MARKETS UPDATE (3:30 pm EST)
It looks like we sold our gold long positions prematurely early Monday as prices are now rising sharply. In Sunday's blog I wrote: "While it is possible to get a short-term bounce here, the medium-term picture is starting to look bearish, and the bounce would probably not get very far before turning down again." Well, we are getting a bounce that is stronger than I expected. Does this mean gold is turning bullish? Maybe, but not necessarily. Directional momentum signals are still mostly bearish in gold charts (silver charts are mixed bullish and bearish) and early next week may see a turning point that could turn down any rally. The key now is to see if gold can exceed its April 6 high of $1224. If it does, that will indicate that the precious metals are turning bullish. The Federal Reserve and Janet Yellen are expected to update the public on their interest rate policy after their monthly meeting concludes tomorrow afternoon. As we know, these statements can have a big impact on all markets (at least for a few days) so this could either accelerate gold's rally or quash it. If gold prices cannot exceed that $1224 level soon, they could turn down again and move to a new weekly low. Even though we ditched our gold too soon, we did not take a loss and should have made a 1% - 2% profit on the trade. (Traders selling late on Monday made even more). We are now on the sidelines of both gold and silver.
This week there has been some speculation by financial analysts that the Fed will decide to further delay an interest rate hike (beyond the expected June "deadline") due to the country's latest lackluster economic data. If the Fed's statement tomorrow affirms this, it could give a boost to the broad stock market. On the other hand, the Fed sticking to the idea of a mid-year hike could push the stock indices down. Either reaction could be short-lived. Ideally, I would like to see the DOW drop a bit more into the end of the week (towards the 17,600 - 17,700 area) for an ideal spot to buy as directional momentum is now nearly 100% in all three stock market indices (DOW, S&P 500 and NASDAQ). We still need to see the DOW break its all-time high of 18,288 before we can fully confirm a bullish trend in equities. Until that happens, we still have a case of bearish intermarket divergence as the S&P 500 and NASDAQ are making new yearly highs and the DOW is not. If the Fed and Janet Yellen's statements tomorrow turn out to be dovish, it might just kick the DOW over that 18,288 hurdle. Still on the sidelines of this market.
The U.S. Dollar Index has corrected down to a support level at 96. Directional momentum in the dollar chart is now mixed bullish and bearish, so the dollar could go either way right now. If the 96 level breaks, the dollar could be starting a more serious correction. This would be bullish for the precious metals. There is also the possibility of a short-term bounce from 96, but such a bounce would not likely get beyond the 98 area before turning down again unless some event (such as a suddenly hawkish Fed policy) causes the dollar to break out and exceed 100. As with all the markets now, we will wait until the end of the week before making any trading decisions. This will allow time for some of the "dust to clear" from any disruptions in markets caused by Janet Yellen and the Fed tomorrow.
It looks like we sold our gold long positions prematurely early Monday as prices are now rising sharply. In Sunday's blog I wrote: "While it is possible to get a short-term bounce here, the medium-term picture is starting to look bearish, and the bounce would probably not get very far before turning down again." Well, we are getting a bounce that is stronger than I expected. Does this mean gold is turning bullish? Maybe, but not necessarily. Directional momentum signals are still mostly bearish in gold charts (silver charts are mixed bullish and bearish) and early next week may see a turning point that could turn down any rally. The key now is to see if gold can exceed its April 6 high of $1224. If it does, that will indicate that the precious metals are turning bullish. The Federal Reserve and Janet Yellen are expected to update the public on their interest rate policy after their monthly meeting concludes tomorrow afternoon. As we know, these statements can have a big impact on all markets (at least for a few days) so this could either accelerate gold's rally or quash it. If gold prices cannot exceed that $1224 level soon, they could turn down again and move to a new weekly low. Even though we ditched our gold too soon, we did not take a loss and should have made a 1% - 2% profit on the trade. (Traders selling late on Monday made even more). We are now on the sidelines of both gold and silver.
This week there has been some speculation by financial analysts that the Fed will decide to further delay an interest rate hike (beyond the expected June "deadline") due to the country's latest lackluster economic data. If the Fed's statement tomorrow affirms this, it could give a boost to the broad stock market. On the other hand, the Fed sticking to the idea of a mid-year hike could push the stock indices down. Either reaction could be short-lived. Ideally, I would like to see the DOW drop a bit more into the end of the week (towards the 17,600 - 17,700 area) for an ideal spot to buy as directional momentum is now nearly 100% in all three stock market indices (DOW, S&P 500 and NASDAQ). We still need to see the DOW break its all-time high of 18,288 before we can fully confirm a bullish trend in equities. Until that happens, we still have a case of bearish intermarket divergence as the S&P 500 and NASDAQ are making new yearly highs and the DOW is not. If the Fed and Janet Yellen's statements tomorrow turn out to be dovish, it might just kick the DOW over that 18,288 hurdle. Still on the sidelines of this market.
The U.S. Dollar Index has corrected down to a support level at 96. Directional momentum in the dollar chart is now mixed bullish and bearish, so the dollar could go either way right now. If the 96 level breaks, the dollar could be starting a more serious correction. This would be bullish for the precious metals. There is also the possibility of a short-term bounce from 96, but such a bounce would not likely get beyond the 98 area before turning down again unless some event (such as a suddenly hawkish Fed policy) causes the dollar to break out and exceed 100. As with all the markets now, we will wait until the end of the week before making any trading decisions. This will allow time for some of the "dust to clear" from any disruptions in markets caused by Janet Yellen and the Fed tomorrow.
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