MARKETS UPDATE (4:15 pm EST)
Our decision to sell short the broad stock market on Monday seems to have been a good one as equities are falling this week. We need to keep in mind, however, that the middle of next week could be another turning point for the market. If equities continue to fall into that time we could see a bottom and a reversal back up. The first target for this current correction would be around 16,300 -16,400 in the DOW and 1,930 -1,940 in the S&P 500. I will consider covering my short position if these indices stall at those levels next week. Am I confident that this correction will be minor and that the markets will start rallying strongly again? No! If fear and panic set in we could see equities take a serious plunge now. The key levels to watch are the Jan. 20 and Feb. 11 lows (15,450 in the DOW and 1,810 in the S&P 500). A break below those levels could lead to a major market meltdown into the summer. For now, however, we will watch for a modest correction that could bottom over the next two weeks and a resumption of the rally. If the DOW can exceed 17,977 and the S&P 500 can break 2,116 then this market will likely be bullish into the summer.
Holding my short position in the broad stock market for now.
We took a good profit in our crude oil long position on Monday. Crude prices are edging a bit higher now, but the second half of next week is another reversal zone for crude. If prices continue to rally, we may get a good setup to sell short. Alternatively, if prices fall into next week and stay above $28.74 (April contract), we could have a good spot to go long again. Any move below $28.74 would mean the current cycle is turning bearish, and prices would likely be headed lower for at least two more months. Out of crude oil for now.
Gold and silver prices continue to be highly volatile and are a difficult call right now. Cycle analysis shows that we are near the end of the current medium-term cycle in both metals so a top and correction are due (or overdue). Directional momentum, however, has recently turned strongly bullish in both gold and silver, and prices seem to want to push higher. Over the last two days prices were falling, but today precious metal prices are up strongly. Early next week could be a turning point for gold and silver. If prices continue to rise, we will try and short these metals again. Currently on the sidelines off both gold and silver.
The gold and silver price surge today was the result of an unusually strong plunge in the U.S. Dollar Index. The dollar's plunge in turn was caused by today's "whipsaw" movement of the euro. Today the European Central Bank announced dramatic new easing measures to strengthen Europe's economy (more rate cuts and QE). This was followed by a press conference in which ECB president Mario Draghi stated that this would be the last rate cut by the ECB. The euro predictably plunged briefly on news of the new QE and rate cuts, but then shot back up when Mr. Draghi said there would be no need to cut rates further. The U.S. Dollar Index (being heavily weighted in euros) did the opposite of the euro - it surged briefly then plunged dramatically. Today's plunge erased most of the strong gains that the dollar had made over the last month, and it turned directional momentum in the dollar nearly 100% bearish (it had been mixed bullish and bearish). Interestingly, this is happening a week before the Federal Reserve meets here in the U.S. Many analysts have been speculating that the Fed may (at least temporarily) refrain from raising interest rates to avoid crashing the stock markets. But will they now take a more aggressive approach to rate hiking to save the dollar? We will have to wait and see.
Our decision to sell short the broad stock market on Monday seems to have been a good one as equities are falling this week. We need to keep in mind, however, that the middle of next week could be another turning point for the market. If equities continue to fall into that time we could see a bottom and a reversal back up. The first target for this current correction would be around 16,300 -16,400 in the DOW and 1,930 -1,940 in the S&P 500. I will consider covering my short position if these indices stall at those levels next week. Am I confident that this correction will be minor and that the markets will start rallying strongly again? No! If fear and panic set in we could see equities take a serious plunge now. The key levels to watch are the Jan. 20 and Feb. 11 lows (15,450 in the DOW and 1,810 in the S&P 500). A break below those levels could lead to a major market meltdown into the summer. For now, however, we will watch for a modest correction that could bottom over the next two weeks and a resumption of the rally. If the DOW can exceed 17,977 and the S&P 500 can break 2,116 then this market will likely be bullish into the summer.
Holding my short position in the broad stock market for now.
We took a good profit in our crude oil long position on Monday. Crude prices are edging a bit higher now, but the second half of next week is another reversal zone for crude. If prices continue to rally, we may get a good setup to sell short. Alternatively, if prices fall into next week and stay above $28.74 (April contract), we could have a good spot to go long again. Any move below $28.74 would mean the current cycle is turning bearish, and prices would likely be headed lower for at least two more months. Out of crude oil for now.
Gold and silver prices continue to be highly volatile and are a difficult call right now. Cycle analysis shows that we are near the end of the current medium-term cycle in both metals so a top and correction are due (or overdue). Directional momentum, however, has recently turned strongly bullish in both gold and silver, and prices seem to want to push higher. Over the last two days prices were falling, but today precious metal prices are up strongly. Early next week could be a turning point for gold and silver. If prices continue to rise, we will try and short these metals again. Currently on the sidelines off both gold and silver.
The gold and silver price surge today was the result of an unusually strong plunge in the U.S. Dollar Index. The dollar's plunge in turn was caused by today's "whipsaw" movement of the euro. Today the European Central Bank announced dramatic new easing measures to strengthen Europe's economy (more rate cuts and QE). This was followed by a press conference in which ECB president Mario Draghi stated that this would be the last rate cut by the ECB. The euro predictably plunged briefly on news of the new QE and rate cuts, but then shot back up when Mr. Draghi said there would be no need to cut rates further. The U.S. Dollar Index (being heavily weighted in euros) did the opposite of the euro - it surged briefly then plunged dramatically. Today's plunge erased most of the strong gains that the dollar had made over the last month, and it turned directional momentum in the dollar nearly 100% bearish (it had been mixed bullish and bearish). Interestingly, this is happening a week before the Federal Reserve meets here in the U.S. Many analysts have been speculating that the Fed may (at least temporarily) refrain from raising interest rates to avoid crashing the stock markets. But will they now take a more aggressive approach to rate hiking to save the dollar? We will have to wait and see.
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