Money has rushed out of commodities in the last month and undoubtedly stocks have rallied. But somehow, the action is not commensurate with the bashing of commodities. We believe this is going into the dollar and the bond market. The bond chart shown above has raced, unlike the stocks which have drifted upwards. However, the chart is unsustainable and is at key resistance levels. The bearish divergences are showing blatantly. Fundamentally, this is the market saying, drive the real interests down since there is no threat of inflation.
We believe, a reality check is imperative here. Stocks rallying on decreasing commodity prices is unsustainable, since there is a fundamental conflict of interest.
On a longer term (a year or so) :-
The US dollar has been rallying based on the belief that the US was first into the recession and the world is lagging 6-12 months behind. And it will be the US bringing the world out of recession. We don't believe this is quite true. The US economy is dominated by consumer spending. The US has proved to be a credit defaulter, with massive writedowns. Consequently, the US will not get loans to consume once again. The world is barfing now because it lent the US economy. We believe the world will come out of it. And ofcourse, credit lenders around the world will continue lending, but only to more credit worthy customers, just not to the US.
24 comments:
So where should we put our money? So should we short the market?
In the long term (5-10 years) -- probably want to be in strong currencies, especially avoiding the dollar and US markets.
In the short term (next week) -- hold on lets see what the markets tells us. If we can get a bounce in commodities, you can buy the miners.
In the intermediate term (2-3 months) -- the SPX is going to see 200d in the next 2-3 months. I think the "true" bear market rally will start in september sometime. You probably want to be buying the chinese markets I think. That market looks prime to taking off (atleast to me)
I think in about 5-6 years, gold may be $5000. I saw a chart showing the ratio of dollar to gold. It was an all time high in 2000. The baseline was 1:1.
I guess, we will know that the excesses are all done when that happens.
http://home.earthlink.net/~intelligentbear/com-dow-au.htm
is the link for it.
Very nice analysis, you can almost time your next gold stocks buy point.
I think we will see the true bear rally in the next couple of weeks if not sooner. When the DOW gets close to 12,000 and S&P to 1320 it's.
DXD, SDP, QID looks good..
China market? FXI?
On another note...what do you think about US airways selling 22 million shares?
Clarke, I have a few questions:
1. Is SKF a safe buy at this level(118)? or will it fall to 105 level in the next few days or until the bear market rally begins?
2.Short term dollar will pullback which means gold will move up to 850 level? And then if dollar moves up long term is that when gold will fall to the 720 level maybe 600 do you think it will fall to this level before it rally long term?
3. If dollar is long term bullish would that help market move up?
4.I have read that the dow will move up anywhere between 11900 to 12400 before it takes the plunge, but to me 12400 seems kind of high? Will the move up in the dow help the energy stocks ie oil move up?
Hi mimi,
1. Is SKF a safe buy at this level(118)? or will it fall to 105 level in the next few days or until the bear market rally begins?
If the market breaks the ascending trendline, SKF would be a nice way vehicle to use. I tend to stay away from financials(at least now) since they are extremely news driven. But GS, JPM are beginning to show weakness, indicating there is some more pain for the financials.
2.Short term dollar will pullback which means gold will move up to 850 level? And then if dollar moves up long term is that when gold will fall to the 720 level maybe 600 do you think it will fall to this level before it rally long term?
I believe there will be a gold rally soon. I don't know the level at which it will stop. But I know there will be a rally, until people are scared to short the gold/commodities. Right now, every tom/dick and harry is making money shorting commodities and buying airlines/ethanol etc. Technically, we may have a rally until the 3/5 day RSI will get overbought. I believe 850 is a first target. Same with oil. We could see 120-125.
3. If dollar is long term bullish would that help market move up?
I don't think there is a direct correlation. The market may see some international money pouring in as the dollar continues to strengthen. But the flip side is - stocks are appreciating holding their nominal value. For e.g. AAPl is say 170$ today. After a month if the dollar appreciates by 10%. The AAPL stock can depreciate by 5% and still be valued at 5% more than what it was.
4.I have read that the dow will move up anywhere between 11900 to 12400 before it takes the plunge, but to me 12400 seems kind of high? Will the move up in the dow help the energy stocks ie oil move up?
I am expecting to see a huge rally starting sometime in late september/october or so and into the elections, which will lead many to (falsely?) believe the bull has arrived. I don't know what the DOW will be, but my guess is we will hit the 200d on the DOW again, if not take it out also. We might see 12400 on the dow, that is quite difficult to say for me. It is possible that you will get energy stocks at 10-15% cheaper by the end 08/beginning of 09. It would be a prudent thing to load up on them and hold on. Commodities and energy are the only companies with real earnings.
This is my macro economic opinion:-
The US has only 2 options to come out of this mess,as in to pay off debt.
1) inflate their way out, by printing money left and right (like what they are doing now)
2) pay off debt with "good" money and face a recession.
Either ways, the dollar is going to have to fall next year onwards. Commodities/energy is going to sky rocket into 2010.
Clarke,
End of a quarter (September) brings rebalancing of funds, and usually it starts the last week of the month and carrys over to the first week of the following month. These 2 weeks will be down...so maybe second week of October it rally through elections.
I think this week or early next week we start the fall..10,000 DOW?
