MARKETS UPDATE (3:45 pm EST)
As we move towards the end of this week, all markets seem to be on edge as they anticipate the release of the Labor Department's jobs report on Friday. The mood is especially tense now because investors fear that any improvement in the labor market will encourage the Fed to start tapering QE sooner than later. As market followers have seen recently, any talk of QE tapering can send equities down quickly (although these reactions may now be more short-term as investors could be feeling the Fed is bluffing with taper threats). The next meeting of the Federal Reserve is scheduled for Dec. 17-18, so we may have to wait until then for any official statements on QE policy. Today the ADP job figures were released and were unusually strong. Because the ADP data is usually in line with the Labor Department's figures, investors at the moment are especially nervous that Friday's report could lead to an imminent QE taper.
The broad stock market this week is taking the correction we were anticipating and the DOW is now testing an important support area at 15,850-15,900. Technically the ideal time for a bottom to this correction would be on Friday, and since the jobs report comes out then, I would like to wait and see how the market is going to react to the figures and whether or not this support area will hold. Still on the sidelines of this market.
Speculation on the Fed's QE policy also affects the precious metals markets. The tapering of QE is generally thought to be unfavorable for gold (as it indicates an improving economy and diminishes the incentive to buy gold as a hedge against inflation and a falling dollar), and worries about the imminent easing of QE is one reason that gold and silver prices have been falling recently. As we approach Friday's jobs report, nervous speculation about the Fed's policy could easily create some volatility in this market (there are technical signals at the end of this week pointing to this as well). Today's jump in gold and silver prices is not an unexpected reaction to the steep drop over the last two days. There is now resistance for gold at $1250 and for silver at $20. Directional momentum is still nearly 100% for both metals as well as for the major gold and silver stock indices and ETFs. This indicates that a major upside reversal is highly unlikely at the moment. Holding short positions in both gold and silver.
Crude oil prices are rising dramatically this week which leads me to suspect that we are starting a brand new cycle in crude from that bottom last week at just below $92. Further evidence for this is the fact that directional momentum has now turned from 100% bearish to mixed 50% bearish and 50% bullish (a strong bullish signal appeared just yesterday in crude oil charts). If this is a new cycle starting (not confirmed yet) then this market could become strongly bullish. Still on the sidelines here until the cycle picture is more definitive.
The U.S. Dollar Index has been range-bound over the last two weeks between 80.5 and 81.0. There is strong support at 80.5 and this is a level we should watch now, especially in relation to gold prices, as a significant break below there could trigger an upsurge in gold prices. A more likely scenario at this time, however, would be a rise in the dollar and a break through the 81 level which would send gold and silver prices lower.
As we move towards the end of this week, all markets seem to be on edge as they anticipate the release of the Labor Department's jobs report on Friday. The mood is especially tense now because investors fear that any improvement in the labor market will encourage the Fed to start tapering QE sooner than later. As market followers have seen recently, any talk of QE tapering can send equities down quickly (although these reactions may now be more short-term as investors could be feeling the Fed is bluffing with taper threats). The next meeting of the Federal Reserve is scheduled for Dec. 17-18, so we may have to wait until then for any official statements on QE policy. Today the ADP job figures were released and were unusually strong. Because the ADP data is usually in line with the Labor Department's figures, investors at the moment are especially nervous that Friday's report could lead to an imminent QE taper.
The broad stock market this week is taking the correction we were anticipating and the DOW is now testing an important support area at 15,850-15,900. Technically the ideal time for a bottom to this correction would be on Friday, and since the jobs report comes out then, I would like to wait and see how the market is going to react to the figures and whether or not this support area will hold. Still on the sidelines of this market.
Speculation on the Fed's QE policy also affects the precious metals markets. The tapering of QE is generally thought to be unfavorable for gold (as it indicates an improving economy and diminishes the incentive to buy gold as a hedge against inflation and a falling dollar), and worries about the imminent easing of QE is one reason that gold and silver prices have been falling recently. As we approach Friday's jobs report, nervous speculation about the Fed's policy could easily create some volatility in this market (there are technical signals at the end of this week pointing to this as well). Today's jump in gold and silver prices is not an unexpected reaction to the steep drop over the last two days. There is now resistance for gold at $1250 and for silver at $20. Directional momentum is still nearly 100% for both metals as well as for the major gold and silver stock indices and ETFs. This indicates that a major upside reversal is highly unlikely at the moment. Holding short positions in both gold and silver.
Crude oil prices are rising dramatically this week which leads me to suspect that we are starting a brand new cycle in crude from that bottom last week at just below $92. Further evidence for this is the fact that directional momentum has now turned from 100% bearish to mixed 50% bearish and 50% bullish (a strong bullish signal appeared just yesterday in crude oil charts). If this is a new cycle starting (not confirmed yet) then this market could become strongly bullish. Still on the sidelines here until the cycle picture is more definitive.
The U.S. Dollar Index has been range-bound over the last two weeks between 80.5 and 81.0. There is strong support at 80.5 and this is a level we should watch now, especially in relation to gold prices, as a significant break below there could trigger an upsurge in gold prices. A more likely scenario at this time, however, would be a rise in the dollar and a break through the 81 level which would send gold and silver prices lower.
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