MARKETS UPDATE (3:15 pm EDT)
The Federal Reserve seemed to be playing its cards "close to the chest" yesterday when the minutes of this week's FOMC meeting were released without a subsequent press conference by Janet Yellen to explain some of the rhetoric of the statement. What was most apparent in the Fed's statement was the absence of any calendar references to the first rate hike. The Fed is obviously trying to discourage analysts and investors from focusing too strongly on any one date or month as this gives them more leeway in their decision making process. In typical ambiguous fashion, the Fed statement acknowledged current weakness in the economy but also noted that such weakness was likely "transitory". Some analysts are now leaning towards a September rate hike rather than a first hike in June. The next FOMC meeting should tell us if that is going to happen.
Despite the Fed's attempts to be neutral, the broad stock market did not react well (stock markets do not like uncertainty) and the DOW fell about 50 points immediately following the FOMC statement release. The fall is continuing today with the DOW down over 200 points at the time of this writing (3:15 pm EDT). As I wrote in Tuesday's blog: "Ideally, I would like to see the DOW drop a bit more into the end of the week (towards the 17,600 - 17,700 area) for an ideal spot to buy as directional momentum is now nearly 100% in all three stock market indices (DOW, S&P 500 and NASDAQ)." We may be getting this setup now so we will watch for a low in that 17,600 - 17,700 area to buy, possibly early next week. If that support area is breached and the market continues to fall past next week then we will have to abandon this bullish view. I don't think this will happen, but we have to keep in mind that we still have a case of bearish intermarket divergence in place because the S&P 500 and NASDAQ have both made new yearly highs, but the DOW still has not (yet). Nevertheless, directional momentum is now nearly 100% bullish in all three indices so we will stay with a bullish strategy until proven otherwise. On the sidelines for now.
Gold and silver also do not seem to like the Fed's statement as prices plunged steeply in both metals today. In Tuesday's blog I wrote that the FOMC meeting statement "...could either accelerate gold's rally or quash it. If gold prices cannot exceed that $1224 level soon, they could turn down again and move to a new weekly low." It looks like the "quash" scenario is unfolding. We will watch for a low into early next week, which could be a turning point for all markets. If gold prices can stay above $1140, we could get an ideal spot to go long again. Out of both gold and silver for now.
The U.S. Dollar Index has plunged down to a strong support area around 94. The dollar appears to be breaking down, but it could have a short-term bounce here which might push precious metal prices lower into next week. We will watch this carefully, especially as any continuation of the dollar's breakdown could lead to a major rally in gold
and silver.
The Federal Reserve seemed to be playing its cards "close to the chest" yesterday when the minutes of this week's FOMC meeting were released without a subsequent press conference by Janet Yellen to explain some of the rhetoric of the statement. What was most apparent in the Fed's statement was the absence of any calendar references to the first rate hike. The Fed is obviously trying to discourage analysts and investors from focusing too strongly on any one date or month as this gives them more leeway in their decision making process. In typical ambiguous fashion, the Fed statement acknowledged current weakness in the economy but also noted that such weakness was likely "transitory". Some analysts are now leaning towards a September rate hike rather than a first hike in June. The next FOMC meeting should tell us if that is going to happen.
Despite the Fed's attempts to be neutral, the broad stock market did not react well (stock markets do not like uncertainty) and the DOW fell about 50 points immediately following the FOMC statement release. The fall is continuing today with the DOW down over 200 points at the time of this writing (3:15 pm EDT). As I wrote in Tuesday's blog: "Ideally, I would like to see the DOW drop a bit more into the end of the week (towards the 17,600 - 17,700 area) for an ideal spot to buy as directional momentum is now nearly 100% in all three stock market indices (DOW, S&P 500 and NASDAQ)." We may be getting this setup now so we will watch for a low in that 17,600 - 17,700 area to buy, possibly early next week. If that support area is breached and the market continues to fall past next week then we will have to abandon this bullish view. I don't think this will happen, but we have to keep in mind that we still have a case of bearish intermarket divergence in place because the S&P 500 and NASDAQ have both made new yearly highs, but the DOW still has not (yet). Nevertheless, directional momentum is now nearly 100% bullish in all three indices so we will stay with a bullish strategy until proven otherwise. On the sidelines for now.
Gold and silver also do not seem to like the Fed's statement as prices plunged steeply in both metals today. In Tuesday's blog I wrote that the FOMC meeting statement "...could either accelerate gold's rally or quash it. If gold prices cannot exceed that $1224 level soon, they could turn down again and move to a new weekly low." It looks like the "quash" scenario is unfolding. We will watch for a low into early next week, which could be a turning point for all markets. If gold prices can stay above $1140, we could get an ideal spot to go long again. Out of both gold and silver for now.
The U.S. Dollar Index has plunged down to a strong support area around 94. The dollar appears to be breaking down, but it could have a short-term bounce here which might push precious metal prices lower into next week. We will watch this carefully, especially as any continuation of the dollar's breakdown could lead to a major rally in gold
and silver.
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