MARKETS UPDATE (11:30 pm EST)
Well, it looks like the Federal Reserve is exercising its recently acquired hawkish wings as it decided today to "stay the course" with its plans to decrease (taper) Treasury bond purchasing by $10 billion a month. After a two day meeting, the decision to continue QE tapering was unanimous among the FOMC's 10 voting members. According to some Washington insiders, the Fed is trying to appear strong in its policies and did not want to give the impression this week that it was backpedaling on its tapering plans just to rescue a falling stock market. In a vain attempt to calm the markets, the Fed reiterated its intention to keep interest rates low (higher interest rates being a major investor fear associated with tapering). While many analysts are expecting the Fed to continue decreasing bond purchases by $10 billion every month for the rest of the year, some are speculating that when Janet Yellen takes over as Fed chairwoman next week (today was Ben Bernanke's last day as the central bank's chairman), Federal Reserve policy could change. The Fed has repeatedly stated that tapering is dependent on the state of the economy, and the labor market in particular, and can be stopped at any time if economic data does not support it. Ms. Yellen is frequently characterized as being dovish and favoring easy money policies, but we will have to wait and see how true this is. If she is a dove, we may see the Fed crank up the printing presses for more QE before the year is over.
The broad stock market did not react well to the news of a continuing QE taper. The DOW dropped over 200 points immediately following the Fed's announcement and closed the day with a 190 point loss. Many on Wall Street had been expecting the Fed to maintain the status quo on tapering, so this "bad news" was likely already heavily factored into the markets. The increasing turmoil in global emerging markets over the last few weeks is another influence thought by some analysts to be a major factor contributing to market pessimism today. In terms of cycle timing, we are now in a time zone when the likelihood of a major market reversal is high (this could extend into the first week of February) so this falling market could bottom soon and turn bullish. There is support for the DOW now around 15,600 so I don't expect this index to go far below that level before forming some sort of bottom. If today's steep drop turns out to be just a knee-jerk reaction to the Fed announcement, the bottom could already be in. We took profits on our short positions yesterday (or today if you read my post this morning) and are now waiting for signs of a bottom to the current correction. Despite the big drop in the markets today, directional momentum remains mixed bullish and bearish in the DOW, S&P 500 and NASDAQ indices, so we should watch now for any bullish changes in momentum that could indicate the start of a major reversal and the beginning of a new cycle in the market. I should point out here that stock markets in general (in the U,S. and globally) are very jittery and unstable right now so we need to keep in mind that there is always the possibility of panic selling being triggered by some seemingly minor event (such as today's Fed announcement). A clear break of support levels and a bearish change in momentum in the three indices mentioned above would be signs of this happening, and should this occur we would reenter our short positions. We are out of this market for now and watching for a bottom to the current correction.
Gold and silver prices did not react very strongly to the Fed's announcement today and short-term technical signals for the two metals are still looking bearish. I am still looking to buy any short-term correction now in both gold and silver. An ideal buy spot for gold would be around $1220 and for silver around $1920. On the sidelines of gold and silver for now.
Well, it looks like the Federal Reserve is exercising its recently acquired hawkish wings as it decided today to "stay the course" with its plans to decrease (taper) Treasury bond purchasing by $10 billion a month. After a two day meeting, the decision to continue QE tapering was unanimous among the FOMC's 10 voting members. According to some Washington insiders, the Fed is trying to appear strong in its policies and did not want to give the impression this week that it was backpedaling on its tapering plans just to rescue a falling stock market. In a vain attempt to calm the markets, the Fed reiterated its intention to keep interest rates low (higher interest rates being a major investor fear associated with tapering). While many analysts are expecting the Fed to continue decreasing bond purchases by $10 billion every month for the rest of the year, some are speculating that when Janet Yellen takes over as Fed chairwoman next week (today was Ben Bernanke's last day as the central bank's chairman), Federal Reserve policy could change. The Fed has repeatedly stated that tapering is dependent on the state of the economy, and the labor market in particular, and can be stopped at any time if economic data does not support it. Ms. Yellen is frequently characterized as being dovish and favoring easy money policies, but we will have to wait and see how true this is. If she is a dove, we may see the Fed crank up the printing presses for more QE before the year is over.
The broad stock market did not react well to the news of a continuing QE taper. The DOW dropped over 200 points immediately following the Fed's announcement and closed the day with a 190 point loss. Many on Wall Street had been expecting the Fed to maintain the status quo on tapering, so this "bad news" was likely already heavily factored into the markets. The increasing turmoil in global emerging markets over the last few weeks is another influence thought by some analysts to be a major factor contributing to market pessimism today. In terms of cycle timing, we are now in a time zone when the likelihood of a major market reversal is high (this could extend into the first week of February) so this falling market could bottom soon and turn bullish. There is support for the DOW now around 15,600 so I don't expect this index to go far below that level before forming some sort of bottom. If today's steep drop turns out to be just a knee-jerk reaction to the Fed announcement, the bottom could already be in. We took profits on our short positions yesterday (or today if you read my post this morning) and are now waiting for signs of a bottom to the current correction. Despite the big drop in the markets today, directional momentum remains mixed bullish and bearish in the DOW, S&P 500 and NASDAQ indices, so we should watch now for any bullish changes in momentum that could indicate the start of a major reversal and the beginning of a new cycle in the market. I should point out here that stock markets in general (in the U,S. and globally) are very jittery and unstable right now so we need to keep in mind that there is always the possibility of panic selling being triggered by some seemingly minor event (such as today's Fed announcement). A clear break of support levels and a bearish change in momentum in the three indices mentioned above would be signs of this happening, and should this occur we would reenter our short positions. We are out of this market for now and watching for a bottom to the current correction.
Gold and silver prices did not react very strongly to the Fed's announcement today and short-term technical signals for the two metals are still looking bearish. I am still looking to buy any short-term correction now in both gold and silver. An ideal buy spot for gold would be around $1220 and for silver around $1920. On the sidelines of gold and silver for now.
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