Let’s start with the main event: The supposed rate hike and Powell’s first presser love-fest.
Do I think the Fed will hike?
Yes I do.
If they are going to keep the illusion that they are shrinking their balance sheet, and by “hiking” 25 basis points, with the float of the overnight funds rate, we’d still be looking at somewhere around a 1.62% effective rate. Hardly any rate at all and still below inflation, thus real rates are negative.
The question is whether the Fed is playing ball on Team Trump?
When the market was coming down in February, I asked if the market was taken down to send a message to President Trump, render Trump ineffective, or curb the masses’ enthusiasm towards him. We will get further clues as we move forward because the one thing that could help in President Trump’s trade wars would be the illusion of a super-strong U.S. economy. So we’ll see.
But this week, it’s all eyes on the Fed.
Monday and Tuesday start the week slow on events:
Bostic may stick his foot in the mouth today, and while Bostic is considered small potatoes in the world of Mr. Potato Feds, Bostic is still a voting member this year. so we’ll see if he can talk the markets, which we commonly call “jawboning”.
On Tuesday the FOMC meeting begins, but those are “closed door” meetings where they’re probably just eating pizza and watching Wolf of Wall Street or Trading Places or something like that.
On Wednesday at 2:00 p.m. EST, that’s when the fun begins:
You see, the Fed has the free will to do whatever they want to interest rates at any time. They don’t have to wait until the conclusion of a meeting to hike, hold or cut, and actually, the best would be to make their move at the beginning of the meeting on Tuesday so they would have a couple days of market action to see and talk about what the immediate effect was, but I digress. They know the effect because they help create it, and for now, they are in control.
But for now, these markets are so massaged, caressed and manipulated that anything other than sticking to the tight script could cause the system to go haywire.
So all eyes are on the Fed on Wednesday at 2:00 p.m. EST.
As a side note, there are also several market moving data releases on Thursday and Friday. It’s very well possible there are two or more versions of that data set up, and depending on what happens to the markets on Wednesday afternoon, if the “desired” effect was not achieved, as in, if the Fed makes a “policy error”, then we could see those data releases with data that brings the narrative back in line.
Do I think the Fed has that much control?
Working with the Plunge Protection Team and together with Stevie’s ESF, yes I do.
The wildcard in all of this is Powell’s speech. That could move markets in addition to the hike. This is the first press conference with Powell at the helm, so it will be a fun one to watch. Grab some popcorn for that one.
With the main event on Wednesday, what can we look for in the markets before and after?
I’m looking for continued pressure on gold & silver. There is the chance the metals rally in anticipation of the move, but we must go with the working assumption that the markets will be prepped in advance for Powell.
Remember, if they smash too hard, especially in silver, there could be a large spec short squeeze which could cause the prep work to backfire.
So on that note, let’s get into the markets.
As we can see, not much has really changed in gold & silver’s performance over the last several weeks:
We’re over 80 across the board and even put in a high print above 81 on the number of ounces of silver it takes to buy one single ounce of gold.
Silver really needs to hold $16.20:
Silver tagged the support overnight/this morning, so we really do need to hold here. Recall that $16.20 is the low end of the sideways channel up to $16.80.
A break below $16.20 could drop us to $16 quickly and we’d really need $16 to hold. But my suspicious is a break below $16 would trigger the stops, which would be large spec buy stops, so there’s little wiggle room. We might win this psychological battle of staying above $16 after all.
Gold came down overnight/this morning as well:
What I really don’t like about gold right now is that we’re painting three lower-lows on that chart, so the short-term trend is confirmed as bearish.
Like silver, let’s look for whole number support to hold, which for gold means $1300.
Platinum still looks downright terrible right now:
Platinum has the same bearish trend as gold with one big difference: Platinum fell below its 200-day moving average on Friday and looks to be opening below it again today.
Palladium looks to be moving up off of its double-bottom:
I really don’t like how the 50-day is starting to really rollover, however, even if the MACD is turning bullish.
If we get pressure on the metals in the next two and a half days up until the Fed meeting, then platinum could turn bearish here.
That is what I am expecting: I’m expecting pressure on all four precious metals, and especially gold & silver, for the next two days, and up until 2:00 p.m. EST Wednesday especially.
Sure, there will be “fat fingers” at the ready after the rate hike, but these markets, in the eyes of the Fed, need to be prepped.
That means look for things like selling volatility, buying S&P futures, and naked shorting gold & silver.
That’s what I’m looking for.
Speaking of volatility:
We’re right at the 50-day moving average. If the fed is selling volatility, we would look for the VIX to head lower, as in down to 15, but it would not surprise me one bit if if falls to 11 or 12.
And for the markets, well, check out the Nasdaq:
The Nasdaq is the index that has Apple, Google, Facebook, etc, so really, there’s not much prep work to do to get that sucker back up to all-time highs in preparation for Powell’s presser love-fest.
Why do I call it a love-fest?
Because they never ask any real questions. It’s a dog-n-pony show of “Hi, Im a fake journalist, Mr Chair, are you pleased with the course of the rate hikes right now?”. In other words, tee-ball questions with answers like “We are, as asset valuations took to some initial shocks, but we can see that it looks like inflation is finally starting ot slowly move back towards our target, blah, blah, blah.”
The dollar is even bouncing here:
The dollar is above it’s looking to open down, but still above its 50-day moving average, so we’ll call it drifting sideways.
One would expect, however, the dollar to strengthen as we move towards Wednesday afternoon, all things considered.
The yield on the 10-year note is still in its range:
Remember, past performance is not indicative of future results, but we would be remiss to say that by the end of the week, we could finally see the break-out in yields to that all too critical 3.0% range.
Commodities are opening the week on some weakness.
Crude is under its moving average:
Although, like I said on Friday, I think crude is setting-up to test and break-out above the moving average.
Nothing has changed thus far in the outlook: Strong commodities and precious metals performance this year, as well as a weakening dollar on rising interest rates, and possibly a crash in the stock market unless they’re just going to print, print, print and sow the seeds of the hyperinflation, which they will do at some point.
But for now, suspended animation. That is to say, we’re drifting sideways in the markets, paused for the main event on Wednesday.
Copper does not look like it’s holding up as good:
That’s a nasty big down candle and the trading day hasn’t even begun yet, and technicals are looking rather bearish, so we’ll see. Once the dollar starts turning on its next down leg, however, I would expect copper to get moving higher.
Just like in silver, they are delaying the action in the dollar as long as possible, because the next down-leg in the dollar could end up at support at 80, or even the upper 70s. But suffice to say, one the dollar breaks down again, commodities should catch a bid.
Bitcoin fell below $7500 over the weekend:
If Bitcoin is indeed “coming of age”, then it’s looking poised to show a short-term downtrend as it’s working in three lower-highs with two lower-lows.
Is weakness in Bitcoin a taste of things to come in the stock market? If it is, and if the stock market is getting prepped going into Wednesday, I would expect Bitcoin to rise in tandem as Bitcoin is a speculative risk asset are stocks.
Bottom Line: The manipulators will want to prep the markets for their main event on Wednesday. It is possible the metals move higher in anticipation of the event because they have long been priced in under pressure all year long, but I still feel it’s going to be a “sell the rumor” (Monday/Tuesday) and “buy the news”(Wednesday to Friday).
The iShares Silver Trust ETF (SLV) fell $0.02 (-0.13%) in premarket trading Tuesday. Year-to-date, SLV has declined -3.75%, versus a 1.36% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Silver Doctors.