MARKETS UPDATE (10:30 pm EST)
As expected, the Federal Reserve dropped the term "patient" to describe their attitude about when to raise benchmark interest rates in their statement released after the FOMC meeting ended yesterday. So does this mean we will see a rate hike in June? Maybe. But in a press conference after the meeting Janet Yellen said that, "just because we removed the word 'patient' doesn't mean we're going to be impatient." The Federal Reserve and its chairwoman Janet Yellen are keenly aware of the effect their statements have on financial markets. They choose their words carefully to avoid triggering any panic selling in the markets. It is not surprising, then, that
Ms. Yellen (with a reputation for being dovish) would try and soften the removal of "patient" from the Fed's rhetoric so as not to appear too hawkish. Fed officials also gave a dovish signal by sharply reducing the expected path of the interest hike over the next two years (the so called "dot plot" data). These dovish gestures are causing some analysts to speculate the that the Fed's first rate hike will be in September (or even later).
The broad stock market reacted to the Fed in typical jittery fashion. It was falling before the meeting, but investors were apparently happy with the Fed's lowered expectation for the interest rate path, and the DOW started rising steeply after 2:00 pm and closed the day with a 227 point gain. Much of that gain, however, was lost today as the DOW closed 117 points down. So it looks like this market is still indecisive as to what direction it wants to take. We are now moving out of our recent timing window for important reversals. (We may have gotten two: one on March 2 and another on March 11. The next several weeks should tell us which one was more important.) Our focus now should be on the first week of April, which is also a timing window for a significant market turnaround. With money now flowing into retirement accounts due to the end of the tax year (April 15th), it seems like equity markets could rally into early April, so our main strategy now will be to look to sell short then. Ideally we will see a case of intermarket bearish divergence where one or two (but not all three) of the three major market indices (DOW, S&P 500 and NASDAQ) make a new yearly high. That could be a very strong bearish signal to sell. Still on the sidelines.
My suggestion to buy gold yesterday an hour or so before the release of the Fed's statement turned out to be good timing. Gold rallied strongly late in the afternoon as the U.S. Dollar Index dropped (as I had predicted in Tuesday's blog). Gold now looks set to rise into early April, and the strength of this rally could start to tell us if the precious metals market is going to turn bullish. To reverse the currently bearish trend, gold prices will have to break above the $1306 high of late January over the next several months. That may not happen. At the moment it seems more likely that gold (and silver) will maintain a bearish trend into early summer. This means we will probably be looking to sell our long position on any rally into early April and possibly even looking to sell short then. Despite this longer term bearish outlook, if Tuesday's low in gold was the start of a new cycle then we could get a significant rally over the next two or three weeks. Maintaining a long position in gold but out of silver for now.
We are still watching crude oil prices for a possible short-term rally into the first week of April. If that happens, prices may not get beyond $48 - $49. That would probably be a good spot to sell short as it looks like this current crude cycle could be pointed down for the next two or three months. Out of this market for now.
As expected, the Federal Reserve dropped the term "patient" to describe their attitude about when to raise benchmark interest rates in their statement released after the FOMC meeting ended yesterday. So does this mean we will see a rate hike in June? Maybe. But in a press conference after the meeting Janet Yellen said that, "just because we removed the word 'patient' doesn't mean we're going to be impatient." The Federal Reserve and its chairwoman Janet Yellen are keenly aware of the effect their statements have on financial markets. They choose their words carefully to avoid triggering any panic selling in the markets. It is not surprising, then, that
Ms. Yellen (with a reputation for being dovish) would try and soften the removal of "patient" from the Fed's rhetoric so as not to appear too hawkish. Fed officials also gave a dovish signal by sharply reducing the expected path of the interest hike over the next two years (the so called "dot plot" data). These dovish gestures are causing some analysts to speculate the that the Fed's first rate hike will be in September (or even later).
The broad stock market reacted to the Fed in typical jittery fashion. It was falling before the meeting, but investors were apparently happy with the Fed's lowered expectation for the interest rate path, and the DOW started rising steeply after 2:00 pm and closed the day with a 227 point gain. Much of that gain, however, was lost today as the DOW closed 117 points down. So it looks like this market is still indecisive as to what direction it wants to take. We are now moving out of our recent timing window for important reversals. (We may have gotten two: one on March 2 and another on March 11. The next several weeks should tell us which one was more important.) Our focus now should be on the first week of April, which is also a timing window for a significant market turnaround. With money now flowing into retirement accounts due to the end of the tax year (April 15th), it seems like equity markets could rally into early April, so our main strategy now will be to look to sell short then. Ideally we will see a case of intermarket bearish divergence where one or two (but not all three) of the three major market indices (DOW, S&P 500 and NASDAQ) make a new yearly high. That could be a very strong bearish signal to sell. Still on the sidelines.
My suggestion to buy gold yesterday an hour or so before the release of the Fed's statement turned out to be good timing. Gold rallied strongly late in the afternoon as the U.S. Dollar Index dropped (as I had predicted in Tuesday's blog). Gold now looks set to rise into early April, and the strength of this rally could start to tell us if the precious metals market is going to turn bullish. To reverse the currently bearish trend, gold prices will have to break above the $1306 high of late January over the next several months. That may not happen. At the moment it seems more likely that gold (and silver) will maintain a bearish trend into early summer. This means we will probably be looking to sell our long position on any rally into early April and possibly even looking to sell short then. Despite this longer term bearish outlook, if Tuesday's low in gold was the start of a new cycle then we could get a significant rally over the next two or three weeks. Maintaining a long position in gold but out of silver for now.
We are still watching crude oil prices for a possible short-term rally into the first week of April. If that happens, prices may not get beyond $48 - $49. That would probably be a good spot to sell short as it looks like this current crude cycle could be pointed down for the next two or three months. Out of this market for now.
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