You should have added shares of independent oil & gas producer Sanchez Energy (SN) to your E-Wave Trader portfolio based on our recommendation in the last trade alert.
SN is under pressure again today as oil slides below $46 a barrel, but I expect both crude and SN shares to rebound nicely in the weeks ahead.
Oil and energy stocks are both extremely oversold and overdue for a rebound rally. So continue to hold.
Meanwhile, gold is sharply higher this morning and mining shares are up even more after the latest batch of U.S. data out this morning — on inflation and retail sales — once again fell short of expectations. This is a trend that has been in place for some time now.
But in spite of the hard data that is consistently painting the picture of a softening economy, the Fed ends its two-day policy meeting this afternoon, and seems hell-bent on raising interest rates again, regardless.
The market is pricing in a near-certainty of another quarter-point rate hike today. The fourth baby-step hike since the Fed began normalizing rates in December 2015. After today’s move, the Fed funds rate will now be at a whopping 1%.
Expect plenty of sound and fury, likely indicating nothing important, in the Fed’s post-meeting statements and in Janet Yellen’s press conference today. Nevertheless, they’re likely to spark some volatile moves in markets, especially bonds, the dollar and gold.
Investors are expecting to receive the latest word on the Fed’s outlook, together with an updated “dot-plot” assessment of where interest rates are headed. Most importantly, anticipation runs high for details about how and when the Fed intends to unwind its bloated balance sheet of $4.5 trillion in Treasury and mortgage-backed securities.
Word to the wise: Forget all the Fed’s mumbo-jumbo because they don’t have a clue as to how to get out of this mess.
They’re just making it up as they go along. Instead of economic data and dot-plots, the Fed might just as well be using a Ouija board or tossing coins in the air to determine their next moves.
Look, we’re completely in uncharted territory here. The Fed’s massive experiment with quantitative easing, manipulating financial markets in the process, has been going on for nearly a decade now.
Nobody knows for sure how it will end because there are far too many unintended consequences at work. But I can tell you that, based on my experience, it will likely end badly, disrupting markets in the process.
That’s the way nearly all economic expansions and bull markets end, with a Fed policy mistake of being too tight, or too loose, with monetary policy.
Nobody really knows how high rates can go, or how much the Fed can reduce its balance sheet, without triggering a market meltdown. It’s all guesswork, plain and simple.
I can tell you this, expect ALL markets to remain volatile through the summer months, with sharp swings both up and down. This includes stocks, where our E-Wave forecast model continues to call for a steep correction, as well as bonds, oil, the dollar, and yes even gold and silver.
Importantly, we intend to take full advantage of these volatile swings from both the long and short side of several markets. So stay tuned for more trade alerts.
In fact, we expect the yellow metal to be in a volatile trading range for the next several months, with yet another correction in store this fall, before gold enjoys a strong year-end rally into 2018.
The good news, as noted in the chart above, is that the junior miners seem to be leading precious metals once again, a bullish sign.
Precious metal stocks likely bottomed in May, right on cue with our forecast. From here, the E-Wave cycle forecasts an uptrend, also with some sharp swings both up and down, but with mining shares moving higher through late July.
As stated earlier, we have several new trade ideas lined up to take advantage of volatile market moves. We are just waiting for our E-Wave models to signal when it’s time to pull the trigger. In the meantime, hold all open positions and stay alert for more updates.
Good investing,
Mike and David
