This afternoon investors and analysts anxiously awaited the release of the minutes from the last (July 29) Federal Reserve meeting. Readers may recall that the last Fed meeting was not followed by a press conference and that the rhetoric of the Fed's statement did not give any clues as to the timing of the first interest rate hike. Today investors were hoping that the detailed minutes of that meeting might give a little more information about the dreaded hike and whether or not it will come in September as many analysts think. The minutes were released early in the afternoon. They revealed that the Fed was concerned about inflation remaining stubbornly below target and were also concerned about China's slowing growth having a negative impact on the dollar (which seems to be coming to pass as China announced the devaluing of its currency last week). It's possible that these concerns of the Fed could delay a rate hike, and perhaps this is what investors were thinking when equity markets surged briefly today after the release of the meeting minutes. The rally lasted only 15 minutes, however, before falling back, and the DOW closed the day with a 162 point loss. There is so much fear and uncertainty in the stock market right now that it is questionable whether or not a delayed rate hike will make much difference to investors. I think most people are now more concerned about China's collapsing equity markets than when the first rate hike (which should be very small) will start. Gauging the reactions of a nervous and fearful Wall Street is not easy. Fortunately, we have many tools (cycle studies, technical analysis and timing strategies) to help guide our trading decisions.
The S&P 500 appears to be backing down from resistance around 2100 (nicely below our stop loss point of 2115) so we could still be on track for a deeper correction. A break below 2044 (the start of the current cycle on July 7) would be a strong signal signal that this is happening. Directional momentum in the DOW and S&P 500 remains nearly 100% bearish while the NASDAQ is still mixed bullish and bearish. This still favors the bearish view. Holding my short position in the broad stock market.
Our gold long position continues to do well as prices surged up to $1130 today. A strong bullish momentum signal appeared in gold charts today so directional momentum has changed from mostly bearish to mixed bullish and bearish (the same as silver). We are getting close to our target area of $1140 and should be looking to take profits on this trade soon (ideally next week). Silver prices dropped abruptly yesterday but recovered that loss today and closed the day at $15.29. We are still on track for our target of $16 in silver. As with gold, we will look to take profits in that area, especially if this happens next week. We will also be looking to sell short (both gold and silver) at that time if this is supported by technical signals. Currently holding my long positions in gold and silver.
Today's release of the Fed meeting minutes and talk of a delayed interest rate hike drove the U.S. Dollar Index down. In last Sunday's blog I wrote: "...we could see a further correction in the dollar, and that could help push the precious metal prices higher, at least short-term. There is support for the dollar in the 95 area so a possible scenario here would be for the dollar to drop towards 95 with gold and silver rising up to the price targets already mentioned. This could be followed by a dollar bounce which would trigger a reversal in the precious metals and gold and silver prices dropping to new lows." This could be playing out now as the dollar dropped to 96.33 today. There is support at 96 and then 95. If this index can get to 95, we should see our target levels achieved in the precious metals.
Crude oil prices made yet another new low at $40.46 today. In my last blog (Sunday) on crude I wrote: "a cycle bottom (and the start of a new cycle) is due (overdue) and could be forming now or it could form in the last week of August. Even within a bearish trend, a new cycle will usually rally for at least a few weeks so we may see a good opportunity for a short-term trade on the long side over the next week or two." This is still valid so we are still on the lookout for a low to buy. Next week would be ideal in terms of timing, but there is a possibility of this cycle being extended into September. If the broad stock market corrects further, crude could move lower with it (or perhaps it is the stock market that is following plunging crude prices). Directional momentum in crude charts is currently 100% bearish. Out of this market for now.