IMPORTANT UPDATES ON ALL MARKETS (10:00 pm EDST)
Wow! This is turning into one heck of a week for financial markets. I have been deliberately silent and on the sidelines over the last few days just taking in the chaos and observing the various moving parts to make some sense of what's going on and to try and decide how we should respond as traders and investors.
Needless to say, coronavirus epidemic fear is the primary trigger for this market collapse. It seems to be the "Black Swan" or the pin that has broken the equity bubble. But last week's crude oil "price war" between Russia and Saudi Arabia has also contributed to the broad stock market's tanking (as well as crude's dramatic plunge - see further below).More panic was generated yesterday when the WHO (World Health Organization) gave the coronavirus epidemic official "pandemic" status which pushed stock markets even lower (after a brief and weak bounce on Tuesday). Today the DOW lost a whopping 2,352 points.
The severity of this global equity market crash is prompting draconian measures from central banks. The U.S. Fed recently (March 3rd) declared an emergency interest rate cut, and yesterday the Bank of England did the same. Analysts were expecting the European Central Bank to cut rates today, but it did not. The ECB did, however, expand its asset purchase program. Some economists are predicting that the U.S. Fed will soon bring interest rates down to zero in an emergency response to the current market panic. In the meantime, the Fed is aggressively injecting 1.5 trillion into short-term funding markets (asset purchases that some are referring to as a "new QE" - quantitative easing) to further calm and stabilize financial markets. Only time will tell if any of these measures will have any significant impact on our current equity (and commodity) sell-off.
The broad stock market has now broken through several support levels which means it has turned bearish and is most likely now headed towards a long-term cycle bottom (which we may not see for some time). Shorter-term, we could see some sort of bottom even now as this is the last day of our current reversal zone. If equities continue lower next week, we may have to wait for our next reversal zone (March 24 - April 1) to see a (temporary) bottom. Calling a target for a short-term bottom is tricky at the moment, but we could see support around 20,000 in the DOW and 2,300 in the S&P 500.
There is now talk from the Trump administration about a forthcoming stimulus package to rescue the financial markets. If this happens, we could see a strong bounce in equities (possibly from those support levels mentioned above), but right now it looks like such a bounce would be short-term and fall short of making new all-time highs before turning back down for a final deeper bottom. We may use such a bounce as an opportunity to sell short, so stay tuned for updates. We will remain on the sidelines for now as we watch for a stable low and possible rebound in equities.
As far as the precious metals markets go, it looks like they are behaving the same way they did in the 2008 - 2009 crash. That is, they are falling with the broad stock market. Traditionally, gold and silver are often recommended as hedges against a fall in equities, and they are usually seen as stable "safe haven" investments. However, during a severe stock market crash, investors will sometimes panic and start liquidating EVERYTHING - including commodities. This is like "throwing the baby out with the bath water" because gold and silver have an intrinsic tangible value and, like they did after the 2009 crash, will snap back and rapidly recover their value once investors and traders recover from the shock of a crash and realize this.
Not surprisingly, the U.S. Dollar Index has been rising steeply this week as panicking investors choose the good old "greenback" as their safe haven investment over the precious metals (at least for now). If you've been reading my blogs, you know I've been anticipating a correction in gold and silver for almost a month now. It looks like we are finally getting one -a big one, but maybe TOO big. If the precious metals are going to follow the broad stock market, they could be turning bearish as well. The cycle patterns of gold and silver are not clear at the moment, but they both may be forming significant bottoms now in this last day of a reversal zone for these metals. In other words, we could see a bounce from here. Because of the current volatile nature of all markets, however, I am not comfortable going long in either metal at the moment. If prices move lower next week, we could easily see them continue lower into the end of the month. In that case, we may have a better opportunity to buy in that time frame. Let's remain on the sidelines of gold and silver for now.
As mentioned at the start of this blog, a crude oil "price war" between Russia and Saudi Arabia has plunged crude way below our price level for a normal correction to the final medium-term cycle bottom we were looking to buy (around $40 - $41, April contract chart). On Monday, crude prices dropped to $27.34, but they are now stabilizing just above $30, which is still very low. As with the other markets, we may see a bounce here, but prices could also break lower. If a new medium-term cycle began on Feb. 4 (that is still a possibility), it means this market is turning VERY bearish and prices will be heading lower for many more weeks. Let's remain on the sidelines of crude oil for now.
