MARKETS UPDATE (7:30 pm EST)
U.S. Federal Reserve Chairwoman Janet Yellen testified before the Senate Banking Committee yesterday with an update on the economy and Fed policy. Ms. Yellen chose her statements carefully and seemed to avoid delineating any specific time for the raising of short-term interest rates. She strongly defended the Fed's current near-zero interest rate policy and hinted that rates could start rising around the middle of next year and maybe even sooner if the economy starts to improve faster than expected. However, she also said that rate hikes could be delayed if the economy slows down again. Ms. Yellen's current assessment of the economy seems to be cautiously optimistic. She noted, referring to the current economic recovery, that the Fed has been fooled in the past by "false dawns". Although the DOW seemed a little shaky with the release of the Banking Committee testimony yesterday, it closed the day with a five point gain suggesting that Ms.Yellen's carefully modulated rhetoric was effective in keeping the markets stable.
Today the DOW is up another 77 points and making yet another new all-time high. The S&P 500 closed at 1982, just below its all-time high of July 3rd (1986). Some NASDAQ charts also made new highs. Until all the charts in all three indices make new highs there is the possibility here of intermarket divergence. This is bearish and suggests a market turndown. That might happen, but I think it is more likely these indices will all make new highs as directional momentum is still strongly bullish in all three. Cycle and timing factors point to a significant top in the broad stock market by mid-August and then a correction in the range of 8 -15%, so we are looking for an ideal spot to sell short before then. We may get that before next Tuesday. The two most likely turning points for this correction would be July 18-21 and August 8-11. At the moment it looks like the market can go higher. Still on the sidelines.
July 18-21 is also an ideal time for a reversal in precious metal prices. Since prices are falling steeply into this time period I am looking to buy a low in gold and silver any day now. Directional momentum in both gold and silver is now mixed bullish and bearish, and several short-term technical signals are currently suggesting some more downside in prices. If gold finds support above $1260 and silver above $19.50 over the next several days we may have an ideal buy spot. Stay tuned. On the sidelines and waiting to buy.
In conjunction with the recent correction of gold and silver, the U.S. Dollar Index appears to be "breaking out" again. This index looks quite bullish at the moment, and the dollar's strength may drive precious metal prices lower over the next several days. I should note here that even though precious metal prices and the dollar usually move in opposite directions, there are times when they can both move up at the same time. Of course, if this dollar rally turns out to be another "fake out" then it will reverse and help propel gold and silver into a strong rally.
Crude oil prices may have bottomed yesterday at $99 as a short-term bullish signal appeared in crude charts and the price closed over $101 today. It is a little early for this market to be making a major reversal (ideally we should see this in the last two weeks of July or even the first week of August), and since directional momentum is still mixed bullish and bearish I am avoiding going long here. Prices could rise sharply now, but such a rally may be short-lived and lead to another severe correction down. Crude could be falling into a pattern here similar to that of the broad stock market, that is, it could rally a bit more to a significant top and then fall into a major correction. If that scenario unfolds, we will be looking to sell short at that top. Out of this market for now.
U.S. Federal Reserve Chairwoman Janet Yellen testified before the Senate Banking Committee yesterday with an update on the economy and Fed policy. Ms. Yellen chose her statements carefully and seemed to avoid delineating any specific time for the raising of short-term interest rates. She strongly defended the Fed's current near-zero interest rate policy and hinted that rates could start rising around the middle of next year and maybe even sooner if the economy starts to improve faster than expected. However, she also said that rate hikes could be delayed if the economy slows down again. Ms. Yellen's current assessment of the economy seems to be cautiously optimistic. She noted, referring to the current economic recovery, that the Fed has been fooled in the past by "false dawns". Although the DOW seemed a little shaky with the release of the Banking Committee testimony yesterday, it closed the day with a five point gain suggesting that Ms.Yellen's carefully modulated rhetoric was effective in keeping the markets stable.
Today the DOW is up another 77 points and making yet another new all-time high. The S&P 500 closed at 1982, just below its all-time high of July 3rd (1986). Some NASDAQ charts also made new highs. Until all the charts in all three indices make new highs there is the possibility here of intermarket divergence. This is bearish and suggests a market turndown. That might happen, but I think it is more likely these indices will all make new highs as directional momentum is still strongly bullish in all three. Cycle and timing factors point to a significant top in the broad stock market by mid-August and then a correction in the range of 8 -15%, so we are looking for an ideal spot to sell short before then. We may get that before next Tuesday. The two most likely turning points for this correction would be July 18-21 and August 8-11. At the moment it looks like the market can go higher. Still on the sidelines.
July 18-21 is also an ideal time for a reversal in precious metal prices. Since prices are falling steeply into this time period I am looking to buy a low in gold and silver any day now. Directional momentum in both gold and silver is now mixed bullish and bearish, and several short-term technical signals are currently suggesting some more downside in prices. If gold finds support above $1260 and silver above $19.50 over the next several days we may have an ideal buy spot. Stay tuned. On the sidelines and waiting to buy.
In conjunction with the recent correction of gold and silver, the U.S. Dollar Index appears to be "breaking out" again. This index looks quite bullish at the moment, and the dollar's strength may drive precious metal prices lower over the next several days. I should note here that even though precious metal prices and the dollar usually move in opposite directions, there are times when they can both move up at the same time. Of course, if this dollar rally turns out to be another "fake out" then it will reverse and help propel gold and silver into a strong rally.
Crude oil prices may have bottomed yesterday at $99 as a short-term bullish signal appeared in crude charts and the price closed over $101 today. It is a little early for this market to be making a major reversal (ideally we should see this in the last two weeks of July or even the first week of August), and since directional momentum is still mixed bullish and bearish I am avoiding going long here. Prices could rise sharply now, but such a rally may be short-lived and lead to another severe correction down. Crude could be falling into a pattern here similar to that of the broad stock market, that is, it could rally a bit more to a significant top and then fall into a major correction. If that scenario unfolds, we will be looking to sell short at that top. Out of this market for now.
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