The Federal Reserve is meeting today and will release their policy statement tomorrow (Wednesday) afternoon at 2:00 pm EDT. This could have an effect on all markets. The Fed is expected to keep interest rates unchanged, but investors will be looking for clues as to when the next rate hike will come and whether or not the Fed will stick to their plan of only two hikes this year. There is no press conference scheduled for Wednesday so analysts will only have the Fed's statement to scrutinize. The Fed is in a very difficult position right now. If they are too hawkish in their tone they risk tanking an overbought and nervous stock market, but if they are too accommodating and dovish in their policy statements, they will further weaken the U.S. dollar which is already testing a critical support area (93 - 94 in the U.S. Dollar Index).
It looks like last week's high of $1,270 in gold was probably a subcycle peak as it was in the dead center of a reversal zone for gold and prices fell back steeply from it. It is therefore likely that a correction has started that could take gold as low as $1,140 (although prices may not fall that far). COT (Commitment of Traders) charts still show Commercial traders (smart money) to be strongly bearish on the precious metals, and this is supporting the idea of a correction now. Gold is rallying a bit this week so I am going to use this as an opportunity to enter a short position in this metal today. We can place a close stop loss for this trade on a close above a resistance line at $1,260. As I mentioned in Sunday's blog, I am going to avoid trading silver for now because of its high volatility and the possibility that both gold and silver could break to the upside if they are starting new cycles (which is still unconfirmed).
As with the precious metals, COT charts for the broad stock market also now show Commercial traders to be very bearish. This supports our current short position in this market. Equity markets have been calm so far this week as investors are probably waiting for tomorrow's Fed statement. If Wall Street interprets the statement as dovish, it is possible we could see some more rallying into the first week of May. If this happens, we will follow the stop loss parameters I outlined in Sunday's blog : "...a tight stop loss based on both the DOW and S&P 500 breaking above their highs from last week (18,168 in the DOW and 2,111 in the S&P 500). It is OK if only one makes a new weekly high as that would be another case of bearish divergence, but if the S&P 500 exceeds 2,116 we may still want to cover our positions even if the DOW stays under 18,168."
Holding my short position in the broad stock market.