Wow! This is turning into one heck of a week for financial markets. I have been deliberately silent and on the sidelines over the last few days just taking in the chaos and observing the various moving parts to make some sense of what's going on and to try and decide how we should respond as traders and investors.
Needless to say, coronavirus epidemic fear is the primary trigger for this market collapse. It seems to be the "Black Swan" or the pin that has broken the equity bubble. But last week's crude oil "price war" between Russia and Saudi Arabia has also contributed to the broad stock market's tanking (as well as crude's dramatic plunge - see further below).More panic was generated yesterday when the WHO (World Health Organization) gave the coronavirus epidemic official "pandemic" status which pushed stock markets even lower (after a brief and weak bounce on Tuesday). Today the DOW lost a whopping 2,352 points.
The severity of this global equity market crash is prompting draconian measures from central banks. The U.S. Fed recently (March 3rd) declared an emergency interest rate cut, and yesterday the Bank of England did the same. Analysts were expecting the European Central Bank to cut rates today, but it did not. The ECB did, however, expand its asset purchase program. Some economists are predicting that the U.S. Fed will soon bring interest rates down to zero in an emergency response to the current market panic. In the meantime, the Fed is aggressively injecting 1.5 trillion into short-term funding markets (asset purchases that some are referring to as a "new QE" - quantitative easing) to further calm and stabilize financial markets. Only time will tell if any of these measures will have any significant impact on our current equity (and commodity) sell-off.
The broad stock market has now broken through several support levels which means it has turned bearish and is most likely now headed towards a long-term cycle bottom (which we may not see for some time). Shorter-term, we could see some sort of bottom even now as this is the last day of our current reversal zone. If equities continue lower next week, we may have to wait for our next reversal zone (March 24 - April 1) to see a (temporary) bottom. Calling a target for a short-term bottom is tricky at the moment, but we could see support around 20,000 in the DOW and 2,300 in the S&P 500.
There is now talk from the Trump administration about a forthcoming stimulus package to rescue the financial markets. If this happens, we could see a strong bounce in equities (possibly from those support levels mentioned above), but right now it looks like such a bounce would be short-term and fall short of making new all-time highs before turning back down for a final deeper bottom. We may use such a bounce as an opportunity to sell short, so stay tuned for updates. We will remain on the sidelines for now as we watch for a stable low and possible rebound in equities.
As far as the precious metals markets go, it looks like they are behaving the same way they did in the 2008 - 2009 crash. That is, they are falling with the broad stock market. Traditionally, gold and silver are often recommended as hedges against a fall in equities, and they are usually seen as stable "safe haven" investments. However, during a severe stock market crash, investors will sometimes panic and start liquidating EVERYTHING - including commodities. This is like "throwing the baby out with the bath water" because gold and silver have an intrinsic tangible value and, like they did after the 2009 crash, will snap back and rapidly recover their value once investors and traders recover from the shock of a crash and realize this.
Not surprisingly, the U.S. Dollar Index has been rising steeply this week as panicking investors choose the good old "greenback" as their safe haven investment over the precious metals (at least for now). If you've been reading my blogs, you know I've been anticipating a correction in gold and silver for almost a month now. It looks like we are finally getting one -a big one, but maybe TOO big. If the precious metals are going to follow the broad stock market, they could be turning bearish as well. The cycle patterns of gold and silver are not clear at the moment, but they both may be forming significant bottoms now in this last day of a reversal zone for these metals. In other words, we could see a bounce from here. Because of the current volatile nature of all markets, however, I am not comfortable going long in either metal at the moment. If prices move lower next week, we could easily see them continue lower into the end of the month. In that case, we may have a better opportunity to buy in that time frame. Let's remain on the sidelines of gold and silver for now.
As mentioned at the start of this blog, a crude oil "price war" between Russia and Saudi Arabia has plunged crude way below our price level for a normal correction to the final medium-term cycle bottom we were looking to buy (around $40 - $41, April contract chart). On Monday, crude prices dropped to $27.34, but they are now stabilizing just above $30, which is still very low. As with the other markets, we may see a bounce here, but prices could also break lower. If a new medium-term cycle began on Feb. 4 (that is still a possibility), it means this market is turning VERY bearish and prices will be heading lower for many more weeks. Let's remain on the sidelines of crude oil for now.
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