MARKETS UPDATE (5:15 pm EST)
Despite hopeful speculation by nervous investors that the Fed might extend its bond buying program (QE) or at least further delay the raising of short-term interest rates, the minutes of yesterday's FOMC meeting showed neither one of these dovish accommodations to placate jittery markets. The Fed did just what it had been saying it was going to do for many months - it announced the end of its 5 year program of bond purchasing that has supported the stock market since the crash of 2008 - 2009. The FOMC statement also reiterated its pledge to keep benchmark short-term interest rates near zero for a "considerable time" after bond buying ends. Fed policymakers have previously suggested that the first rate hike will be around the middle of next year.
The broad stock market had a strong two week rally leading into the day of the Fed meeting which indicated strong investor optimism (hopes for QE4?). The market seemed a little nervous on Wednesday and dropped a bit after the FOMC statement was released, but then it recovered and is rallying strongly today. Significantly, strong bullish momentum signals are now appearing in the charts of the DOW, S&P 500 and NASDAQ and all three indices are now mixed bullish and bearish (they had previously been 100% bearish). Apparently the market has already factored in the idea of a QE exit and seems happy with the Fed's positive statements about the economy and continued pledge to keep interest rates low for a "considerable time". Fortunately, I sensed this potential bullish turn earlier in the week and we were able to exit our short position on Tuesday with just a small loss. Should we now go long in this market? No, I don't think so, at least not yet. All financial markets are still quite volatile. This one could still turn down tomorrow; however, if the broad stock market rallies higher into next week then we are looking at another distorted cycle and will have to reevaluate our trading strategy. On the sidelines for now.
The FOMC statement's slightly "hawkish" tone (no more QE and no additional delaying of the suggested mid-2015 interest rate hike) triggered a surge in the U.S. Dollar Index as it suggests the Fed is becoming fiscally responsible (is this possible?) and makes U.S. currency more appealing. Of course, this had the opposite effect on the precious metals (which are seen as hedges against inflation and fiscal irresponsibility). Gold and silver prices plunged yesterday and today. A week and a half ago I wrote that, "...Technical and cycle data are suggesting a reversal soon in the precious metals that could take prices down to new lows (and possibly the long-term cycle bottoms in both gold and silver)...." It looks like this could be happening now. Silver is now making a new multiyear low while gold is approaching its recent multiyear low at $1183. These prices could go lower so I am going to continue to hold my short position in gold and will consider shorting silver if we get a brief relief rally off of today's steep fall. The next major turning point for this market could be the second or third week of November, so unless prices start to turn up now, they could continue lower into that time frame (and possibly longer). Holding my short position in gold.
Crude oil seems to be forming a baseline in the $80 - $84 range but also seems reluctant to rally. The cycle structure of this market still points to the start of a new cycle (low) anytime now (it is overdue) and the Oct.16th low at $79.78 may have been it. If prices start to move below $81.5 we will watch for a bottom from Nov.5 - Nov.14. that could be a double bottom to the Oct.16th low or a new low. We are already in the red with our long position in crude so we don't want to see this low break below $79 (our final stop loss). If the broad stock market is indeed turning bullish now we could see crude oil rise with it as these two markets often move in tandem. Holding my long position in crude oil for now.
Despite hopeful speculation by nervous investors that the Fed might extend its bond buying program (QE) or at least further delay the raising of short-term interest rates, the minutes of yesterday's FOMC meeting showed neither one of these dovish accommodations to placate jittery markets. The Fed did just what it had been saying it was going to do for many months - it announced the end of its 5 year program of bond purchasing that has supported the stock market since the crash of 2008 - 2009. The FOMC statement also reiterated its pledge to keep benchmark short-term interest rates near zero for a "considerable time" after bond buying ends. Fed policymakers have previously suggested that the first rate hike will be around the middle of next year.
The broad stock market had a strong two week rally leading into the day of the Fed meeting which indicated strong investor optimism (hopes for QE4?). The market seemed a little nervous on Wednesday and dropped a bit after the FOMC statement was released, but then it recovered and is rallying strongly today. Significantly, strong bullish momentum signals are now appearing in the charts of the DOW, S&P 500 and NASDAQ and all three indices are now mixed bullish and bearish (they had previously been 100% bearish). Apparently the market has already factored in the idea of a QE exit and seems happy with the Fed's positive statements about the economy and continued pledge to keep interest rates low for a "considerable time". Fortunately, I sensed this potential bullish turn earlier in the week and we were able to exit our short position on Tuesday with just a small loss. Should we now go long in this market? No, I don't think so, at least not yet. All financial markets are still quite volatile. This one could still turn down tomorrow; however, if the broad stock market rallies higher into next week then we are looking at another distorted cycle and will have to reevaluate our trading strategy. On the sidelines for now.
The FOMC statement's slightly "hawkish" tone (no more QE and no additional delaying of the suggested mid-2015 interest rate hike) triggered a surge in the U.S. Dollar Index as it suggests the Fed is becoming fiscally responsible (is this possible?) and makes U.S. currency more appealing. Of course, this had the opposite effect on the precious metals (which are seen as hedges against inflation and fiscal irresponsibility). Gold and silver prices plunged yesterday and today. A week and a half ago I wrote that, "...Technical and cycle data are suggesting a reversal soon in the precious metals that could take prices down to new lows (and possibly the long-term cycle bottoms in both gold and silver)...." It looks like this could be happening now. Silver is now making a new multiyear low while gold is approaching its recent multiyear low at $1183. These prices could go lower so I am going to continue to hold my short position in gold and will consider shorting silver if we get a brief relief rally off of today's steep fall. The next major turning point for this market could be the second or third week of November, so unless prices start to turn up now, they could continue lower into that time frame (and possibly longer). Holding my short position in gold.
Crude oil seems to be forming a baseline in the $80 - $84 range but also seems reluctant to rally. The cycle structure of this market still points to the start of a new cycle (low) anytime now (it is overdue) and the Oct.16th low at $79.78 may have been it. If prices start to move below $81.5 we will watch for a bottom from Nov.5 - Nov.14. that could be a double bottom to the Oct.16th low or a new low. We are already in the red with our long position in crude so we don't want to see this low break below $79 (our final stop loss). If the broad stock market is indeed turning bullish now we could see crude oil rise with it as these two markets often move in tandem. Holding my long position in crude oil for now.
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