Fed Chairman Jerome Powell announced today that the Fed will now consider tapering back its bond-buying program (QE) and raising interest rates more quickly to counter high inflation. Although Wall Street seemed to be shrugging off its fear of the new "Omicron" COVID-19 variant yesterday, this hawkish rhetoric from the Fed today seems to be reigniting investor fear and causing the broad stock market to take another tumble.
As I pointed out in yesterday's blog, all three of our market indices (DOW, S&P 500, NASDAQ) are now taking significant sub-cycle corrections. The DOW is going below our original target (35,000 - 35,500), but the S&P 500 has not yet touched our target (4,500), and the NASDAQ is barely touching the upper range of our target (15,000 - 15,500). This means these latter two indices could still push lower into our new reversal zone (Nov. 30 - Dec. 15, with possible "pivot points" near Dec. 3 and Dec. 10). There is support for the DOW around 34,300 - 34,400, so that could be a new target for this index. As long as the DOW stays above 33,613 (the start of the current medium-term cycle), it can still be bullish and could make a new all-time high before falling to its final cycle bottom.
I think we are still on track for another rally into late December from a sub-cycle bottom in this new reversal zone. But if Omicron and Fed tapering worries trigger a panic sell-off now, I may have to change that view. We are still on the sidelines of the broad stock market.
Hawkish rhetoric from the Fed is usually good for the U.S. Dollar Index. The greenback was stable today, and it seems to be finding support at the 15-day moving average, so there is the potential for some rallying from here. If that happens, it could put downward pressure on the precious metals.
Gold made a new weekly low today, along with silver, so our bullish divergence signal from yesterday is now negated. This makes it more unlikely that these metals will rally now, as I suggested in yesterday's blog. The trend in both these metals may be turning bearish, so we will watch this situation carefully as we remain on the sidelines.
Crude oil prices continued to plunge today, but seemed to find strong support around $65 (January 2022 contract chart). As I mentioned in yesterday's blog, we don't want to see prices close below the area of $62 - $64 as this would be very bearish for this commodity. (Of course, this would - should - be good news at the gas pump - i.e. there is an upside to bearish crude). We are staying on the sidelines of crude for now.