MARKETS UPDATE (6:30 pm EST)
The Federal Reserve's Federal Open Market Committee (FOMC) concluded its monthly meeting yesterday (Wednesday) and released its policy statement, this time without an accompanying press conference by Fed Chairwoman Janet Yellen. The statement had no surprises and basically reiterated the Fed's policy of "staying the course" with the now familiar strategy of continued asset purchase reductions (QE tapering - another 10 billion) and maintaining near-zero short-term interest rates. What seems to be making equity markets uncomfortable now is uncertainty about when interest rates will start to rise and confusion about what economic variables will trigger a rate rise by the Fed. If the Fed continues its QE tapering of 10 billion/month, bond purchasing should end in October. The Fed's statement says that,
"... it likely will be appropriate to maintain the current target range [i.e. near zero] for the federal funds rate for a considerable time [boldface mine] after the asset purchase program ends..."
It also states that,
"... The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time [boldface mine] warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run..."
I guess keeping interest rates low for "a considerable time" and "for some time" is not specific enough to keep investors from getting the jitters. (Understandable since low interest rates are probably the main thing propping up the stock market now). The DOW dropped 32 points yesterday but today plunged a whopping 317 points.
In my last blog I stated, "...if it [the DOW] continues to fall this week it may be headed towards the current cycle bottom, but that bottom may not get below the 16,400 area..." It looks like this is happening. Instead of a high in the first week of August (which I would have preferred), we are now headed for a low into that reversal zone. There is strong support for the DOW in the 16,200 - 16,400 range so we may see a cycle bottom there shortly which could be a good place to buy. Directional momentum in the DOW and S&P 500 has switched from 100% bullish to mixed bullish and bearish today, but, curiously, the NASDAQ, even though it took a bigger percentage loss, is maintaining its 100% bullish momentum. This might be telling us that this correction is not going to be serious. If the DOW starts breaking below 16,400, however, it could mean a more serious correction is underway. For now, though, we will look for support near that level and a good spot to go long in the broad stock market, ideally next week. Still on the sidelines.
Unlike the broad stock market, gold and silver seem to be following my "preferred" scenario of moving towards a significant low in the first week of August. Gold dropped to $1282 today and silver to $20.39. Short-term indicators still look bearish in both metals so we are on track for new lows. There is support for gold in the $1270 - $1280 area. Silver has support just above $20, but there is another strong support level at $19.50. These may be good price levels to buy next week. On the sidelines and waiting to buy.
Not surprisingly, crude oil prices, which often follow the broad stock market, took a dive today and dropped to $97.72. Because prices did not edge higher we did not get an opportunity to sell short. As with the broad stock market, it appears that crude prices will be making a low instead of a high into the first week of August.
Based on the cycle structure in crude charts it looks like this market is turning bearish. This will be especially true if prices break clearly below $96. Because we are in the middle of a timing zone for a likely reversal in crude, we may see a bottom to buy by the end of next week for a short-term rally. However, if this market is turning bearish as I suspect, my longer term strategy will be bearish and I would be looking to cover long positions and sell short at the top of that rally. Still out of this market.
The Federal Reserve's Federal Open Market Committee (FOMC) concluded its monthly meeting yesterday (Wednesday) and released its policy statement, this time without an accompanying press conference by Fed Chairwoman Janet Yellen. The statement had no surprises and basically reiterated the Fed's policy of "staying the course" with the now familiar strategy of continued asset purchase reductions (QE tapering - another 10 billion) and maintaining near-zero short-term interest rates. What seems to be making equity markets uncomfortable now is uncertainty about when interest rates will start to rise and confusion about what economic variables will trigger a rate rise by the Fed. If the Fed continues its QE tapering of 10 billion/month, bond purchasing should end in October. The Fed's statement says that,
"... it likely will be appropriate to maintain the current target range [i.e. near zero] for the federal funds rate for a considerable time [boldface mine] after the asset purchase program ends..."
It also states that,
"... The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time [boldface mine] warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run..."
I guess keeping interest rates low for "a considerable time" and "for some time" is not specific enough to keep investors from getting the jitters. (Understandable since low interest rates are probably the main thing propping up the stock market now). The DOW dropped 32 points yesterday but today plunged a whopping 317 points.
In my last blog I stated, "...if it [the DOW] continues to fall this week it may be headed towards the current cycle bottom, but that bottom may not get below the 16,400 area..." It looks like this is happening. Instead of a high in the first week of August (which I would have preferred), we are now headed for a low into that reversal zone. There is strong support for the DOW in the 16,200 - 16,400 range so we may see a cycle bottom there shortly which could be a good place to buy. Directional momentum in the DOW and S&P 500 has switched from 100% bullish to mixed bullish and bearish today, but, curiously, the NASDAQ, even though it took a bigger percentage loss, is maintaining its 100% bullish momentum. This might be telling us that this correction is not going to be serious. If the DOW starts breaking below 16,400, however, it could mean a more serious correction is underway. For now, though, we will look for support near that level and a good spot to go long in the broad stock market, ideally next week. Still on the sidelines.
Unlike the broad stock market, gold and silver seem to be following my "preferred" scenario of moving towards a significant low in the first week of August. Gold dropped to $1282 today and silver to $20.39. Short-term indicators still look bearish in both metals so we are on track for new lows. There is support for gold in the $1270 - $1280 area. Silver has support just above $20, but there is another strong support level at $19.50. These may be good price levels to buy next week. On the sidelines and waiting to buy.
Not surprisingly, crude oil prices, which often follow the broad stock market, took a dive today and dropped to $97.72. Because prices did not edge higher we did not get an opportunity to sell short. As with the broad stock market, it appears that crude prices will be making a low instead of a high into the first week of August.
Based on the cycle structure in crude charts it looks like this market is turning bearish. This will be especially true if prices break clearly below $96. Because we are in the middle of a timing zone for a likely reversal in crude, we may see a bottom to buy by the end of next week for a short-term rally. However, if this market is turning bearish as I suspect, my longer term strategy will be bearish and I would be looking to cover long positions and sell short at the top of that rally. Still out of this market.
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