The FOMC met today and will meet again tomorrow. At 2:00 pm EST tomorrow the Fed will announce its decision of either raising short-term interest rates or delaying a rate hike into 2016. Even though traders and investors recognize that a rate hike is inevitable, and even though the Fed has been warning us that a hike is imminent, markets could still react strongly to the reality of that first hike. After all, it has been nine years since the last one. The market's fear, however, is more psychological than practical since any first hike will be very small, and the Fed will take care to introduce rising rates gradually back into the system. Federal Reserve Chairwoman Janet Yellen is expected to give a press conference shortly after the 2:00 announcement, perhaps to calm the markets if there is a strong reaction to a hike. We may get a lot of market volatility over the next several days.
That volatility may already be starting in the broad stock market. The DOW and S&P 500 both dropped sharply and made new monthly lows yesterday before snapping back up and closing in the upper part of the day's trading range. Today the markets were up strongly. Could yesterday's lows already be the cycle bottom that we are looking to buy? Yes, but we have to be careful here because the markets are very jittery. Last week's market fall may have already factored in the rate hike fear, and the DOW and S&P 500 may be ready to rally now, but we can't be certain until tomorrow's Fed statement. Ideal targets for the cycle bottoms we are looking for would be around 16,700 in the DOW and around 1960 in the S&P 500. Yesterday's lows did not reach those levels so it is still possible the markets will move lower before rallying from a cycle bottom. We could see some wild price swings over the next few days so perhaps the best strategy now is to stay on the sidelines until we see how the markets react to the Fed's announcement tomorrow. Ideally, we want to buy at a cycle bottom near the targets just mentioned, but it is possible the bottoms are already in with yesterday's lows. Either way, the ideal bottom is due by the end of this week (unless the Fed's statement causes a panic sell-off and the markets tank; in that case, we could see the cycle bottom in mid-January). Remaining on the sidelines of the broad stock market for now.
We are currently holding long positions in both gold and silver so tomorrow's Fed announcement will be a bit of a "nail-biter" for us. Normally one would expect an interest rate hike to strengthen the U.S. dollar and push the price of precious metals down, but recently the dollar's wild movements have not had a strong influence on these metals. Just today the dollar surged strongly, but gold and silver remained relatively stable. There are many cycle, timing, and technical signals right now that suggest gold and silver are at or near their medium-term cycle bottoms from which a significant rally will start. Silver prices made dramatic new lows in yesterday's late night market (reaching $13.14) before snapping back up and closing today at $13.77. That was a strong bullish signal, and that low could easily be silver's cycle bottom. Gold's cycle bottom may have already happened on Dec. 2 (at $1047), but if a rate hike tomorrow pushes these metals lower, it is possible to see a lower bottom. The fall in precious metal prices since early last week may already be factoring in the fear of a rate hike so the actual announcement of one may only have a minimal impact on gold and silver (hopefully). In a potentially volatile market like we have now, it is hard to place a stop loss point without the risk of being "whipsawed" out (i.e. having a price break below the stop loss point and then quickly close back above). Traders can decide for themselves how much risk they want to take with these long positions, but generally we don't want to see gold prices close below $1047 by the end of this week. That can be used as a general stop loss criterion for both gold and silver. I will be monitoring these prices carefully as we move toward tomorrow's Fed announcement at 2 pm. Holding my gold and silver long positions for now.