The Gold Index
Gold prices fell by over 1.5% to approach the long term lows near $1200. The taper is definitely a dollar positive event and the gold market felt it strongly. The Gold Index fell as well despite the broad rally in stocks. The index made a new closing low today with indicators that are bearish. The Gold Index has been tied to gold prices and I see no reason for that to change at this time. If gold prices remain low or continue to move lower I would expect to see the index move lower as well. My target for a full retracement of the 2008-2011 bull market.
The Oil Index
Oil prices fell in today's trading but the Oil Index mirrored the broader market and rallied higher. The index made a strong on high volume upward from a previous resistance area in continuation of the long term trend line bounce begun earlier this week. Stochastic is indicating a buy but MACD has yet to turn bullish. At this time near term targets for the Oil Index exist around 1480 and 1500.
The dollar got a big boost from today's Fed decision. The dollar index surged on the news but fell back before the end of the days trading. The decision to begin the taper should continue to strengthen the dollar versus the major world currencies, providing the other central banks keep on stimulating their own economies. However, the doji candle stick formed in today's trading is pointing toward indecision. At this time the 80 level is beginning to emerge as support but it may not hold if investors decide it is time to enter riskier trades and begin to leave the dollar behind. Indicators are bearish but show that there is some support at this level. Longer term the index is bullish and may be gearing up for a move up from the 80 level. First resistance will be found at the 30 day EMA and just above at the 81 level.
The yen tanked against the dollar. The FOMC and the BOJ are now moving in opposite directions. The FOMC just began to wean the economy off of stimulus, the BOJ is right now as I am writing this considering an increase in stimulus. Weaker than expected data over the past month or so has led many to speculate that the BOJ could or would increase QE. In fact, BOJ Governor Kuroda has even said much to the effect. Analysts think the third phase of Abenomics may be about to be unveiled. If the BOJ does increase QE in some way it could send the yen sliding even further. Today the yen lost nearly two handles today and broke above the long term resistance of 103.75. MACD and stochastic have turned bullish in unison indicating higher prices are likely. We'll need to watch the 104 level closely to make sure support will hold, my next upside target for the USD/JPY is near the 110 level. If the pair is unable to hold the current level it could retreat as far the 100 or 95 level.
There were quite a few stocks in the news today. JP Morgan's financial battles with the government are far from over. Today the Attorney General of Mississippi announce he was suing the company over how it handled mortgage issues in his state. JP Morgan is also suing the FDIC over claims associated with its having taken over Washington Mutual. JPM is suing for over $1 billion, a small sum compared to the billions it has to pay out in reparation for its role in the 2008 financial collapse. JPM alleges that the FDIC made promises to entice it to take over WaMu that were not honored. JPM stock surged higher today, moving up from the 30 day EMA on high volume. JPM now faces resistance at the $57.50 level.
BP announced that it had made a significant discovery in the Gulf Of Mexico. The find is located about 300 miles south of New Orleans and is located in a deep water section of the Gulf. Shares of BP climbed higher today in tandem with the general markets but only barely made it above the 30 day EMA. Stochastic is indicating a buy at this time but there is still resistance ahead.
Bitcoin took a big hit today. The digital currency got the smack down not once but twice. First, the Chinese government intensified its crackdown by disallowing new cash inflows to Bitcoin operators. This is on top of warning from the U.S. Treasury that Bitcoin operators may have to comply with federal anti-money laundering laws. The value of Bitcoins dropped more than $200 and now more than 50% lower than the all time high set just two weeks ago.
Ford released a statement today giving guidance for the full year 2013 and 2014. The motor company says that 2013 will be one of its best years in history. It also says that 2014 will another great year but has lowered its profit out look for several reasons including recession in Europe, higher than expected costs and numerous product launches. The stock lost more than 6% in today's trading and was one of only a few stocks to end in the red.
Oracle released earnings after the bell. Profits fell from the same period last year but came in ahead of analysts expectations. Revenue was also ahead of expectations for the first time in three quarters. One reason for the decline was a drop in adjusted software licenses and cloud computing revenues. The mixed results initially sent the stock trading to the downside in the after hours markets but it eventually regained its footing, moving more than 1% higher. The stock had been moving higher before the close. It gained more than 2% in the regular session before it even released earnings.
Oracle competitor Redhat reports tomorrow. The open source enterprise software provider is expected to report adjusted earnings in the range of $.25. Today the stock moved higher, breaking above resistance with a moderately strong buy signal. Momentum has turned bullish in tandem with a stochastic buy signal. This could be an indication of high expectations for Redhat earnings tomorrow. Today's action has brought share prices inside a window opened last quarter when earnings were a little disappointing. The entire range from $47.50 to $52.50 can be considered resistance, share prices could reverse at any point within it. Earnings will play a big part in where this stock goes but more importantly it will be future outlook.
The equities market took the news of tapering very well. The S&P shot up more than 2% in response with the Dow and Nasdaq posting similar gains. All three set a new high. The S&P move came from the 30 day EMA and is a confirmation of the bounce that began this week from that level. Momentum is still bearish at this time but quickly receding. Taken in light of the long term up trend in the index this could precede a new up swing in index prices. The stochastic is showing an early buy signal, the %K has crossed the %D but %D is not yet pointing up although it is rolling over. Since this is a new high there is no real resistance, just targets that can be derived from a wide variety of methods. First support is the 30 day EMA.
The Dow charts looks almost identical to the S&P. The Blue Chip index is also making a move up from the 30 day EMA but is also moving up from strong support. The strength of the support is underscored by the stochastic signal which is much stronger than the S&P signal I described above because %D is pointing up. Momentum is bearish but receding and very nearly at the zero line. Once it turns bullish momentum traders could help propel this index higher in the short and long term. My current upside target for the Dow is just above the 16,500 level with support at the 15,750 level.
The Nasdaq's new high was barely that. The tech heavy index made it by about one and a half points with the weakest indicators of the three. Momentum is bearish and receding but not sharply and not close to the zero line. Stochastic is making a bullish crossover but the %D is so weak it is still pointing down.
All in all, it does appear as if the rally is still on. The taper has started and not only did the market not care, it was a catalyst for higher prices. Now that the taper is begun we may be able to put it on the back burner for a while, unless the data starts to show the economy is deteriorating. So long as the data is firm the taper should stay on and the markets could keep on rallying. Now that the known obstacle is out of the way it is time to start looking ahead to what the next one may be.
Tomorrow could be a make or break day for the markets. Today was very bullish but I would feel a lot better with some follow through, or at least some firm consolidation. Economic data and earnings will be the big driver until the next big hurdle reveals itself. Some had thought it might be the Debt Ceiling/Budget issue but that looks like it is going to pass on by this time without any fuss. It could be the impact from Obamacare but we won't get any clues about that until data starts to roll in at the end of January.
Until then, remember the trend!