Well, tomorrow is the "big day", the day the Federal Reserve and Janet Yellen may announce the first interest rate hike in nine years. Investors and analysts seem to be divided on whether the Fed will hike rates now or wait until October (or even longer), but because of worries over China and some recent lackluster economic data, many are anticipating another delay in the rate hike. The broad stock market is reflecting this view with its strong rally today. This was not unexpected. I wrote in last Sunday's blog: "One possible scenario is for the market to rally into the next strong reversal date (the third week of September) and then turn back down for a new low into late October or November." Because this market is rallying into this reversal period (which starts today and ends next Friday) we should be looking for a top and then a reversal back down soon. If the Fed decides to raise rates tomorrow, that reversal could happen over the next two days. If instead, as many seem to think, the Fed delays a rate hike, then the market could continue its rally into next week and perhaps top out and turn down then. From a technical standpoint, the current rally in equities still looks like a "dead cat bounce", and I am maintaining my bearish view.
We will maintain stop losses on our short positions around 17,000 in the DOW and 2040 in the S&P 500. I am going to allow some "wiggle room" above these numbers because a rate hike delay by the Fed could propel a rally to these levels quickly, and a top and reversal could be delayed into late next week. Holding my short position in the broad stock market.
The "no rate hike" sentiment also permeated the precious metals markets today and caused a spike in gold and silver prices. A rate hike delay is perceived as "dovish", and investors are likely thinking that this could push down the U.S. dollar and lift precious metal prices. They would probably be right under normal market conditions, but remember that recently the dollar seems to be moving in sync with the broad stock market. This means that a delayed rate hike could lift equities and the dollar at the same time, and this would actually be bearish for gold and silver. Before today's spike, it had seemed like the precious metals were going to fall into their strong reversal zone (Sept.16 - 25), but now we have the possibility of a rally instead. As with the broad stock market, we should now be watching for a top and reversal which could happen this week or next. We are still short in silver with a stop loss around $15. I would suggest using an automatic stop loss trigger on this position as things could get wild tomorrow and silver can be very volatile and make big moves in short periods of time. This surge in the precious metals may be very short-lived so even if we're stopped out of silver, we may look to go short in both gold and silver sometime before the end of next week. An alternative bullish scenario could develop if the Fed decides to hike rates tomorrow. In that case, both equities and the dollar could tank, and there is a possibility of gold and silver breaking out of their current bearish pattern. We will have to wait and see how this plays out tomorrow and Friday. Holding my short position in silver (with a tight stop loss) and still out of gold.
Crude oil prices surged up with the broad stock market today. This commodity is also rising into the center of a strong reversal zone which ends next Wednesday (the midpoint is tomorrow). If crude can reach or break above its August 31 high of $49.30, we may have a good opportunity to sell this market short this week or next. A good target for a top would be $50 - $55. Out of this market for now.