MARKETS UPDATE (11:30 pm EDST)
This month's FOMC meeting concludes tomorrow at 2:00 PM (EDST), and Fed Chairman Jerome Powell is expected to give a press conference at 2:30. This meeting could be a turning point in the broad stock market as investors and traders wait to see if the Fed lightens up on its recent aggressive approach to raising interest rates and reducing bond buying (QE) or if it plans to continue its hawkish policy moving forward. October saw a strong rally in equity markets. If the Fed stays hawkish, it could discourage investors, and the market could turn down with a sharp sell-off. On the other hand, if Powell suggests the possibility of tempering his hawkish stance now or at some point in the future, we could see a continuation of the recent rally.
Coincidentally, we enter another very strong reversal zone tomorrow (Nov. 2 - 10), and that will be followed by two more fairly strong reversal zones (Nov. 9 - 17 and Nov. 16 -25). This essentially makes the entire month of November one very wide reversal zone and suggests that we could see a lot of volatility with multiple tops and bottoms in this time frame. In situations like this, it is sometimes helpful to focus on "pivot points" - i.e. the center points of these reversal zones that indicate the most likely times for a top or bottom to form. The strongest pivot point here would be Nov. 7. After that we can look to Nov. 14 and Nov. 22 for likely reversals.
The DOW and S&P 500 made new weekly highs today, but the NASDAQ did not, so we already have a bearish divergence signal in this market. Let's wait to see if the Fed's meeting tomorrow will be a bullish or bearish kick to equities. We note that even if the Fed stays hawkish and that pushes the market down, it is still early in our first reversal zone. After an initial "knee-jerk" reaction, investors could shrug off their fear and push the market even higher to another top later in the reversal zone (ideally around Nov. 7). We will stay on the sidelines as we usually do during an FOMC meeting week until we figure out how the market is going to respond to the Fed's rhetoric (short-term and longer-term). Note that we are generally bearish right now (as it appears a very long-term cycle top formed earlier this year), and we're looking for a place to sell short. But we still can't discount the possibility of another strong short-term rally that could take this market considerably higher before a long-term correction reasserts itself.
Although gold made an isolated low (Oct. 21) in last months reversal zone specifically for the precious metals, silver did not; but yesterday silver made a new weekly high while gold did not for a case of intermarket bearish divergence. These metals have not been rallying strongly enough to make me want to buy. If the Fed stays hawkish in tomorrow's press conference, this could give a boost to the U.S. dollar and put more downward pressure on gold and silver prices. The medium-term cycles for both metals are still a little ambiguous, so let's remain on the sidelines until this becomes more defined.
Crude oil prices are also lacking a clear trend at the moment. They have yet to break above the Oct. 10 high of $92.34 (Dec. contract chart). Until that happens, there's a possibility prices could drop to a new low (near or below $75) and complete the bottom of an older cycle in a reversal zone coming up for crude in mid-November (Nov. 11 - 22). Let's stay on the sidelines of crude oil for now. Longer-term, crude looks quite bullish, so if we do get a significant low this month, it could turn out to be be a good buy spot.
This month's FOMC meeting concludes tomorrow at 2:00 PM (EDST), and Fed Chairman Jerome Powell is expected to give a press conference at 2:30. This meeting could be a turning point in the broad stock market as investors and traders wait to see if the Fed lightens up on its recent aggressive approach to raising interest rates and reducing bond buying (QE) or if it plans to continue its hawkish policy moving forward. October saw a strong rally in equity markets. If the Fed stays hawkish, it could discourage investors, and the market could turn down with a sharp sell-off. On the other hand, if Powell suggests the possibility of tempering his hawkish stance now or at some point in the future, we could see a continuation of the recent rally.
Coincidentally, we enter another very strong reversal zone tomorrow (Nov. 2 - 10), and that will be followed by two more fairly strong reversal zones (Nov. 9 - 17 and Nov. 16 -25). This essentially makes the entire month of November one very wide reversal zone and suggests that we could see a lot of volatility with multiple tops and bottoms in this time frame. In situations like this, it is sometimes helpful to focus on "pivot points" - i.e. the center points of these reversal zones that indicate the most likely times for a top or bottom to form. The strongest pivot point here would be Nov. 7. After that we can look to Nov. 14 and Nov. 22 for likely reversals.
The DOW and S&P 500 made new weekly highs today, but the NASDAQ did not, so we already have a bearish divergence signal in this market. Let's wait to see if the Fed's meeting tomorrow will be a bullish or bearish kick to equities. We note that even if the Fed stays hawkish and that pushes the market down, it is still early in our first reversal zone. After an initial "knee-jerk" reaction, investors could shrug off their fear and push the market even higher to another top later in the reversal zone (ideally around Nov. 7). We will stay on the sidelines as we usually do during an FOMC meeting week until we figure out how the market is going to respond to the Fed's rhetoric (short-term and longer-term). Note that we are generally bearish right now (as it appears a very long-term cycle top formed earlier this year), and we're looking for a place to sell short. But we still can't discount the possibility of another strong short-term rally that could take this market considerably higher before a long-term correction reasserts itself.
Although gold made an isolated low (Oct. 21) in last months reversal zone specifically for the precious metals, silver did not; but yesterday silver made a new weekly high while gold did not for a case of intermarket bearish divergence. These metals have not been rallying strongly enough to make me want to buy. If the Fed stays hawkish in tomorrow's press conference, this could give a boost to the U.S. dollar and put more downward pressure on gold and silver prices. The medium-term cycles for both metals are still a little ambiguous, so let's remain on the sidelines until this becomes more defined.
Crude oil prices are also lacking a clear trend at the moment. They have yet to break above the Oct. 10 high of $92.34 (Dec. contract chart). Until that happens, there's a possibility prices could drop to a new low (near or below $75) and complete the bottom of an older cycle in a reversal zone coming up for crude in mid-November (Nov. 11 - 22). Let's stay on the sidelines of crude oil for now. Longer-term, crude looks quite bullish, so if we do get a significant low this month, it could turn out to be be a good buy spot.
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