MARKETS UPDATE (3:30 pm EST)
After the end of yesterday's FOMC meeting at 2pm, the Fed released a statement that was rather dovish in tone. Most Wall Street analysts had been expecting an interest rate hike in March, but the Fed refrained from saying this directly and simply stated that rates would rise "soon". Even the Fed's so-called "dot-plot" chart showed its policy rate only rising to 2.1% by the end of 2024 (although some former Fed officials have said that rates would have to rise closer to 4% to curb inflation). Equities responded to this news with a sharp surge at 2:00 pm, but later comments by Fed Chairman Jerome Powell were more hawkish. He suggested that there WOULD be a rate hike in March and warned that Fed policy won't always be accommodative. Powell's hawkish statements were enough to turn the market back down, and by the end of the day all three indices had lost all of their early gains. Interest rates remained unchanged (near zero) which was expected, but the Fed remained steadfast in its commitment to move away from its easy policy stance (and that means the imminent raising of interest rates and a continued tapering of its bond buying program).
Today equity markets started off with a rally, but at the time of this writing they are headed back down. We are entering another major reversal zone for the broad stock market (and other markets) tomorrow - Jan. 28 - Feb. 16. (This is a wide reversal zone with potential pivot points on Feb. 3 and Feb. 7.) It seems like this market could be headed to a major bottom in this reversal zone (i.e. over the next 3 weeks). There are no strong signs of a bottom yet, so we will continue to hold our short position in the NASDAQ.
In yesterday's blog on gold and silver I wrote:
"A normal sub-cycle correction is due in both gold and silver ether this week or next. Today, gold made a new weekly high but silver did not which creates bearish divergence between the two metals. A significant correction in gold could start now (silver has already moved down from last Thursday's high). These cycles are young (only 6 weeks old) and potentially quite bullish longer-term.. We will watch for buy spots in both metals this week and next as long as prices don't fall too low. Good corrective targets to buy could be around $1800 in gold and $23 in silver."
The correction is underway. Today gold broke below $1800 and silver below $23. This strong price drop was triggered by today's strong surge up by the U.S. dollar (the result of yesterday's hawkish rhetoric from the Fed). We are now entering another reversal zone specifically for the precious metals (Jan. 27 - Feb. 4). We should be watching for a bottom to buy over the next several trading days, as long as gold can stay above $1759 and silver above $21.44. An ideal set-up would be for gold or silver (but not both) to make a new weekly low early next week for a case of intermarket bullish divergence inside our new reversal zone. We will stay on the sidelines for now.
Crude oil made yet another new weekly high today at $88.54 (March contract chart). I'm still not sure if Monday's low at $81.90 qualifies as a significant sub-cycle dip. If it was, prices could be quite bullish now, but if not, a deeper corrective low is due (possibly this week). Either way, we are now entering a major reversal zone for all markets (as mentioned above for equities) as well as a reversal zone specifically for crude coming up next week (Feb. 1 - 8). That suggests that another top and another correction is imminent. Hopefully, it will be deeper than Monday's dip and give us a potential spot to buy. We will stay on the sidelines of crude for now.
After the end of yesterday's FOMC meeting at 2pm, the Fed released a statement that was rather dovish in tone. Most Wall Street analysts had been expecting an interest rate hike in March, but the Fed refrained from saying this directly and simply stated that rates would rise "soon". Even the Fed's so-called "dot-plot" chart showed its policy rate only rising to 2.1% by the end of 2024 (although some former Fed officials have said that rates would have to rise closer to 4% to curb inflation). Equities responded to this news with a sharp surge at 2:00 pm, but later comments by Fed Chairman Jerome Powell were more hawkish. He suggested that there WOULD be a rate hike in March and warned that Fed policy won't always be accommodative. Powell's hawkish statements were enough to turn the market back down, and by the end of the day all three indices had lost all of their early gains. Interest rates remained unchanged (near zero) which was expected, but the Fed remained steadfast in its commitment to move away from its easy policy stance (and that means the imminent raising of interest rates and a continued tapering of its bond buying program).
Today equity markets started off with a rally, but at the time of this writing they are headed back down. We are entering another major reversal zone for the broad stock market (and other markets) tomorrow - Jan. 28 - Feb. 16. (This is a wide reversal zone with potential pivot points on Feb. 3 and Feb. 7.) It seems like this market could be headed to a major bottom in this reversal zone (i.e. over the next 3 weeks). There are no strong signs of a bottom yet, so we will continue to hold our short position in the NASDAQ.
In yesterday's blog on gold and silver I wrote:
"A normal sub-cycle correction is due in both gold and silver ether this week or next. Today, gold made a new weekly high but silver did not which creates bearish divergence between the two metals. A significant correction in gold could start now (silver has already moved down from last Thursday's high). These cycles are young (only 6 weeks old) and potentially quite bullish longer-term.. We will watch for buy spots in both metals this week and next as long as prices don't fall too low. Good corrective targets to buy could be around $1800 in gold and $23 in silver."
The correction is underway. Today gold broke below $1800 and silver below $23. This strong price drop was triggered by today's strong surge up by the U.S. dollar (the result of yesterday's hawkish rhetoric from the Fed). We are now entering another reversal zone specifically for the precious metals (Jan. 27 - Feb. 4). We should be watching for a bottom to buy over the next several trading days, as long as gold can stay above $1759 and silver above $21.44. An ideal set-up would be for gold or silver (but not both) to make a new weekly low early next week for a case of intermarket bullish divergence inside our new reversal zone. We will stay on the sidelines for now.
Crude oil made yet another new weekly high today at $88.54 (March contract chart). I'm still not sure if Monday's low at $81.90 qualifies as a significant sub-cycle dip. If it was, prices could be quite bullish now, but if not, a deeper corrective low is due (possibly this week). Either way, we are now entering a major reversal zone for all markets (as mentioned above for equities) as well as a reversal zone specifically for crude coming up next week (Feb. 1 - 8). That suggests that another top and another correction is imminent. Hopefully, it will be deeper than Monday's dip and give us a potential spot to buy. We will stay on the sidelines of crude for now.
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