MARKETS UPDATE and GOLD TRADE ALERT (10:00 pm EDT)
The Fed raised interest rates today and also hinted at two more rate raises for this year. Most analysts were expecting today's rate hike, and investors most likely had already factored it in to the market as evidenced by today's rally in equities immediately following the Fed's 2:00 PM announcement. The market had been falling since early March so this seems to be a classic case of "sell the rumor, buy the news". Some financial analysts had expected the Fed to be a bit more hawkish and were anticipating the announcement of a faster pace of rate increases moving forward, but this was not forthcoming. For this reason, some interpreted today's "on course, no policy change" rhetoric as the Fed being somewhat dovish (which would be bullish for equity markets).
Despite the Fed's (arguably) "dovish" tone, today's rally could just be a temporary "buy the news" reaction to the rate hike. The all-time highs of early March (a strong reversal zone) in the DOW, S&P 500 and NASDAQ still haven't been broken (although the NASDAQ came very close today) so we could still see a correction into mid-April, but these indices do need to turn down now. If those highs are exceeded, mid-April may turn out to be another top (possibly a "blow-off top) instead of a cycle bottom. I am still holding my short position in the broad stock market, but we need to be prepared to cover this position if those March 1st highs are breached.
The U.S. Dollar Index would normally be strengthened by a Fed rate hike, but it fell today, most likely due to disappointment that the Fed was not more hawkish in its policy statement (i.e. did not show a desire to increase the pace of rate increases). The dollar broke below 101 today, but there is strong support in the 100 area so it could turn back up soon. Directional momentum is now mixed bullish and bearish in this index.
The dollar's plunge today boosted gold and silver prices. In Monday's blog I wrote:
" It looks like the current cycle is turning bearish so we should probably be looking to sell short any short-term rallies now....There is a small possibility that the bottom in gold last week (or this week) is the start of a new medium-term cycle. If that is the case, we could see prices exceed $1,240 soon and the market turn bullish. For now, however, the market looks bearish, and we may look to sell short the top of any rally to the $1,220 - $1,230 area in gold."
Today's dollar drop may be giving a little more weight to the idea that we are starting a new (bullish) cycle, but the precious metals market still looks very bearish (see previous blogs), and today gold prices pushed into our target for a top to sell short. There is also resistance at the $1,225 - $1,230 area. What we can do here is go short with a stop loss on a close above $1,230 (very close to the current price for a minimal loss if triggered). I am going to enter a short position in gold for tomorrow's market open. Let's stay on the sidelines of silver for now.
Crude oil prices were also lifted today by the drop in the dollar, but this rally may also be short-lived. We are still watching for a top to sell short here. On the sidelines for now.
The Fed raised interest rates today and also hinted at two more rate raises for this year. Most analysts were expecting today's rate hike, and investors most likely had already factored it in to the market as evidenced by today's rally in equities immediately following the Fed's 2:00 PM announcement. The market had been falling since early March so this seems to be a classic case of "sell the rumor, buy the news". Some financial analysts had expected the Fed to be a bit more hawkish and were anticipating the announcement of a faster pace of rate increases moving forward, but this was not forthcoming. For this reason, some interpreted today's "on course, no policy change" rhetoric as the Fed being somewhat dovish (which would be bullish for equity markets).
Despite the Fed's (arguably) "dovish" tone, today's rally could just be a temporary "buy the news" reaction to the rate hike. The all-time highs of early March (a strong reversal zone) in the DOW, S&P 500 and NASDAQ still haven't been broken (although the NASDAQ came very close today) so we could still see a correction into mid-April, but these indices do need to turn down now. If those highs are exceeded, mid-April may turn out to be another top (possibly a "blow-off top) instead of a cycle bottom. I am still holding my short position in the broad stock market, but we need to be prepared to cover this position if those March 1st highs are breached.
The U.S. Dollar Index would normally be strengthened by a Fed rate hike, but it fell today, most likely due to disappointment that the Fed was not more hawkish in its policy statement (i.e. did not show a desire to increase the pace of rate increases). The dollar broke below 101 today, but there is strong support in the 100 area so it could turn back up soon. Directional momentum is now mixed bullish and bearish in this index.
The dollar's plunge today boosted gold and silver prices. In Monday's blog I wrote:
" It looks like the current cycle is turning bearish so we should probably be looking to sell short any short-term rallies now....There is a small possibility that the bottom in gold last week (or this week) is the start of a new medium-term cycle. If that is the case, we could see prices exceed $1,240 soon and the market turn bullish. For now, however, the market looks bearish, and we may look to sell short the top of any rally to the $1,220 - $1,230 area in gold."
Today's dollar drop may be giving a little more weight to the idea that we are starting a new (bullish) cycle, but the precious metals market still looks very bearish (see previous blogs), and today gold prices pushed into our target for a top to sell short. There is also resistance at the $1,225 - $1,230 area. What we can do here is go short with a stop loss on a close above $1,230 (very close to the current price for a minimal loss if triggered). I am going to enter a short position in gold for tomorrow's market open. Let's stay on the sidelines of silver for now.
Crude oil prices were also lifted today by the drop in the dollar, but this rally may also be short-lived. We are still watching for a top to sell short here. On the sidelines for now.
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