As we (and most analysts) expected, the Fed announced no change in interest rates today as it released it's new policy statement following a two day FOMC meeting. Equity markets were a bit jittery in early trading leading up to the 2 pm statement release, but they rallied soon after and the DOW closed the day with a 167 point gain. Even though the Fed kept rates unchanged, Fed Chairwoman Janet Yellen hinted that one more increase this year will be "appropriate" as long as the economy remains relatively stable. Most analysts feel that could be in December as the Fed would not want to do a rate hike just before the presidential election in November.
We are now out of a strong reversal zone that has been with us for the last two weeks, and it looks like the turning point for a reversal in equities was on Sept. 14. We should see the broad stock market now rally into October, but first the DOW needs to break above a strong resistance at 18,400 - 18,450 (this is a "gap down" area from Sept.8-9 and is the right side of a "bearish island reversal"- see my blog on Sept. 12). The DOW closed at 18,293 today so we are getting close to that resistance. We should now be looking to get long again in equities, but I am going to wait a day or two to see how the markets digest today's Fed statement and Ms. Yellen's slightly hawkish comments on the next rate hike. On the sidelines of the broad stock market.
It looks like holding on to our long positions in gold and silver is paying off. The Fed's decision to delay an interest rate hike plunged the U.S. dollar today and caused an upsurge in the price of both precious metals. If today's rally is not just a temporary knee-jerk reaction to the Fed then we should see it continue at least into mid-October with silver soon breaking above its Sept. 6 high of $20.12. We are now out of last week's reversal zone for gold and silver and it appears that Sept. 16 was the turning point for this reversal. Volatility is still high in these markets, however, so we don't want to get too confident in our bullish position until we see this rally gain a little more momentum over the next few days. Holding our long positions in gold and silver.
In Monday's blog on crude oil I wrote:
"Another delayed rate hike would not only lift equities but likely crude prices as well. We are already in a good target range for a bottom in crude ($42 - $44), but I am uncomfortable right now with all the bearish technical signals. It looks like prices could fall lower into Wednesday which could be an ideal setup to buy (assuming the Fed does not hike interest rates)."
Well, prices did fall lower into early Tuesday ($43.06 - November contract chart) but then surged to $45 in late night trading. Today's "no hike" announcement kicked prices up further (to $45.80). Unless prices plunge back down tomorrow, it looks like Tuesday's low was a subcycle bottom and we should be looking to buy. There is some resistance around $46 so prices may back down a bit over the next day or two after today's strong rally and give us a better entry point to go long. Still on the sidelines of crude.