Buying DXD at 55-57...I like SDP, but waiting to see if UTIL falls to $458.
mimi, I am not buying/selling the index ETFs just yet. The ascending trendline is still intact. If we break it, we can set targets then. DOW 10000 is unlikely imo, atleast as of now. We have come a long way down from the last time around.
DXD seems alright if the dow breaks the trendline.
SDP? - you are shorting energy. Whoa! I am on the opposite side of the trade then. I bought some energy late last week. I don't if this is the bottom. But the yearly trend is up. So I will keep adding to my positions, at support levels. My guess though is for a bounce sometime next week. My target for CHK as I mentioned before is atleast 51. Energy names have been pummelled to the ground.
Not in SDP yet..I will only get in if I see the $UTIL fall to $458.
I agree that you will see a bounce in energy next week, but I see the dollar down and gold consolidating.
If we break 11700 then I think we are heading right under 12000...then???
What did you buy last week? USO?
I we break 11700 12000 is our first stop. On the SPX which makes more sense (since the index comprises of more companies) , there are targets almost every 15 points - 1320,1335,1350 and 1365.
I bought CHK, as I posted on my blog, not USO. I see you are waiting for a break of support on the UTIL chart. It is definitely a plan. It could happen, given that crazier things have happened in this market.
On the question of a no brainer trade of where to put money in the next year or so, I think shorting bonds would be a good idea. Interest rates have to go much higher than where they are right now. For this take a look at TBT or PST. The FED will need to mop up all the liquidity, by increasing the interest rates sooner or later.
When the market tanks dont you think Treasuries would be a good place to hide? TLT?
The correlation is not exact. Also, in the long run, the interest rates have to increase.
Clarke, after reading everything I can get my hands on this weekend..I look for the following to happen:
We are going to drop, and it may happen this week. Tuesday reversal day?).I think we may rally Monday and maybe into Tuesday.
Energy stocks move up, dollar will fall, gold will move up...
As soon as the S&P hits 1320 we may need to watch it in increments of 15 as you noted.
With this said I am looking at:
Gold when it moves above 840 will be looking at DZZ, and will remain in DZZ until gold falls to around 600. Then when I am confortable that it had bottomed I will look at GLD or GTX.
When the freefall begins in the DOW...I will buy DXD around 56-57.
When $UTIL hits 458 buy SDP around 64. Right now SDP is at 62.58, but waiting confirmation that $UTIL will fall to 458. If it does fall this will correspond to higher interest rates and a stronger dollar.
Mimi, it is surely a possible scenario and it is always a good plan to have. As you say, an energy bounce in on the horizon. I don't know what will happen to the dow.
I don't know is gold will go to 600.
Only in the recent past have oil and dow been inversely related. Historically the correlation is not true. For e.g even last year, both oil and dow rose. fundamenally, also demand destruction and oil going lower doesn't mean the economy/market is better off.
Recent sell off in silver and gold, even after the miners bottomed out means, some hedge fund had a forced liquidation. This usually means, the price is quite cheap. I don't know how low we go on gold.
In short, I would prefer to wait to see what markets tells us. This is an interesting and dangerous market to tread. As of now, it is possibly just a 65-35 chance that the market goes down. Lets have confirmation.
I agree...I am on the sidelines for now.
Correction: Not GTX...I meant GDX.
I wonder which one would be better GDX or GLT for the future?
probably the miners themselves, GDX. It adds a bit of leverage. So, if we are on the right side of the trade, the profits could be more than just buying the pure metal
I'm 85% in cash now in my stock account once again while my mutuals and retirement funds are still conservative, as they have been most of the year -- lots and lots of bonds. Going to preserve capital and wait to see what the market is going to do. The last three weeks were great, but there is lots of uncertainty once again. For awhile there we could get fair to lousy numbers from earnings reports and the market would shrug them off and go up. Now we are getting half way decent numbers (e.g. Lowes, Home Depot, Target) and the market ignores them and goes down due to other more urgent concerns (inflation, spreading credit crisis, world economic slowdown).
I did manage to do well on the PCU dividend play. Bought on Friday, sold on Monday, ex-dividend day, for 0.5% profit, and should get the 2.4% dividend in September.
If someone is like me who is chicken little on going short and staying short for very long, then you look to the defensive sectors during times like these, so I'm watching RXL or UGE for a possible place to put some of my money. For now, though, I may stick with daytrading and return to cash before the close and sleep well each night, not worrying about how the market will open the next day.
Nice one hil. If you are looking to go short, look at SRS on any pullback. That one seems to have some more ways to go.
An expert visiting commentator on CNBC put it well this morning and summarized what my view of the market has been for some time now. He said the bears and bulls are both frustrated. Economic growth is between 0% and 2% and will likely remain that way for quite some time. The bears are frustrated that it is not negative. The bulls are frustrated that it is less than 2%. He said we will have little rallies and then the credit and housing mess will rise up again and we will pull back. He said you should sell what is up and buy what is down and try to make a little money. Not bad advice. I bought LTL yesterday since it was down hard. Hope it is up a little today or tomorrow. It is very low volume and is subject to wide fluctuations, so I'll try for a profit sell at the open -- fingers crossed.
Clarke..you havent posted in awhile?
will do tonight/tomorrow mimi. Work is killing me
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