ASSESSING DAMAGE FROM THE "BERNANKE FACTOR"
Apparently oil traders (as well as DOW traders) are more worried about yesterday's speech by Ben Bernanke than they are about the war in Syria, and unfortunately this is not good for the long position we established in crude oil yesterday. Because crude did not initially react as severely as the DOW to Bernanke's comments, I assumed it was discounting them, but overnight selling as well as this morning's falling oil prices show that this market is experiencing fallout from the "Bernanke Factor". At the time of this writing (1:25 pm EST) crude is at $95.70 and the price seems to have paused in its plunge (at least temporarily) at the $95 level. There is some support in this area ($95-$95.50), and the strong bullish momentum signals in the crude oil charts have not been violated so this $95 level may hold. I am going to use change in momentum as a major stop loss parameter here and also keep a close watch for any clear break below $95. A bounce from this support would at the very least allow us to bail out with a smaller loss (the price is currently down about 2.8% from our entry point). I am currently long in this market, but any traders who didn't go long yesterday or early today should stay out of crude oil for now.
On a more positive note, our cautious "stand aside" approach to the other financial markets (i.e. gold, silver, and the broad stock market) is helping us avoid the chaotic volatility resulting now from Mr. Bernanke's optimistic comments about the economy. It is ironic that the Fed's positive report on economic conditions should cause a severe downturn in markets that reflect the very economy the Fed is praising, but who ever said financial markets operate on logic and common sense? Markets are frequently driven by emotions (fear and greed), and fear seems to be the predominant one right now. Several highly respected traders that I follow are not happy with the way markets are reacting to the Fed chairman's speech, and many stop losses were triggered in their trade recommendations today. Fortunately we are on the sidelines of these markets (except for crude oil) and can assess the Bernanke fallout with some detachment.
The broad stock market is down heavily today with a drop of about 350 points (about 2.3%) and prices are breaking several support levels. Directional momentum, however, is still mixed (bullish and bearish) so I am not ready to push the panic button and sell short just yet. The fear generated by Bernanke's speech may start to ease as investors come to their senses (maybe) and realize that the Fed is not going to raise interest rates for at least several more months (and only if employment figures improve). We will remain on the sidelines for now but are prepared to sell this market short if momentum turns fully bearish.
Gold and silver took big hits today and broke below their mid April "crash" lows with gold closing just above $1280 and silver around $16.65. The persistently bearish momentum in the charts of both these metals over the last several months was hinting that prices could turn lower, and it looks like the Bernanke factor was the kick needed to make that happen. We had considered the possibility of those April lows being the final bottoms of a major long-term cycle in both gold and silver, but now we know that the final bottoms will be lower. As I've mentioned in recent blogs, that final low will be a major opportunity to go long in precious metals as it will likely mark the beginning of a long-term rally that should take gold and silver to new all-time highs. Because of today's plunge I need to revise some of my short-term strategy for trading these metals, and I will be posting this in upcoming blogs. Fortunately we are on the sidelines of this market now and will stay there until the Bernanke fallout settles down a bit and I can get a better bearing on short-term market direction.
Apparently oil traders (as well as DOW traders) are more worried about yesterday's speech by Ben Bernanke than they are about the war in Syria, and unfortunately this is not good for the long position we established in crude oil yesterday. Because crude did not initially react as severely as the DOW to Bernanke's comments, I assumed it was discounting them, but overnight selling as well as this morning's falling oil prices show that this market is experiencing fallout from the "Bernanke Factor". At the time of this writing (1:25 pm EST) crude is at $95.70 and the price seems to have paused in its plunge (at least temporarily) at the $95 level. There is some support in this area ($95-$95.50), and the strong bullish momentum signals in the crude oil charts have not been violated so this $95 level may hold. I am going to use change in momentum as a major stop loss parameter here and also keep a close watch for any clear break below $95. A bounce from this support would at the very least allow us to bail out with a smaller loss (the price is currently down about 2.8% from our entry point). I am currently long in this market, but any traders who didn't go long yesterday or early today should stay out of crude oil for now.
On a more positive note, our cautious "stand aside" approach to the other financial markets (i.e. gold, silver, and the broad stock market) is helping us avoid the chaotic volatility resulting now from Mr. Bernanke's optimistic comments about the economy. It is ironic that the Fed's positive report on economic conditions should cause a severe downturn in markets that reflect the very economy the Fed is praising, but who ever said financial markets operate on logic and common sense? Markets are frequently driven by emotions (fear and greed), and fear seems to be the predominant one right now. Several highly respected traders that I follow are not happy with the way markets are reacting to the Fed chairman's speech, and many stop losses were triggered in their trade recommendations today. Fortunately we are on the sidelines of these markets (except for crude oil) and can assess the Bernanke fallout with some detachment.
The broad stock market is down heavily today with a drop of about 350 points (about 2.3%) and prices are breaking several support levels. Directional momentum, however, is still mixed (bullish and bearish) so I am not ready to push the panic button and sell short just yet. The fear generated by Bernanke's speech may start to ease as investors come to their senses (maybe) and realize that the Fed is not going to raise interest rates for at least several more months (and only if employment figures improve). We will remain on the sidelines for now but are prepared to sell this market short if momentum turns fully bearish.
Gold and silver took big hits today and broke below their mid April "crash" lows with gold closing just above $1280 and silver around $16.65. The persistently bearish momentum in the charts of both these metals over the last several months was hinting that prices could turn lower, and it looks like the Bernanke factor was the kick needed to make that happen. We had considered the possibility of those April lows being the final bottoms of a major long-term cycle in both gold and silver, but now we know that the final bottoms will be lower. As I've mentioned in recent blogs, that final low will be a major opportunity to go long in precious metals as it will likely mark the beginning of a long-term rally that should take gold and silver to new all-time highs. Because of today's plunge I need to revise some of my short-term strategy for trading these metals, and I will be posting this in upcoming blogs. Fortunately we are on the sidelines of this market now and will stay there until the Bernanke fallout settles down a bit and I can get a better bearing on short-term market direction.
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