Today the Federal Open Market Committee (FOMC) and Fed Chairwoman Janet Yellen were dovish in their policy rhetoric and their decision to delay yet again the raising of short-term interest rates. Although the FOMC meeting statement released at 2:00 PM in the afternoon acknowledged that there had been some improvement in the economy since July, it also indicated that there was room for more improvement. Concern about recent global economic instability was also stated as a reason for keeping interest rates low. Although most analysts now expect the first rate hike to be announced in October or December, the Fed's statement seems to leave that date open and dependent on "economic conditions":
"The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."
Wall Street investors were happy with the Fed's dovish statement and the DOW surged over 100 points by 3:00, but then markets fell abruptly and the DOW closed with a 65 point loss. This seems to be a classic case of "buying the rumor and selling the news". In other words, the market was expecting the no hike decision and had already factored it in with this week's rally. The actual announcement was then a trigger for some profit taking. The question now is will the profit taking continue and drive the broad stock market to new lows over the next six weeks (or more)? We will find out tomorrow if this market wants to rally some more, but even if it does, it has all of next week's strong reversal zone to find a top and turn back down. Our stop loss points for our short positions remain around 17,000 in the DOW and 2040 in the S&P 500. Holding my short position in the broad stock market.
It looks like the U.S. Dollar Index responded in traditional fashion to a dovish Fed and dropped significantly today. This, in turn, triggered a surge in gold and silver prices. We were stopped out of our silver short position, but both gold and silver are still looking very bearish. This rally may be short-lived, and another significant top in the precious metals may form between now and the end of next week. If it does, we will look to sell both metals short. On the sidelines of both gold and silver for now.