(5:30 pm EDST)
The Federal Reserve today said it might hike interest rates earlier than it had previously expected, penciling in two interest rate hikes in 2023. There was no mention of tapering its bond-purchasing program anytime soon. These earlier than expected interest rate projections were based on the so-called "dot-plot" data. Although Fed Chairman Jerome Powell stated in a press conference following today's FOMC meeting that the dot-plot data should be "taken with a grain of salt", Wall Street did not expect or appreciate the specter of earlier rate hikes (previous Fed projections were for no hikes until at least 2024), and it showed its displeasure by dropping steeply following the afternoon announcement (at one point, the DOW was down nearly 400 points). Although all three indices dropped sharply after 2:00 pm, the NASDAQ recovered nearly all of its loss by the closing bell, and the S&P 500 recovered about half of its loss. The DOW, however, did not recover by much and closed the day with a 265 point loss.
The question now is whether or not the broad stock market will recover over the next several days from this slightly hawkish news from the Fed (possible rate hikes in 2023 instead of 2024). Today's plunge might be just market "jitters". After all, there was no talk of the Fed tapering its bond-buying program, and the NASDAQ recovered smartly from its afternoon dive. On the other hand, this market is ripe for a serious correction, and we are in a reversal zone with several bearish divergence signals flashing. The DOW did close below its 45-day moving average today, which is not a good sign. If it doesn't get back above that line by the end of the week, we may be seeing the start of a major correction. The S&P 500 briefly went below its 15-day moving average but closed just above it, and it is still above its 45-day moving average, which is more bullish than bearish. The NASDAQ is well above both its 15-day and 45-day moving averages and is the most bullish looking of the three indices.
We will remain on the sidelines of the broad stock market for now and wait to see over the next few days if Wall Street will recover from this slightly hawkish sentiment from the Fed or if it will throw a temper tantrum and collapse. (Yes, Wall Street is indeed like a sensitive child prone to emotional outbursts at the drop of a hat. Sigh!)
Our long position in gold established at this morning's market open got us in around yesterday's closing price. Unfortunately, today's panic in equity markets also had a negative impact on the precious metals. Gold prices, however, did fall closer to our original corrective target of $1835. This puts us temporarily in the red, but this sub-cycle correction is due to end and bottom this week with a possible target low around $1815. If prices can hold above there tomorrow and Friday, I will likely hold this long position with the expectation of a sharp rally next week. Holding my long position in gold for now.
Silver prices also fell sharply today and closed at $26.95 - getting closer to our $26.25 target. If it goes lower tomorrow or Friday, we may see a good buying opportunity as a sub-cycle bottom is due this week. We are out of silver for now.