12-5-2007
I record and publish two Mid-Day Video's: One on Gold and Silver along with one on Stock Indices. These are in addition to the in-depth nightly video I record that specifically covers charts and my market opinions on all the major futures markets.
The link to my Mid-Day Videos is below. Be sure to click on the RSS feed to know when a new video is posted. I do my best to record and get these posted by 1:00 P.M. CST.
http://www.iepstein.com/videos_start.aspx
I am writing this report a day early as it is snowing in Chicago and I have decided to go to Florida in the morning. How's that for a fast market decision?
All kidding aside, I am leaving for Florida for the weekend and want to get this report out today. I feel I am missing little since my trading policy is to not put on new market positions in front of major market reports. Tomorrow the European Central Bank (ECB) and Bank of England (BoE) meetings take place.
The US Dollar has forged a bottom. Hard to believe, but yes a bottom has been forged even with all the bad credit news that seems to inundate this market daily.
The hard break today in both the Eurocurrency and British Pound have many traders believing that both banks may begin the process of lowering interest rates as early as tomorrow morning. Should they do so, our Fed will have to take that action into account.
Further complicating our Federal Reserve's decision next Tuesday is today's jobs data that was released by ADP. I personally put little stock in this report as it seems to have too many modifications made to it. The ADP Report showed an increase of $189,000 private sector jobs in November. Nearly triple what was estimated. In addition our government released a report showing increased productivity in our economy.
What does the Fed do....
The Fed has the edge here. It gets to see both the results tomorrow of the ECB and BoE decisions and the market places reaction to both. In addition the Fed gets to see Friday's Job Data.
The impact of a cut by the ECB and/or the BoE should initially prop up the Dollar. In fact you saw speculation of that today. Like a poker game, the next "call" will be the Fed's. Assuming either or both the ECB and BoE make rate cuts, the Fed almost has to in order to stay near parity.
This brings up the call my many for the Fed to "get ahead of the curve". Many economists think the only way to do that is by cutting with 50-basis points and doing something at the Discount Window to lengthen the amount of time loans are made at that window.
If the Fed cuts interest rates by 50-basis points, the message taken by the markets will most likely be taken in one of two ways. Analysts will either say that the Fed moved to get ahead things, which the stock markets will most likely rally off of, or they may say that things are so bad, the Fed has to move fast to try to avoid a Recession.
I'm not smart enough to know and therefore will not make a new recommendation in either silver or gold until after the FOMC Meeting. I'd rather have my "ammunition" ready to fire, than "spent".
My opinion is that there will be a rate cut. Given that the Fed will have a lot to digest over the next 6-days, I think trying to predict how much they'll cut and how the markets will react to it is simply not something I wish to expose myself to.
Therefore, I recommend holding the long Gold and Silver Calls already in place into the FOMC Meeting. This has been our strategy going into December and I see little reason given the strong seasonal influences that have tended to drive these markets at year's end.
As you can see, momentum historically speaking is to the upside in December as compared to previous months.
Look at the Daily Chart of February Gold below, but in this week's chart I am going to include just the 18-Day Moving Average of Closes and a proprietary study I use called Swinglines.
The "Yellow Lines" on the above chart show a Swingline Study. Swinglines define Trend. In this case each most recent low is lower than previous lows and each most recent high is lower than each previous high. You see this by looking at where the Yellow Line turns up or down.
I am labeling 814.9 as the most recent high since we don't know how today will close. If Wednesday's low of 797.0 is taken out or if the market today does not take out Wednesday's high of 813.0, than 813.0 will take the place of 814.9. In essence the highs will be moving down.
So what will turn the trend up?
The answer is taking out the most recent high. The reason is that prices would than begin a pattern of higher highs and higher lows, over the 18-Day Moving Average of Closes displayed on the above chart as a red line.
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You sit and wait, probably until next Tuesday's FOMC Meeting has come and gone.
While doing so, I intend on hold the February Gold 830-850 Call Spread recommended a couple of weeks ago.
Next, let's spend a moment or two looking at the Silver Seasonal Chart provided by Moore Research (MRCI).
As you can see on the above chart, silver often moves higher in December.
Now look at the chart of March Silver below.
In order to comply as gold must, the trend has to turn up. It is currently down.
Why?
Because the market currently has a pattern as shown on the Swingline Study which I've laid over the March Silver chart above of making lower lows and lower highs.
Do nothing new until after the FOMC Meeting on Tuesday.
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