The Fed announced today that it will keep interest rates low into 2022 as well maintain its current bond purchasing program. Formerly hawkish Fed Chairman Jerome Powell has now turned fully dovish in response to the damage COVID-19 has inflicted on the economy. Dovish rhetoric from the Fed is usually bullish news for the markets; nevertheless, equities dropped significantly after the Fed's announcement, and the DOW and S&P 500 closed in the red. The NASDAQ, however, closed with a slight gain and also closed above the psychological milestone of 10,000 with a new all-time high. (The DOW and S&P 500 are still below their February all-time highs). Unless we see a "sell on the news" effect here with the market taking a correction now, I suspect we will see more rallying into next week as the Fed is making sure people understand that they are now dovish and will do all they can to prop up these markets.
Let's remain on the sidelines for now.
Not surprisingly, dovish "coos" from the Fed did not help the U.S. Dollar Index. It fell lower and closed below a support line at 96. The dollar could break down here, but there is a support area down to 95 that might enable the greenback to bounce back - especially as we are now in a reversal zone.
A dive in the dollar is usually bullish for precious metals, and gold and silver prices did not disappoint today. Both metals rallied strongly, which was not completely unexpected. As I wrote in Monday's blog:
" Friday's low was at $1672... there's a chance that gold will rally strongly from that low (or from a slightly lower low this week). It could go either way (up or down) based on mixed technical signals now....(although) It's a good time for gold to turn up from a bottom."
A good time for silver to turn up as well. This rally could be very sharp, nevertheless, prices are rising into a strong reversal zone so a significant top could be imminent. If the dollar finds support and bounces as I described above, it could send gold and silver back down. We'll keep an eye out for a top to possibly sell short in gold and/or silver, but our main focus will be on buying a final medium-term cycle low that may be coming soon after a strong correction. Staying on the sidelines for now.
Crude oil prices were relatively flat today. We are now approaching the center of a reversal zone specifically for crude (June 9 - 17). It would be nice if prices could fall into a sub-cycle dip into our target range of $34 - $37 (June contract chart) within this time frame for a good spot to buy. But crude could also rally up to a sub-cycle top. We'll remain on the sidelines of crude until we see a good buying or short-selling opportunity.