MARKETS UPDATE (7:30 pm EST)
Unbelievably, the stalemate in Washington continues unabated into its 9th day with apparently no signs of Republicans or Democrats weakening their positions, even as the Oct. 17 deadline to raise the debt ceiling rapidly approaches.
The broad stock market has been demonstrating how much it dislikes uncertainty (as well as the prospect of a U.S. debt default) by falling heavily this week. A significant development in the DOW, S&P 500, and NASDAQ charts over the last two days has been the appearance of major bearish momentum signals. Directional momentum in the DOW is now 100% bearish and the S&P 500 and NASDAQ are medium-term bearsh. For the last 5 weeks all three indices have been 100% bullish, so this represents a sudden and dramatic shift of momentum downwards and is not a good sign for the broad stock market. That said, we need to keep in mind here the highly volatile nature of the markets right now as every day they wait with "bated breath" for the next move of the chess players on Capitol Hill. A sudden agreement or bargain between Republicans and Democrats could easily stop the falling DOW in its tracks and kick off a strong counter rally. Such an agreement seems unlikely at the moment, but the stakes in this political chess game become much higher as we approach Oct.17th, and so it could happen by the middle of next week. Needless to say, calling the market is very difficult under these circumstances. There is important support for the DOW around 14,500, and a close below there would increase the likelihood of a very severe correction in the market. Today's low was at 14,719, but the DOW closed the day above 14,800 with a gain of 26 points, so we have not breached that 14,500 level yet. Based on the the bearish momentum, we should be looking to sell this market short, but the possibility of a break in the Washington stalemate by next Thursday makes me hesitant to do so right now. I would also like to see the DOW's 100% bearish signal confirmed by stronger bearish signals in the SP 500 and NASDAQ charts before committing fully to a short position. Remaining on the sidelines of this market for now, but possibly looking to short this market soon.
Gold and silver prices rallied a bit Monday and Tuesday but today lost those gains. This indecisiveness is likely mirroring the stalemate in Washington, and so, as with the broad stock market, we can expect any developments on Capitol Hill to give a directional kick to this market as well. But in what direction? As I've discussed in previous blogs, gold and silver seem to be at the end of a long-term cycle that should bottom by the end of this year (this window may extend slightly into 2014), and this bottom will mark the beginning of a new cycle which will be bullish for at least several years. The bottoms may already be in with gold's June 27th low at $1183 and silver's low at $18.25, but technical and cycle data has not confirmed this yet. There is still time for these metals to make a lower bottom (or perhaps a double bottom) over the next several months. If political events (or even the manipulation of gold prices) force gold and silver below their supports now, we could see this scenario unfold. So we need not question whether or not we want to buy gold and silver (we do), but do we want to buy now or wait for a possible deeper correction? At the moment directional momentum in gold is 100% bearish while silver is maybe 50% bearish and 50% bullish. This downward momentum as well as the uncertainty of Washington politics and the raising of the U.S. debt ceiling does not give me much confidence to go long yet. I am therefore remaining on the sidelines until I see some momentum shift and/or some break in the Washington stalemate.
Crude oil prices seem to have stabilized just above a support zone at $100-$102. Like the other markets, crude is likely taking its cues from Washington's stalemate and is poised to rally or fall depending on how this situation is resolved (or not resolved). Crude prices dropped steeply today but remain above support, and momentum continues to be mixed (bullish and bearish). Traders need to keep in mind that should the broad stock market start to collapse, crude would probably go with it (unless conflicts erupt in the Middle East), and we would probably be looking to sell this market short. Still out of this market for now.
Unbelievably, the stalemate in Washington continues unabated into its 9th day with apparently no signs of Republicans or Democrats weakening their positions, even as the Oct. 17 deadline to raise the debt ceiling rapidly approaches.
The broad stock market has been demonstrating how much it dislikes uncertainty (as well as the prospect of a U.S. debt default) by falling heavily this week. A significant development in the DOW, S&P 500, and NASDAQ charts over the last two days has been the appearance of major bearish momentum signals. Directional momentum in the DOW is now 100% bearish and the S&P 500 and NASDAQ are medium-term bearsh. For the last 5 weeks all three indices have been 100% bullish, so this represents a sudden and dramatic shift of momentum downwards and is not a good sign for the broad stock market. That said, we need to keep in mind here the highly volatile nature of the markets right now as every day they wait with "bated breath" for the next move of the chess players on Capitol Hill. A sudden agreement or bargain between Republicans and Democrats could easily stop the falling DOW in its tracks and kick off a strong counter rally. Such an agreement seems unlikely at the moment, but the stakes in this political chess game become much higher as we approach Oct.17th, and so it could happen by the middle of next week. Needless to say, calling the market is very difficult under these circumstances. There is important support for the DOW around 14,500, and a close below there would increase the likelihood of a very severe correction in the market. Today's low was at 14,719, but the DOW closed the day above 14,800 with a gain of 26 points, so we have not breached that 14,500 level yet. Based on the the bearish momentum, we should be looking to sell this market short, but the possibility of a break in the Washington stalemate by next Thursday makes me hesitant to do so right now. I would also like to see the DOW's 100% bearish signal confirmed by stronger bearish signals in the SP 500 and NASDAQ charts before committing fully to a short position. Remaining on the sidelines of this market for now, but possibly looking to short this market soon.
Gold and silver prices rallied a bit Monday and Tuesday but today lost those gains. This indecisiveness is likely mirroring the stalemate in Washington, and so, as with the broad stock market, we can expect any developments on Capitol Hill to give a directional kick to this market as well. But in what direction? As I've discussed in previous blogs, gold and silver seem to be at the end of a long-term cycle that should bottom by the end of this year (this window may extend slightly into 2014), and this bottom will mark the beginning of a new cycle which will be bullish for at least several years. The bottoms may already be in with gold's June 27th low at $1183 and silver's low at $18.25, but technical and cycle data has not confirmed this yet. There is still time for these metals to make a lower bottom (or perhaps a double bottom) over the next several months. If political events (or even the manipulation of gold prices) force gold and silver below their supports now, we could see this scenario unfold. So we need not question whether or not we want to buy gold and silver (we do), but do we want to buy now or wait for a possible deeper correction? At the moment directional momentum in gold is 100% bearish while silver is maybe 50% bearish and 50% bullish. This downward momentum as well as the uncertainty of Washington politics and the raising of the U.S. debt ceiling does not give me much confidence to go long yet. I am therefore remaining on the sidelines until I see some momentum shift and/or some break in the Washington stalemate.
Crude oil prices seem to have stabilized just above a support zone at $100-$102. Like the other markets, crude is likely taking its cues from Washington's stalemate and is poised to rally or fall depending on how this situation is resolved (or not resolved). Crude prices dropped steeply today but remain above support, and momentum continues to be mixed (bullish and bearish). Traders need to keep in mind that should the broad stock market start to collapse, crude would probably go with it (unless conflicts erupt in the Middle East), and we would probably be looking to sell this market short. Still out of this market for now.
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