We are now in the 15th day of a partial U.S. government shutdown, and last week's optimism that had suggested Republicans and Democrats were near an agreement to end the stalemate on government funding and especially the raising of the debt ceiling has faded as both sides continue to be unwilling to make any compromises in their positions. With the deadline to raise the debt ceiling coming up this Thursday, the focus of the crisis has shifted away from the funding/nonfunding of Obamacare and is now centered on the spending cuts Republicans say are necessary before the debt ceiling can be raised (to avoid a U.S. government default). It should be noted here that if the debt limit is not raised by Thursday, a U.S. government default would not happen right away but would probably occur by the end of the month when the Treasury runs out of cash to pay interest and principle on Treasury securities. This delay could give Congress a little more time to increase the debt limit. While investors may be acclimating to the partial government shutdown and the on hold status of Obamacare funding, the threat of a government debt default is a much more serious concern. If this happens it will create enormous economic uncertainty (which we know the stock market does not like) and will have a major negative impact on the economy.
The broad stock market was up a bit yesterday, but technically nothing has changed since Friday. The DOW's directional momentum is nearly 100% bearish while the S&P 500 and NASDAQ charts appear to be mixed bearish and bullish. I am remaining on the sidelines until directional signals are more clear (from the market as well as from Congress).
It appears that last week gold prices were manipulated down again by someone selling 800,000 ounces of gold on COMEX while the New York markets were closed. Prices had been stabilizing above $1300 earlier in the week, but by Friday they were pushed down close to $1250. (A similar market manipulation occurred on Oct. 1, the first day of the government shutdown, when gold broke its $1300 support and dropped nearly $50.) So it is possible there are some people in high places who wish to keep gold prices from taking off right now (perhaps to discourage panic selling in the broad stock market due to the ongoing fiscal crisis in Washington). This is certainly unsettling for market timers like myself who rely on technical signals and timing cycles based on the "normal" flow of free market trading. That said, there is likely a limit to how often such manipulatons can be done and how long prices can be suppressed before more powerful market forces reassert themselves and propel prices in the direction they want to go. As I've been mentioning in my blogs for some time, there are many technical, cycle and timing factors that are now pointing to a long-term bullishness in both gold and silver. Shorter term, however, we need to be concerned with a bottom forming in both metals. Momentum remains strongly bearish for gold but mixed (bullish and bearish) for silver. We are moving into a significant time window over the next nine days when gold and silver prices can make a significant reversal in direction. If prices continue lower into the end of the week, we could see them reverse up and start a strong rally. Of course, like all the markets right now, this market's behavior will be taking at least some of its cues from Washington's fiscal debate (and perhaps from market manipulators as well), so I am remaining on the sidelines to await further developments on Capitol Hill.
Crude oil also remains relatively unchanged since last Friday, and it too is apparently waiting for Washington's next move. Momentum remains mostly bearish in crude, so the lack of a resolution to the debt ceiling impasse could easily send this market tumbling down. We will have to wait and see. Support around $101-$102 seems to be holding. Still on the sidelines of this market.