MARKETS UPDATE (3:15 pm EST)
Well, it looks like the big chess game in Washington is over (for now), the stalemate has broken and the Democrats (and President Obama) are the winners. The House and Senate were able to pass a bill to fund and reopen the government (through Jan. 15, 2014), raise the debt ceiling (through Feb. 7, 2014), and to "cleanly" fund Obamacare (at least until Jan. 15). For the Democrats it was clearly "winner take all" as the bill makes no substantial changes to the president's healthcare law, and the debt limit was raised without any of the budget cutting the Republicans wanted to see. Even though this round of chess playing is over, both Republicans and Democrats are now engaged in a new game that has always been immensely popular on Capitol Hill. It's called "kick the can". As is obvious from the dates mentioned above, none of the conflicts in this recent crisis have been resolved but have instead been postponed until early next year. When that time comes, party tensions will likely flare again.
The emotionally driven (and shortsighted) broad stock market loved yesterday's news, and the DOW rallied over 200 points by the end of the day. It may soon become apparent, however, even to the most dimwitted investor that none of the fiscal problems debated so hotly in Congress over the last few weeks have been fixed and that raising the debt ceiling without cutting the budget is probably not such a great thing for the overall health of the economy. That said, the DOW is frequently prone to bursts of irrational exuberance (that may sometimes be assisted by market manipulators) so we can't rule out a strong rally from here. Momentum in the S&P 500 and NASDAQ has switched back to 100% bullish over the last two days, but the DOW remains 100% bearish. The S&P 500 and NASDAQ are also both making new highs while the DOW is not. If this persists we may have a situation known as intermarket divergence which in this case is bearish. On the other hand, if the DOW's momentum follows the lead of its two brothers and turns bullish, we could see it rally strongly and break to new highs as well. I am going to wait for these technical indicators to resolve their ambiguity before deciding what direction to trade in this market. Still on the sidelines here.
Gold and silver rallied strongly today as precious metal investors likely realize the negative economic implications of raising the debt ceiling without budget cuts. Today gold broke and closed over $1300 and silver briefly broke over $22 (but closed below at $21.80). While this is bullish, we have to be careful here because over the last three weeks there has been evidence of the price of gold being manipulated down whenever it attempts to clear that $1300 level. As I've mentioned in recent blogs, the purpose of suppressing gold prices right now could be to discourage panic selling in the broad stock market. Directional momentum remains unchanged in the precious metals (gold is still very bearish while silver is mixed bullish and bearish) so I am not ready to go long yet, but I will probably be buying soon. On the sidelines for now.
Crude oil rallied on yesterday's news of "fiscal resolution" in Washington but dropped steeply today, and prices are closing below $101. Crude is testing support here (which could extend down to $100) and momentum is still mixed (bullish and bearish). Any clear break below support would likely indicate a more severe correction taking place. As with the other markets right now, I am going to stay on the sidelines until I see stronger directional momentum.
Well, it looks like the big chess game in Washington is over (for now), the stalemate has broken and the Democrats (and President Obama) are the winners. The House and Senate were able to pass a bill to fund and reopen the government (through Jan. 15, 2014), raise the debt ceiling (through Feb. 7, 2014), and to "cleanly" fund Obamacare (at least until Jan. 15). For the Democrats it was clearly "winner take all" as the bill makes no substantial changes to the president's healthcare law, and the debt limit was raised without any of the budget cutting the Republicans wanted to see. Even though this round of chess playing is over, both Republicans and Democrats are now engaged in a new game that has always been immensely popular on Capitol Hill. It's called "kick the can". As is obvious from the dates mentioned above, none of the conflicts in this recent crisis have been resolved but have instead been postponed until early next year. When that time comes, party tensions will likely flare again.
The emotionally driven (and shortsighted) broad stock market loved yesterday's news, and the DOW rallied over 200 points by the end of the day. It may soon become apparent, however, even to the most dimwitted investor that none of the fiscal problems debated so hotly in Congress over the last few weeks have been fixed and that raising the debt ceiling without cutting the budget is probably not such a great thing for the overall health of the economy. That said, the DOW is frequently prone to bursts of irrational exuberance (that may sometimes be assisted by market manipulators) so we can't rule out a strong rally from here. Momentum in the S&P 500 and NASDAQ has switched back to 100% bullish over the last two days, but the DOW remains 100% bearish. The S&P 500 and NASDAQ are also both making new highs while the DOW is not. If this persists we may have a situation known as intermarket divergence which in this case is bearish. On the other hand, if the DOW's momentum follows the lead of its two brothers and turns bullish, we could see it rally strongly and break to new highs as well. I am going to wait for these technical indicators to resolve their ambiguity before deciding what direction to trade in this market. Still on the sidelines here.
Gold and silver rallied strongly today as precious metal investors likely realize the negative economic implications of raising the debt ceiling without budget cuts. Today gold broke and closed over $1300 and silver briefly broke over $22 (but closed below at $21.80). While this is bullish, we have to be careful here because over the last three weeks there has been evidence of the price of gold being manipulated down whenever it attempts to clear that $1300 level. As I've mentioned in recent blogs, the purpose of suppressing gold prices right now could be to discourage panic selling in the broad stock market. Directional momentum remains unchanged in the precious metals (gold is still very bearish while silver is mixed bullish and bearish) so I am not ready to go long yet, but I will probably be buying soon. On the sidelines for now.
Crude oil rallied on yesterday's news of "fiscal resolution" in Washington but dropped steeply today, and prices are closing below $101. Crude is testing support here (which could extend down to $100) and momentum is still mixed (bullish and bearish). Any clear break below support would likely indicate a more severe correction taking place. As with the other markets right now, I am going to stay on the sidelines until I see stronger directional momentum.
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