MARKETS UPDATE (5:15 pm EDT)
The broad stock market got a boost today from some positive U.S. economic data but also from a statement by European Central Bank President Mario Draghi who said that the door is open to more quantitative easing to combat sluggish growth in European economies. Investors had been worried about the failing economies of Europe so this promise of more QE from the ECB triggered a wave of buying on Wall Street. Of course, printing more money to prop up debt-ridden collapsing economies is not really a good long-term solution to things, but hey, U.S. equity markets rallied to our own home spun QE program for over five years so why not rally to Europe's?
In my last blog I stated that "...a majority of economists are now expecting the Fed to begin raising U.S.interest rates this year...", but after perusing the internet today I am finding that investors (in contrast to economists) may be leaning more in the direction of the Fed postponing a rate hike yet again. If this is true, we may see buying ahead of next week's Fed meeting and perhaps a selloff ("sell on the news") if they do postpone the hike. If instead the Fed does decide to raise rates, markets could panic and a selloff would also likely follow. My point here is that despite today's strong rally, there are good reasons to think the broad stock market will turn down soon, and next week's FOMC meeting (scheduled on Tuesday and Wednesday) is still within our reversal zone for a directional change in the broad stock market. Other bearish signs right now include the formation of a giant "head and shoulders" pattern in the chart of the S&P 500 and the approach of the S&P 500 to very strong resistance in the 2050 - 2060 area. (Note that for the "head and shoulder" pattern to abort, the S&P 500 would have to break through the "neckline" around 2075.)
Based on all of the above, I am going to hold my short position in the broad stock market into next week and attempt to "ride out" any more rallying towards the Fed meeting. We entered a short position on 8/13 and on 8/27. Using the S&P 500 index as our reference, we still have a profit on our 8/13 trade but we have a small loss on our 8/27 trade. Any traders that are uncomfortable with this market's current volatility could cover any short positions now at an almost "break even" level and wait for the Fed's decision next Wednesday; however, the market could turn down anytime before the Fed meeting, and even if it doesn't, one could miss out if the market drops quickly late next Wednesday and/or Thursday. I am going to maintain my short position in the broad stock market for now.
Perhaps equity investors are not concerned about the short-term fix of QE to cure Europe's economic woes, but currency investors probably are. The U.S. Dollar Index soared today as currency traders fled the euro for the perceived sanctuary of the U.S. dollar (after all, our fiscally responsible Fed is getting ready to raise interest rates, right?). The dollar blasted up from 95 to 96.3 and closed the day at the top of that range. Despite this strong move, no bullish momentum signal was triggered, and directional momentum in the U.S. Dollar Index remains mixed bullish and bearish. We will have to wait and see if this is the start of a breakout or just a temporary glitch in a volatile market.
Considering today's dollar surge, gold and silver prices were remarkably stable (silver even rose a bit). It could be that some investors fleeing the euro also sought out the precious metals as a sanctuary. Silver and gold have been edging down this week, and short-term technical signals are suggesting more downside, perhaps into next week.
I would like to see gold prices closer to $1150 before considering a long position. Silver still has the potential to drop quickly towards $15. If this happens, it could be an ideal spot to buy. Still on the sidelines of gold and silver.
Crude oil prices are entering the upper range of our target area to buy ($40 - $45), but short-term technical signals are suggesting prices could go lower. A short-term buy signal tomorrow or anytime next week within our target price range would likely be a good spot to go long. Out of this market for now.
The broad stock market got a boost today from some positive U.S. economic data but also from a statement by European Central Bank President Mario Draghi who said that the door is open to more quantitative easing to combat sluggish growth in European economies. Investors had been worried about the failing economies of Europe so this promise of more QE from the ECB triggered a wave of buying on Wall Street. Of course, printing more money to prop up debt-ridden collapsing economies is not really a good long-term solution to things, but hey, U.S. equity markets rallied to our own home spun QE program for over five years so why not rally to Europe's?
In my last blog I stated that "...a majority of economists are now expecting the Fed to begin raising U.S.interest rates this year...", but after perusing the internet today I am finding that investors (in contrast to economists) may be leaning more in the direction of the Fed postponing a rate hike yet again. If this is true, we may see buying ahead of next week's Fed meeting and perhaps a selloff ("sell on the news") if they do postpone the hike. If instead the Fed does decide to raise rates, markets could panic and a selloff would also likely follow. My point here is that despite today's strong rally, there are good reasons to think the broad stock market will turn down soon, and next week's FOMC meeting (scheduled on Tuesday and Wednesday) is still within our reversal zone for a directional change in the broad stock market. Other bearish signs right now include the formation of a giant "head and shoulders" pattern in the chart of the S&P 500 and the approach of the S&P 500 to very strong resistance in the 2050 - 2060 area. (Note that for the "head and shoulder" pattern to abort, the S&P 500 would have to break through the "neckline" around 2075.)
Based on all of the above, I am going to hold my short position in the broad stock market into next week and attempt to "ride out" any more rallying towards the Fed meeting. We entered a short position on 8/13 and on 8/27. Using the S&P 500 index as our reference, we still have a profit on our 8/13 trade but we have a small loss on our 8/27 trade. Any traders that are uncomfortable with this market's current volatility could cover any short positions now at an almost "break even" level and wait for the Fed's decision next Wednesday; however, the market could turn down anytime before the Fed meeting, and even if it doesn't, one could miss out if the market drops quickly late next Wednesday and/or Thursday. I am going to maintain my short position in the broad stock market for now.
Perhaps equity investors are not concerned about the short-term fix of QE to cure Europe's economic woes, but currency investors probably are. The U.S. Dollar Index soared today as currency traders fled the euro for the perceived sanctuary of the U.S. dollar (after all, our fiscally responsible Fed is getting ready to raise interest rates, right?). The dollar blasted up from 95 to 96.3 and closed the day at the top of that range. Despite this strong move, no bullish momentum signal was triggered, and directional momentum in the U.S. Dollar Index remains mixed bullish and bearish. We will have to wait and see if this is the start of a breakout or just a temporary glitch in a volatile market.
Considering today's dollar surge, gold and silver prices were remarkably stable (silver even rose a bit). It could be that some investors fleeing the euro also sought out the precious metals as a sanctuary. Silver and gold have been edging down this week, and short-term technical signals are suggesting more downside, perhaps into next week.
I would like to see gold prices closer to $1150 before considering a long position. Silver still has the potential to drop quickly towards $15. If this happens, it could be an ideal spot to buy. Still on the sidelines of gold and silver.
Crude oil prices are entering the upper range of our target area to buy ($40 - $45), but short-term technical signals are suggesting prices could go lower. A short-term buy signal tomorrow or anytime next week within our target price range would likely be a good spot to go long. Out of this market for now.
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