle of this week. There is very strong resistance around 17,800 in the DOW and 2100 in the S&P 500, and I am now expecting the markets to correct down a bit more before breaking and closing above those levels. A good target for this correction would be around 16,700 for the DOW and 1960 for the S&P 500. If we reach those levels soon, we will likely take profits in our short positions and then reverse our trading strategy and look to go long as the medium-term cycle appears to have turned bullish (see my blog on Oct. 24 and Oct.13). If instead equity markets do not fall and continue to rally past Wednesday, we will use a close above 2135 in the S&P 500 as our general stop loss point for our short positions. Holding my short position for now.
Gold and silver are very tricky to trade at the moment. A bearish momentum signal appeared tonight in the charts of both metals, and this makes directional momentum now mixed bullish and bearish (it had been mostly bullish). This is strengthening the idea that we should be watching for an opportunity to sell short the top of any short-term rally now as both gold and silver are in the last half of their current respective cycles. Prices should therefore be moving lower into a corrective bottom within the next month or two. Shorter term, a brief but tradable rally could start any day now if gold and silver prices find some support next week. We will watch for this. Silver may be an especially good buy if it drops below $15. On the sidelines of gold and silver for now.
Last week crude oil pushed down into our target range ($40 - $45) for a short-term cycle bottom. On Tuesday prices got down to $42.58. They then rallied strongly on Wednesday and leveled off on Thursday and Friday, closing the week just above $46. A short-term technical bull signal was triggered in crude charts, but overall directional momentum remains bearish which suggests caution in going long. We could see a rally now towards $50 or higher; however, crude prices would have to break above $51 to even consider the possibility of the current cycle trend turning bullish. If prices back down a bit next week towards $45 (or lower), I will consider going long for a short-term (possibly longer) rally. Out of crude oil for now.
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