At yesterday's conclusion of this month's FOMC meeting, Fed officials unanimously agreed to hold back on raising interest rates a second time after last month's pause in rate hiking. This move was widely expected and it most likely propelled a broad stock market rally into Wednesday. But Wall Street's enthusiasm also spilled over into today's trading as well with the DOW gaining over 500 points at the closing bell. Sometimes a rally into an anticipated decision or event can reverse and fall immediately after the event is over - the so-called "buy the rumor, sell the news" phenomenon. But today's rally - a day after the rate pause was announced - seems to be contradicting that scenario. This seems especially odd since Fed Chairman Jerome Powell in his post meeting press conference yesterday said that refraining from a rate increase this month does not rule out future rate hikes, even the possibility of one more this year. He also mentioned that he was not satisfied with the current progress on curbing inflation and that current monetary policy may not be restrictive enough. Despite these hawkish comments, equities managed to stage a very healthy rally today.
We note that this rally is rising into the center of a very strong general reversal zone (Oct. 31 - Nov. 9). We also observe that the current medium-term cycles in all three of our market indices (DOW, S&P 500, NASDAQ) are almost certainly in a bearish trend - assuming our labeling is correct and their cycles began with their August lows. Since those lows, all three indices have made two consecutively lower sub-cycle lows. Normally this would project more corrective falling to the final cycle bottoms. Could a sudden "irrational exuberance" on Wall Street reverse the trend and turn it bullish? It's possible, but I'm not convinced this is happening - at least not yet.
Yes, I am concerned about our current short position in this market. We entered that position on Oct. 12. The DOW has now risen back to that entry point, but the S&P 500 and NASDAQ haven't yet risen all the way back to their Oct. 12 levels. I am going to hold my short position for now and wait to see if this rally gains any momentum. To start looking bullish, the DOW would have to start closing above 34,148 (its high from Oct. 17) and the S&P 500 above its Oct. 17 high of 4,394. Until that happens, this market is highly vulnerable to another sharp turn down.
It's a bit too late for gold and silver to start a strong rally from any recent isolated lows. It looks more likely that we are getting a corrective downturn instead. In Monday's blog I wrote:
"There is a reversal zone specifically for the precious metals coming up Thursday (Nov. 2 - 14) as well as the strong general reversal zone mentioned above (Oct. 31 - Nov. 9). They overlap Nov. 2 - 9, so that would be an ideal time for a top in any gold and silver rally. We will watch for it. Alternatively, if prices start falling from here, we will be looking for a low (and possibly a buy spot) in that same time frame."
Well, right now it looks like we might be getting a low (and a possible buy spot) as we enter these two reversal zones. Let's stay on the sidelines and see if prices can go lower.
Crude oil prices seem to be finding support just above $80 (Dec. contract chart) today as they make a precise "double-bottom" to the Oct. 6 low of $80.20. That Oct. 6 low could be the start of a new medium-term cycle, but crude could also be in an older cycle that began with the $77.03 low on Aug. 24. In either case, the cycle's trend is in danger of turning bearish if it starts breaking below $80. We are nearing the end of a reversal zone specifically for crude (it ends on Friday), and also entering the center of a strong general reversal zone (discussed above from Oct. 21 - Nov. 9). A significant bottom could be forming here, but I'm going to hold off buying for now as there's still time for prices to go lower, and I'm concerned about them breaking below $80, especially since the ongoing Israel/Palestine war creates a volatile trading environment where prices can make sudden and unpredictable moves and break normal technical boundaries. We remain on the sidelines of crude for now.