Federal Reserve Comments Boost Market
Yesterday the DOW closed down more than 170 points. This was largely due to Wal-Mart, a DOW component, trading down 10% after reporting that its full-year sales would be flat and that they expect earnings per share to decline by 6-12% next fiscal year. This combined with the weak retail sales number of 0.1% shows that the economy is not growing. With this situation the Federal Reserve cannot even think about raising interest rates.
Today the market was quiet until one of the Federal Reserve board members said that the data shows the economy slowing. At around 12:30, following this announcement, I got a buy signal on the market and it took off with the DOW closing up more than 210 points. The market is responding to what the Federal Reserve says. The Federal Reserve tried to get the market going with quantitative easing and they created an excess of 4.5 trillion dollars on their balance sheet. There is not much more the Federal Reserve can do, however they can talk the markets up. The Federal Reserve saying that the data is showing a slowdown in the economy helped the market realize that the Federal Reserve is not going to raise interest rates anytime soon. The Federal Reserve is going to do anything they can between now and the end of the year to get the market back up, erase the losses, and have some type of a gain. As I have been saying since January, I do not believe the Federal Reserve will raise interest rates anytime soon. I also believe they will continue to talk the market up by hinting that they will not raise interest rates.
Today’s oil inventory number came in much higher than expected at over 7 million barrels. Oil traded down to 45.23 and then reversed at the end of the day, closing up in the 47 range. I stated that I was looking for a pullback in oil into the 44.50-46.50 range. Yesterday oil traded down to 45.94 and then traded back above 46.50. I stated that I would be looking to be flat oil going into today’s inventory number. I am now on the sidelines, waiting to see what happens with oil in the next couple days.
Today gold traded up to 1191 before trading down to around 1183 at the end of the day. Even with this close gold is significantly overbought on the daily charts. I am looking for a pullback in gold to make a higher low. I am waiting for an oversold condition on the daily charts where I would look to enter a long position that should last 4-6 business days.