Tuesday The Pre-Fed View
As a reminder, we have big Data on Wednesday and the problem is that inflation has ticked up since the last FOMC Meeting. Will the Fed say something that upsets the markets? He could say that they will not cut rates at all in 2024. He COULD even mention that they may raise rates .25 to quickly snuff out inflation if inflation continues to increase. We do not know, but I don’t really like the way we are heading into this meeting with the winds of change blowing around.
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For todays report, I really only want to focus on 2 sectors: The General Markets and The Precious Metals. Why? We already know thst Oil put in a dcl and is early in the cycle count, so Oil remains Bullish. The USD has moved sideways and is no longer directly affecting Gold, so I’ll just mention the USD briefly, but let’s focus on the General Markets and Precious Metals as we head into the Fed.
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The General Markets or The SPX as seen here, could still go either way. We have reached the 50sma and this is starting to look as though the markets put in a dcl, but it has reached resistance of the 50sma and a downtrend line. I would say that with the FOMC Meeting tomorrow, this can move higher with the 3rd daily cycle, or it can continue to drop in the 2nd daily cycle. I am biased to the downside though, so why is that?
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The NASDAQ has also bounced to the 50sma and this is actually where I was thinking of going to go short. I’ve been using the SOXX for clearer dcls and the cycle count and we do still have ‘time’ left for another drop. If the Fed were to say that he wants to cut rates soon, this could rally, but if he mentions that increase in inflation and no rate cuts needed, this could sell off.
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The SOXX has made clearer DCLs (lows) and from this chart this looks too early to have put in a dcl. This looks like the timing for a half cycle low. In other words, all of these charts ‘bounced to the 50sma’ and the downtrend, but they look ready for another leg down, and this could start anytime around that Fed Mtg. So…
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Counting the days from the last dcl, that recent low was only on day 22, and that would just be too early for a dcl. You can see that the first and 2nd daily cycle were long (near 50 days), with 1/2 cycle low in between and this would look more like a 1/2 cycle low on day 22. With that, it makes me view things this way: The General Markets ‘Should’ sell off at or before the Fed mtg.
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And finally, we usually conform that a dcl has taken place when the dip is enough to bend the 10sma downward. On this chart you can see that the half cycle lows did not really do that, but what I had marked as the dcl WAS an area where the 10sma clearly turned lower. It has not turned up on this fairly strong bounce too, so we would only be on day 22 at the last low, while the other 2 dcls came in around 50 days. We do have a swing low above the 10sma, but this just seems early, So in conclusion…
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So in conclusion, even though I have not gone short yet, I am thinking that we have another leg down starting now or at anytime around the time of the Fed Mtg. This has actually been mentioned all along (that we would bounce to the 50sma and put in a 5th wave down), but I have to admit, I have a hard time shorting the bull markets until the move down starts. If the Fed says that he may still cut, these markets could probably rally.
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The USD basically looks like a bull flag dip down to the 20ema.
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Important note: Last week we saw Miners starting to run higher quickly, some like MUX, KGC, IAG, AEM, etc were suddenly back at the highs, even though Gold chopped sideways. I said that heading into the weekend, I would want to hold a basket of Miners, because if Gold ran higher on Sunday night and just kept on running, we could get locked out. Well, Gold did not run higher, and now we are heading into the Fed Mtg. Some of my positions were quite large for that possible Gold pop Sunday, so I cut them in half yesterday and will add quickly if Gold breaks higher with the Fed, but for now Gold is just chopping sideways. Let’s take a look at this sector, because it is complex right now:
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GOLD – As a close up, Gold appears to have a day 25 dcl, HOWEVER, past dcls were always around day 32 or so. We started getting shorter daily cycles when Gold became very bullish, but right now we do NOT Have a confirmed dcl and price is struggling at the 10sma & 20 ema. Could this head south? Yes it could , but it should be rather short lived if it does. ALSO WE REMEMBER THAT SILVER looks to be earlier in its daily cycle.
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GOLD – So here you can see the very short daily cycle (roughly day 25) in this run higher since last October. My concern is that Gold was running higher on the discussions of Rate Cuts. The Fed started to hint about ‘Rate Cuts’ or a ‘Pause in rate hikes’ at the end of last year. Gold started higher with talk of rate cuts. WHAT IF the Fed now discusses that inflation is creeping higher so they may not cut rates in 2024? I would say that this becomes a bear flag and drops into a later day dcl. The drop should not be prolonged though.
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This is where it gets tricky. SILVER is interesting, because as I have mentioned in past reports, it dropped for a few days after Gold bottomed. So look at our count for Silver. We have a day 18 low and that is usually too early to be the low. That alone makes it look like Silver could drop lower even if Gold did move higher.
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GDX has a day 23 low. COULD THAT be a dcl? Well, it could and it actually started to look like one last week when Miners suddenly started to run higher. This count is clear with a day 23 low and a bullish surge higher last week, but because Gold & Silver can drag Miners around, we need to be cautious. I do want to show you one final thing, just so you do understand how much of a mixed set up we have here…
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I do want to show you one final thing, just so you do understand how much of a mixed set up we have here:
1. We just saw that Gold could have a dcl, and the last several were dcls in this time period (25 day), but it wont break higher and is under the 10sma and 20 ema. Inflation may change the Feds stance, and Gold seems to have been running on a rate cut chatter.
2. Silver seems TOO EARLY to possibly have a dcl, since it is clearly had a day 18 low, but that COULD be the low if we got a bullish pop higher with the Fed. . so we would expect that it could drop at the fed Mtg. Miners look as though they already did put in a dcl. Price surged above the 10sma and many miners that I am about to post charts of are at the highs already. HOW DO WE JUSTIFY THIS? We can only let it play out with the Fed Mtg and adjust as necessary.
KGC is at the highs
IAG is at the highs
NEM is at the highs
AEM is at the highs
THIS is why I recommended a basket of Miners last week. I am seeing many miners at the highs, even though Gold has not confirmed a dcl and Silver seems to early with a day 18 low. I did not want Gold to just explode overnight Sunday and have these miners gap up to new 1 year highs, without us invested. Now we head into the Fed Mtg though, and Silver looks like it could drop, since that would make the timing match a normal daily cycle. Gold looks like it could go either way. Miners just looked very bullish as they try to catch up to the fact that Gold is at ALL-TIME HIGHS, and Miners are not.
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So now you must decide how you want to be positioned with all of the above evidence as we head into the Fed Mtg. It is a very mixed picture, and it is a bit confusing. The Miners have remained bullish and some have not pulled back very much at all during this Gold & Silver dip into a dcl. I had some very heavy positions in my basket and I decided to just cut them in half, so that I can add back lower IF they drop with the Fed Mtg. This is a mixed picture for the Precious Metals, but the General Markets do seem like they want 1 more leg down, so I am prepared to short that sector after the Fed if the set up remains the same. Enjoy your Tuesday trading.
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~ALEX
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BITCOIN is basically doing what I thought it would with that failed daily cycle.
When we get to the day 60 area, this may offer an EXCELLENT buying opportunity, but for now it has failed and then was rejected at the resistance area of the 50sma. It will likely stay under the 50sma for the rest of this daily cycle. I have mentioned that I am watching the $48,000 to $52,000 area to possibly bottom .
