Yesterday the FOMC officially released the minutes to its April meeting which indicated that the Fed is unlikely to raise interest rates in June. This came as no surprise to most financial analysts who are now anticipating a September rate hike, and especially to those growing number of analysts who believe that the Fed will postpone the first hike into 2016. Foreign investors in the U.S. Dollar are starting to realize that the Fed could delay a rate hike for some time, and this could be the big reason for the dollar's recent breakdown. The DOW rose a bit in the afternoon on the "good news" but then closed the day flat indicating that the broad stock market has likely already factored in a delayed hike. The DOW's new high on Tuesday could be a turning point for a significant correction now as we are in a strong reversal zone. This is supported by the fact that the NASDAQ still has not made a new monthly high (intermarket bearish divergence). There is still time, however, for the DOW to push higher before correcting to the bottom of its current cycle (due any time by the end of June), and the NASDAQ is very close to a new high. If the NASDAQ can break above 5120, we may have to wait until the end of May or early June to sell short on new highs. Directional momentum is still strongly bullish in the DOW, S&P 500 and NASDAQ which supports this view of more rallying. Because the market direction is still unclear, I am remaining on the sidelines until a stronger sell signal appears, which should be soon.
In addition to being a time zone for likely market reversals, the four week period from May 18 - June 12 may also be a time of high market volatility (due to a phenomenon in financial astrology known as "Mercury retrograde" which has been statistically correlated with frequent price swings in all markets). We should therefore be on guard for sudden and unexpected price moves over the next several weeks. One is already happening in the precious metals this week. Gold made a new high on Monday ($1232) which was barely within our target range of $1230 - $1250 (or higher) and was a little early in our timing zone for a reversal; nevertheless, a sharp reversal is now unfolding. Silver prices are also reversing and falling sharply. A cycle pattern is manifesting here which usually takes the form of a steep but brief drop quickly followed by a steep rally to a new high and then a final substantial drop. The end of this week through early next week is the strongest part of the current reversal zone for gold and silver. If these metals move lower over the next three trading days and gold stays above $1190 and silver above $16, I will consider going long for what could be a strong short-term rally into the first week of June. Stay tuned. On the sidelines of gold and silver for now.
The recent short-term bounce in the U.S. Dollar Index (that I had anticipated in last Thursday's blog) may be close to ending as it approaches resistance at the 96 level. If this index starts to turn down again over the next few days (it certainly is not getting much support from a dovish Fed), it will likely coincide with reversals in gold and silver. We will therefore watch carefully that 96 line of resistance over the next few days.
ISIL's seizure of Ramadi in Iraq last week and the U.S. State Department's acknowledgement of the seriousness of this latest victory by the Islamic militant group is likely stabilizing crude oil prices this week. Prices should now be falling to at least the $52 - $55 area according to the current cycle pattern in crude. Conflicts in the Middle East are always a "wildcard' factor when trading crude oil, but I am going to maintain my short position here unless prices break clearly above $62. Note that this is a short-term trade and I will be looking to take profits should the price fall to $55 or lower over the next week or two.