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The Crisis Before Christmas

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Today market participants witnessed a continuation of the tremendous selling pressure in U.S. equities, as well as a real and respectable surge in gold pricing. However, the vast majority of today’s selling pressure in U.S. equities was related to yesterday’s announcement by the Federal Reserve in which they raised interest rates for the fourth time this year. This marks the fastest pace of rate hikes since they ended quantitative easing in 2015 and implemented a monetary policy of quantitative normalization.

Although it was widely expected that the Fed would announce and implement a 25-basis point rate hike yesterday, market participants and analysts had hoped for or were under the assumption that the Fed would soften its tone and aggressive stance in regards to normalizing interest rates. During Chairman Powell’s news conference, he made no reference suggesting a softer tone that is more data dependent next year.

Currently, December could prove to contain the worst market selloff since 1931, during which time U.S. equities lost almost 15% of value. Factoring in today’s loss of 464 points in the Dow, December has resulted in a net decline of nearly 20% in value. In just December alone, the Dow has given up approximately 3,000 points. After adding in an additional thousand points from the highs achieved in October and dividing that number into the 20,000-point gain, which is the result of the massive 10-year rally from 2009 to present day, traders could experience the most significant decline in history.

What is most worrisome as we move forward towards the end of this year and the beginning of next year is that there are other major factors besides the current Federal Reserve’s monetary policy that could continue to rattle and shake up the financial markets at large.

Including current Fed action, there are a total of four major issues which could haunt the financial markets, in essence ending their tremendous bull market rally that has been so prevalent in U.S. stocks since the 2008 banking crisis ended.

The second issue traders need to focus upon is a potential shutdown of the U.S. government later this week. Add to that is the unresolved trade dispute or trade war between the United States and China. Lastly is the potential for the current Mueller investigation to wreak havoc on the administration as it probes deeper into actions of the president and his administration.

One asset class which has the potential to benefit significantly from such turmoil is gold, as its safe-haven component begins to hold more weight. Gold futures closed up by $7.80 today and is currently fixed at $1,264.20. On a technical basis, the most noteworthy aspect of today’s price increase is the fact that for the first time since May of this year current pricing is above its 200-day moving average. Analysts regard the 200-day moving average as a critical component to determine when a market is currently in a long-term bullish trend. As prices move above this long-term average, it signals a transition from an intermediate bullish trend to a long-term bullish trend. As such, we could see gold move to substantially higher pricing in the weeks and months ahead

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer