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Today's Market WrapUp |
Patience Rewarded
Last week I posted the consolidation charts of the major stock indices, the CRB Index, gold, US Treasury Bonds, and the US Dollar. Along with the charts was the caption, “Patience, Patience, Patience.” Sometimes with good investing it’s the patience and discipline in trading that presents the biggest challenges. I’m glad I was able to identify the key factor last week, because the patience played out with some big rewards this week. If you read Jim Puplava’s Market WrapUp from yesterday, it was obvious that “things” are going up in price such as oil, natural gas, precious metals, and most other commodities across the board. Likewise this week, stocks are down, bonds are holding, and the dollar got hammered.
High-Five To All The Goldbugs!!!
Take a look at the one year chart for the HUI (Unhedged Gold Stocks) Index. As I said, patience was rewarded with the upside breakout through two layers of resistance in the consolidation. I have included the green primary channel lines to see where we should anticipate resistance in the current move. On the breakout you can see how the index has popped to the “middle layer” of the primary trend. If we can get to the 150 area on the chart, I would expect a pullback while it regroups prior to making an assault on the next layer. This scenario could also fit with gold pressing closer to $350 per ounce by the end of the year. Today gold closed out the week very nicely to finish at $333.00 per ounce, with silver also finishing strong at $4.69 per ounce. When silver is $10.00 per ounce next year people will look back at today and ask themselves, “How did I miss it?” I consider both gold and silver as MUST HAVE investments in the current financial climate. They are simply the best insurance an investor can own while we witness higher commodity prices and a falling dollar—call it “money insurance.”
Watch For Falling Dollars!!
Now take a look at the US Dollar chart. This is NOT a healthy picture. It certainly looks like the dollar consolidation of the last six months is about to resolve itself to the downside. The dollar is at three year lows versus the euro at $1.02 and also trading weaker against the yen at roughly 120 yen to the dollar. I think everyone sees clearly that the Federal Reserve (and US Treasury) along with President Bush’s proposed stimulus package plan to inflate, inflate, and inflate some more. Our system will collapse with deflation, they know it, and therefore they must continue to inflate the currency. The dollar must come down to get the US trade balance back in order, gold is sending out the warning signs that currencies are in trouble, and we still need to see more of the bad debts purged throughout the system—all debts personal, corporate, and government at all levels. This process will still take a few more years to complete.
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Stocks For The Week Good Timing for a Contrarian View?
I believe that the probabilities favor the first scenario, where we start our next journey lower over the coming week. Also, from a contrarian point of view I’m hearing of way too many people calling for an end of the year rally. If everyone thinks that is what is going to happen, they’re probably going to be proven wrong……..that’s the contrarian way!! Just look at all the bullishness and think of these as being “contrary” indicators. First you have people anticipating a year-end rally, small investors adding $4.8 billion to mutual funds this week, and just today the consumer confidence number came in 87 versus 84.2 in November. This was the best consumer sentiment number for the last four months. Looks like it’s about time for stocks to head south again. |
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Once the War Starts
As a final note, it was interesting to read an article on CBS MarketWatch by Peter Brimelow titled, “More Disturbing Rarely Used Policies.” This is the mainstream financial media talking openly about financial market manipulation!! Others tend to use words like “government intervention” or “managed markets.” Call it what you want. All it really does is prolong the inevitable. This week was a pretty good indication of what we should be looking at for most of next year. Even with all the intervention, we still have gold and commodities going higher, stocks moving down, the US dollar headed down, and record numbers of bankruptcies and debt defaults with interest rates at multi-decade, artificially low levels. I believe that all of these things are happening as they should, based on the extreme excesses of the last ten years.
The government interventions have only worked to slow down the correction process. Once the war starts, we should see the current trends dig-in even deeper. Once the war starts, the Powers-That-Be will have a scapegoat to explain why gold is over $400 per ounce, the dollar has lost 20-30% of its purchasing power, the Dow Industrial Average is below 6000. The trends that are now in place should accelerate as we move into the new year. Hopefully, your investments are positioned to take advantage of the current trends, and not just “hoping” for a rebound of the glory stocks from the last bull market.
For now, I suspect the Feds will try to keep the markets as close to status-quo as possible, especially the dollar. Once the war starts, the dollar will be attacked which will put even more pressure on stocks, corporate debt, and US Treasury paper.
Overseas Markets
European stocks fell, led by Royal Philips Electronics NV and other exporters, as the euro rose to its highest level against the dollar in almost three years, reducing the value of U.S.-generated earnings. The Dow Jones Stoxx 50 Index shed 1.4 percent to 2449.89, retreating for a second day.
Japanese stocks dropped, with the Nikkei 225 Stock Average posting its longest losing streak in more than two years. The Nikkei fell 2.2 percent to 8516.07. The last time the average fell for eight days was in September 2000. The Topix shed 1.8 percent to 835.77.