UPDATE ON GOLD, SILVER and the BROAD STOCK MARKET (7:30 pm EST)
Today European Central Bank president Mario Draghi disappointed financial markets with a modest stimulus package for Europe that did not live up to the high hopes of investors anticipating a more aggressive one. Yes, there was an interest rate cut and an extension of QE, but not to the lofty levels the markets had been expecting.
Wall Street did not take the news well, especially as it came on the heels of Janet Yellen's speech yesterday which had suggested that the Fed's first rate hike will be announced this month. The DOW dropped 252 points. Could the trend be turning down now? Possibly, but we are technically not in a reversal zone (a time period strongly correlated with significant changes in market direction) so today's plunge may be just another knee-jerk reaction from a jittery market. Despite today's plunge, the S&P 500 and NASDAQ's directional momentum remains nearly 100% bullish (the DOW is still mixed bullish and bearish). If these markets do fall lower, they will encounter another reversal zone next week (strongest next Thursday, but in effect all week) so they may not get very far before turning up again. If equities do fall into the end of next week, we will look to buy. But the markets may bounce back shortly, and if they do, we could be back on track for new highs into next week which we would look to sell short for a final plunge to the current cycle bottom. Staying on the sidelines of the broad stock market for now.
Easy money policies (such as QE and low interest rates) devalue a nation's currency so it is not surprising that Draghi's stingy stimulus package gave a surprise boost to the euro today. This currency had been falling steeply since mid-October, but today the euro shot up and nearly negated half of those losses in one day. This was, of course, bad news for the U.S. Dollar Index (as the euro is the biggest component of the "basket" of currencies measured against the dollar). In yesterday's blog I wrote: "The dollar surged to 100.50 mid-day and then fell sharply and appears to be closing just under 100 at the time of this writing. This is very bearish behavior, and it could be signaling a correction now. If so, we could see gold and silver prices rally." Well, the dollar did correct very dramatically today as the U.S. Dollar Index plummeted to 97.8 (as with the euro, this was an enormous currency move for one day). Gold and silver prices did rally, but oddly not as much as one would expect given the strength of the dollar's plunge. This could be a warning that gold and silver will move lower into next week, but next week is also a reversal zone for the precious metals so prices may be close to a cycle bottom now. I'm not going to unload my long positions in gold and silver just yet as it seems a bottom and rally could be just around the corner. Still holding long positions in both gold and silver.
Today European Central Bank president Mario Draghi disappointed financial markets with a modest stimulus package for Europe that did not live up to the high hopes of investors anticipating a more aggressive one. Yes, there was an interest rate cut and an extension of QE, but not to the lofty levels the markets had been expecting.
Wall Street did not take the news well, especially as it came on the heels of Janet Yellen's speech yesterday which had suggested that the Fed's first rate hike will be announced this month. The DOW dropped 252 points. Could the trend be turning down now? Possibly, but we are technically not in a reversal zone (a time period strongly correlated with significant changes in market direction) so today's plunge may be just another knee-jerk reaction from a jittery market. Despite today's plunge, the S&P 500 and NASDAQ's directional momentum remains nearly 100% bullish (the DOW is still mixed bullish and bearish). If these markets do fall lower, they will encounter another reversal zone next week (strongest next Thursday, but in effect all week) so they may not get very far before turning up again. If equities do fall into the end of next week, we will look to buy. But the markets may bounce back shortly, and if they do, we could be back on track for new highs into next week which we would look to sell short for a final plunge to the current cycle bottom. Staying on the sidelines of the broad stock market for now.
Easy money policies (such as QE and low interest rates) devalue a nation's currency so it is not surprising that Draghi's stingy stimulus package gave a surprise boost to the euro today. This currency had been falling steeply since mid-October, but today the euro shot up and nearly negated half of those losses in one day. This was, of course, bad news for the U.S. Dollar Index (as the euro is the biggest component of the "basket" of currencies measured against the dollar). In yesterday's blog I wrote: "The dollar surged to 100.50 mid-day and then fell sharply and appears to be closing just under 100 at the time of this writing. This is very bearish behavior, and it could be signaling a correction now. If so, we could see gold and silver prices rally." Well, the dollar did correct very dramatically today as the U.S. Dollar Index plummeted to 97.8 (as with the euro, this was an enormous currency move for one day). Gold and silver prices did rally, but oddly not as much as one would expect given the strength of the dollar's plunge. This could be a warning that gold and silver will move lower into next week, but next week is also a reversal zone for the precious metals so prices may be close to a cycle bottom now. I'm not going to unload my long positions in gold and silver just yet as it seems a bottom and rally could be just around the corner. Still holding long positions in both gold and silver.
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