Post-FOMC Commentary: Delusions of Grandeur

Source: Michael Ballanger for Streetwise Reports   06/19/2019

Sector expert Michael Ballanger reacts to today’s Federal Open Market Committee meeting.

To the surprise of the many and the chagrin of the few, the Fed opted to do nothing with policy today and left rates unchanged despite clarion calls for a cut. As I wrote about earlier, there was (and is) zero rationale for a rate cut, what with GDP humming along and the best employment numbers in fifty years (if you believe them). Stocks moved higher despite several attempts at profit-taking, but that was no surprise because the Fed wanted to make damn certain the response to the statement and the ensuing presser would be a positive outcome.

The victims were bond yields (lower) and the U.S. dollar (lower), but the S&P rose 8.71 (0.30%), while gold had at its highest close for 2019 at $1,364.45. The lower U.S. dollar contributed to the advance in the metals, but we are still caught in a resistance quagmire between $1,350 and $1,375, with the relative strength index (RSI) screaming “Overbought!” after an $80 advance.

I am modestly short (hedged) via the GLD puts and await a signal that all is well and good with the gold trade before giving the “all clear” sign. On five occasions dating back to August 2016 has RSI for the GLD hit 70+, and every single time we got a sharp decline immediately thereafter. Each one of those events saw a sharp increase in the Commercial aggregate short position, which advanced sharply into the rise and led to each of the crashes. In the past two weeks, the aggregate short position held by the bullion banks has exploded from under 80,000 to over 200,000, and that, if nothing else, calls for caution.

( Companies Mentioned: GS:NYSE, )