There are two upcoming events that we need to pay close attention to as they could have a strong impact on all markets over the next two weeks. This Wednesday the Federal Reserve will release its financial policy statement following a two day meeting. Many analysts had been expecting the Fed to announce another interest rate hike in June until the dismal jobs report came out June 3rd which altered that view and now fuels speculation that the Fed may postpone that hike. The second event to watch carefully is Britain's "Brexit" vote on June 23 which will determine whether or not the U.K. will leave the European Union. Current polls are suggesting that momentum is favoring the exit. The possibility of Britain leaving the EU is already rattling global financial markets (which hate geopolitical instability), and if it comes to pass we might see equity markets tumble.
We are now at the center of a reversal zone for precious metals and both gold and silver are rising into it strongly, in fact, very strongly. I repeat from my blog last week:
"If gold continues to rally into the end of this week or early next week and stays under $1,290, we may have a good spot to sell short for a final correction into the end of the month. There is a possibility, however, that gold ...could be very bullish now and any rally... (could) ... exceed $1,300. Silver's situation is similar to gold's and silver may also rally now, but if that rally stalls later this week or early next week, prices could fall again into a corrective low."
These rallies haven't stalled yet. In fact, they seem to be picking up momentum. Directional momentum in both silver and gold turned from mixed bullish and bearish to 100% bullish today. I already mentioned last week that the gold and silver mining company stock indices HUI and XAU also recently turned 100% bullish. This could be heralding a new bull market in these metals. Nevertheless, we are in a reversal zone so a top followed by some sort of correction is possible over the next several days (the reversal zone technically ends on Wednesday). The Fed's policy statement on Wednesday may be a turning point for this market (and others). If there is no rate hike, the U.S. dollar could fall and encourage more rallying in gold and silver, but a hike announcement would likely strengthen the dollar and push precious metal prices back down. Today gold prices got to $1,287 before backing down and closing the day at $1,280. Let's see how prices move into Wednesday. If gold can break and close above $1,303, that favors the bullish view of the market, and our strategy would then be to buy any short-term corrections. If prices stay under $1,300, however, it's still possible we could see a sharp correction into the end of the month before any significant rally begins. Stay tuned this week for more updates. Still on the sidelines of both gold and silver.
Equity markets fell again today (which was good for our short position), and it looks like last Thursday's highs in both the DOW and S&P 500 were cycle tops. We could now see this correction continue into the end of the month. I am concerned, however, about Wednesday's Fed meeting. The postponement of a rate hike could lift the markets and possibly cut short any correction now in progress. The announcement of a rate hike, however, could send the broad stock market considerably lower. We will have to wait and see how this plays out. Reactions to the Fed are often brief and short-lived (but not always). Depending on the cycle structure that is unfolding (not clear at the moment), we could see the S&P 500 get down to the 1,950 area, but if the market is bullish the correction may only reach the 2,060 area. Next week's "Brexit" vote is weighing heavily on the markets so let's continue to hold our short position for now with the expectation of a cycle bottom in late June/early July. Holding my short position in the broad stock market with a cautious eye on Wednesday's Fed meeting.
Crude oil prices fell steeply last Friday and Sunday and are now settling around $48. It looks like the correction we've been waiting for is happening now. Our target for this correction is the $40 - $45 area, but prices could go lower. Ideally, we would like to see at least a two week correction here, but the bottom may come sooner, especially as this week is another reversal zone for crude (with the Fed's statement thrown in to boot). If the broad stock market tumbles lower this week, crude could go along with it. Holding on to my short position in crude oil for now.