Turning Point

There is an important FOMC meeting on Wednesday.  The Fed has their hands full trying to keep full employment going while the country is struggling with how to deal with a global pandemic.  At the June meeting they have announced no interest rate hikes for the next two years.  What else could they say Wednesday that could move the market?  Interest rates could always go negative I suppose.  Looking at the FOMC FedWatch Tool, there is pretty much a 100% chance that interest rates will be left alone.  I am guessing that this will be a big nothing event.

FOMC meetings often act as turning points in the market.  The timing of the dollar IC decline is as though it was written into the Fed calendar.  The stock market, oil and metals rallies should all be complete by this time.  

I am not sure what all this means for our trades such as cocoa or soybean oil but we need to be mindful of these events looking at our euro and gold positions we still hold.  We need to be looking at the markets differently now.  The dollar is on day 4 of a blood bath which usually lasts 5-7 days.  ​This means this event  could conceivably bottom the same day as the FOMC meeting.

​The dollar has given us a failed daily cycle and a failed intermediate cycle.  How much lower can the dollar go?  There are still 2-3 days of blood bath left.  There is support at $93.88 which would be a 61.8% retracement from the 2018 low to 2020 high.  Maybe the decline stops there but if that level fails we could see a free fall perhaps as low at the 78.6% retracement in 3 days.  This would certainly result in panic buying of gold to new all time highs and probalby launch silver to $26.  I am playing with numbers here and would never suggest buying more metals now, but don't count out out a dollar drop to $92 or $91.50.

Stocks

What I am attempting to show in the chart below is that the S&P closed below the 10 day moving average and it broke the intermediate cycle trend line.  This does not mean stocks cannot recover but it is a major warning sign to anybody still holding to stock positions.

We know that the average daily cycle lasts 35 to 45 days and we  know that the average intermediate cycle lasts 20-25 weeks.  This daily cycle will be on day 19 Monday.  Stocks should be trading into their daily cycle low sometime late next month.  By then, the intermediate cycle will be on week 20-21.  These are all in the timing band for a daily and intermediate cycle low.  You are foolish to try pressing a stock trade this late in a daily cycle that is this late into an intermediate cycle.  There are probably 17-22 trading days left before stocks find their respective cycle lows.  This is plenty of time to make a very nasty drop into the ICL.  Stock index trades will be off the table most likely until late August at the earliest.

Gold

We are stopped out of Platinum and Silver but still have an opportunity to make a few more dollars with gold.  It basically boils down to what the dollar is doing which I have already explained.   I intend to keep pushing the stops higher every day until the market takes us out.  My gut tells gold will have a new all time highwhen this happens.

So the difficult grind we endured in the metals is now but a distant memory.  You can see why I kept trying to keep us in these positions when it seemed so difficult.   We captured nearly the entire move the metals have made.  It is time now for us to say we made enough and move on to something different.

Probably the first trade we will make once we have a swing low in the dollar will be to short the euro.  This was the first time I had ever traded the euro and buying the euro was really one of the easiest trades I ever made.  I have mentioned before that the first move out of an intermediate cycle low is the most powerful of the intermediate cycle (except for blow off euphoric moves like metals are having now).  Once the dollar has a swing low, I think we can make a very nice trade shorting the euro.

As these cycles top, I want to mention that the nature of these markets continually change and we need to be able to change the way we trade when this happens.  Over the past two years we have grown accustomed to stock trades being easy and metals trades being difficult.  We could see this change going forward.  The chart below shows how stocks move from easy periods to difficult periods and back to easy periods.  Metals do the same thing.  Let's just keep an opened mind and practice good trading as we look ahead to the next daily cycle.