MARKETS UPDATE (10:45 pm EDT)
Talks between Greek Prime Minister Alexis Tsipras and the head of the European Union's executive arm on Wednesday (which ran into the early hours of Thursday) seemed initially positive as an optimistic Tsipras told reporters "not to worry" about Friday's deadline for Greece's first installment of its debt repayment. It became clear, however, during the talks that Greece was standing its ground as Tsipras continued to reject many of the proposals of the European Central Bank and IMF. Greece's governing Syriza party secretary told Greek television audiences today that: "A proposal that describes measures of extreme austerity ... shows no respect for the mandate of the Greek people." Thus the specter and fear of a Greek default remains. The pressure of this Friday's payment deadline has been eased, however, as Greece invoked a little-used option to defer that payment (and three others due on June 12, 16 and 19) until the end of the month, thus buying more time for negotiations that Tsipras and Syriza party officials hope will be more accommodating to their own anti-austerity proposals.
How did the broad stock market react to this lack of progress in negotiations and continued fear of a Greek default which could possibly last another three weeks or more? Not very well. The DOW lost 170 points, abruptly cutting short what looked like the start of a rally yesterday. It closed the day at 17,905. This is moving us back again towards our ideal target range for a bottom to go long between 17,600 and 17,800. A note of caution here: today's plunge in the DOW triggered a strong bearish momentum signal, and directional momentum is now mixed bullish and bearish for this index. (It remains mostly bullish, however, in the S&P 500 and NASDAQ - for now.) We will look to buy if the DOW moves down and holds above 17,600. A clear break and close below there, however, could mean that the broad stock market is taking a more severe correction and could go considerably lower. This would negate our bullish strategy. Still on the sidelines of the broad stock market.
[ I would like to point out here that because we have been involved mostly in short-term trade analysis of a volatile stock market for the last several months I haven't said much about my longer term view of equity markets. I plan to discuss this soon on the site, but for now I would just like to say that we are entering a time period from now through 2017 when there is a high likelihood (some analysts would say certainty) of a crash in stock markets similar to, if not worse, than the 2008 -2009 plunge in equities. That is a wide time frame, and the market could soar to new highs before crashing, but it doesn't have to. The bottom line is that unless you have a timing strategy for moving in and out of equity markets (as we do on this site), it could be very dangerous to have a lot of money just sitting in the broad stock market waiting to go up. The "buy and hold" strategy that served investors so well in the 1980's and 1990's is simply not appropriate for the current market. That said, there will likely be a few smaller but significant corrections before the "big one", and, as I already mentioned, equity markets could make significant new highs (even a blow-off top) before collapsing. Cycle structures, technical analysis and various timing signals should alert us if and when a major crash is starting to unfold and allow us to step aside, or even sell short, any severe correction in the market.]
Increasing fears of a Greek debt default also sent precious metal prices down today. My reluctance to go long in gold and silver this week (despite the potential for a strong rally) is proving to be a wise decision as it looks like both metals are turning down. Prices may find a bottom next week, but if gold continues to fall and closes below $1170, this market could turn bearish and continue lower for 4-10 more weeks according to the current cycle structure. On the sidelines of gold and silver for now.
Crude oil prices also plunged today and took the wind out of a rally that started last Thursday from a bottom at $56.51. That rally had me worried that crude's price correction was falling short of our target in the $52 - $55 range, but we could still see prices go there by next week unless the results of OPEC's meeting tomorrow kicks the price up again. (Most analysts expect OPEC to keep crude production capped at 30 million barrels per day which could have a bearish effect on prices). Holding my short position in crude oil for now.
Talks between Greek Prime Minister Alexis Tsipras and the head of the European Union's executive arm on Wednesday (which ran into the early hours of Thursday) seemed initially positive as an optimistic Tsipras told reporters "not to worry" about Friday's deadline for Greece's first installment of its debt repayment. It became clear, however, during the talks that Greece was standing its ground as Tsipras continued to reject many of the proposals of the European Central Bank and IMF. Greece's governing Syriza party secretary told Greek television audiences today that: "A proposal that describes measures of extreme austerity ... shows no respect for the mandate of the Greek people." Thus the specter and fear of a Greek default remains. The pressure of this Friday's payment deadline has been eased, however, as Greece invoked a little-used option to defer that payment (and three others due on June 12, 16 and 19) until the end of the month, thus buying more time for negotiations that Tsipras and Syriza party officials hope will be more accommodating to their own anti-austerity proposals.
How did the broad stock market react to this lack of progress in negotiations and continued fear of a Greek default which could possibly last another three weeks or more? Not very well. The DOW lost 170 points, abruptly cutting short what looked like the start of a rally yesterday. It closed the day at 17,905. This is moving us back again towards our ideal target range for a bottom to go long between 17,600 and 17,800. A note of caution here: today's plunge in the DOW triggered a strong bearish momentum signal, and directional momentum is now mixed bullish and bearish for this index. (It remains mostly bullish, however, in the S&P 500 and NASDAQ - for now.) We will look to buy if the DOW moves down and holds above 17,600. A clear break and close below there, however, could mean that the broad stock market is taking a more severe correction and could go considerably lower. This would negate our bullish strategy. Still on the sidelines of the broad stock market.
[ I would like to point out here that because we have been involved mostly in short-term trade analysis of a volatile stock market for the last several months I haven't said much about my longer term view of equity markets. I plan to discuss this soon on the site, but for now I would just like to say that we are entering a time period from now through 2017 when there is a high likelihood (some analysts would say certainty) of a crash in stock markets similar to, if not worse, than the 2008 -2009 plunge in equities. That is a wide time frame, and the market could soar to new highs before crashing, but it doesn't have to. The bottom line is that unless you have a timing strategy for moving in and out of equity markets (as we do on this site), it could be very dangerous to have a lot of money just sitting in the broad stock market waiting to go up. The "buy and hold" strategy that served investors so well in the 1980's and 1990's is simply not appropriate for the current market. That said, there will likely be a few smaller but significant corrections before the "big one", and, as I already mentioned, equity markets could make significant new highs (even a blow-off top) before collapsing. Cycle structures, technical analysis and various timing signals should alert us if and when a major crash is starting to unfold and allow us to step aside, or even sell short, any severe correction in the market.]
Increasing fears of a Greek debt default also sent precious metal prices down today. My reluctance to go long in gold and silver this week (despite the potential for a strong rally) is proving to be a wise decision as it looks like both metals are turning down. Prices may find a bottom next week, but if gold continues to fall and closes below $1170, this market could turn bearish and continue lower for 4-10 more weeks according to the current cycle structure. On the sidelines of gold and silver for now.
Crude oil prices also plunged today and took the wind out of a rally that started last Thursday from a bottom at $56.51. That rally had me worried that crude's price correction was falling short of our target in the $52 - $55 range, but we could still see prices go there by next week unless the results of OPEC's meeting tomorrow kicks the price up again. (Most analysts expect OPEC to keep crude production capped at 30 million barrels per day which could have a bearish effect on prices). Holding my short position in crude oil for now.
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