Yesterday the Fed did what some analysts had predicted - it raised interest rates 75 basis points. This was the highest single rate raise given by the Fed since 1994, and it exceeded last month's 50 point hike (which the Fed had hinted would be the same for this month). At first equity markets panicked. The DOW plunged nearly 400 points after the announcement of the hike at 2:00 pm, but an hour later (after some explanatory rhetoric from Fed Chairman Jerome Powell in a press conference) it recovered all of that loss and closed the day in positive territory along with the S&P 500 and NASDAQ.
But it seems that Powell's calming effect was short-lived as today equities took another deep dive. We note that we are now within two overlapping reversal zones (June 14-22 and June 16-27), so a significant bottom could form anytime over the next seven trading days and be followed by a significant rally back up. If investors start to panic, however, it's possible this reversal zone could correlate with a market breakdown instead of a turnaround rally (this happens infrequently). Right now I'm favoring a reversal and at least a short-term rally back up, but anything can happen in our current volatile financial and geopolitical environment. We will remain on the sidelines of the broad stock market for now.
Fear of an equity collapse may be driving some investors into the precious metals as both gold and silver prices rallied yesterday and today. Some of us were already stopped out of our short position in gold on Monday, but silver is still trading below our stop loss price of $22.48. I am going to hold this short position in silver for now with the idea that this rally may be a brief "knee-jerk" reaction to the rate hike and that silver is still moving down to its final medium-term cycle bottom. Traders still holding short positions in gold should also remain short with a stop loss based on Monday's high at $1877.
The Fed's large rate hike did not push up the U.S. Dollar Index (which usually responds favorably to hawkish news), Instead, the greenback is taking a corrective dip which we can interpret as a top forming in our reversal zones. This dip may be short-lived, however, as several other technical indicators in this chart are quite bullish. The dollar remained above 105 for three consecutive days this week which suggests a bullish breakout. After a corrective drop, I think this index could revisit those highs and exceed them. We should also keep in mind that during the 2008-2009 "crash" in equities, investors abandoned gold and silver and instead fled into the perceived safety of the U.S. dollar. If equity markets start to tank, this could happen again.
Crude oil prices also seem to be falling into our general reversal zones, and we also have another reversal zone specifically for crude coming up next week (June 20-28). Let's wait to see if crude can make a new low then. If it does, we may have a good spot to buy as crude's overall trend right now is very bullish. We are on the sidelines of crude for now.