Looking across all my charts this weekend, it is hard not to think that we are at or nearing a major cross-roads affecting all markets. My word for the year was “Inflation”. Just a few weeks ago even Barron’s, a top US financial paper, had a huge “I” on its front cover. At the beginning of the year, it seemed to be a rather way-out view but now that everyone is talking it, I am getting nervous about such agreement. This suggests to me that over the next couple of months, we are going to have to pay even closer attention to all the signals that markets are giving off.
Just as an example of what I mean by watching all the signals, I have included a chart of the US Treasury ten-year yield. At the beginning of this year, this market broke topside out of a beautiful base pattern making it what I thought at the time was one of the best two looking charts for this year. As we all know the ten-year yield ran quickly up to around the 1.75% range. However, for the past couple of months it has been locked in a sideways pattern. If this chart breaks topside, it would mean higher rates (and probably some sort of re-run of the 2008/09 housing credit cycle) but if it breaks down then it may well mean that the inflation scare could be short lived. I can allow this chart to even back-peddle to around 1.4% without having a major affect on the economic outlook but as I said earlier, now that everyone is beating the inflation drum, I am really nervous that we might be ignoring signals over the next few months that could prove the inflation argument was only short-term. And just remember, that rates in Australia have followed the same path so this is not just a US phenomenon.
When we look at other markets – New York continued higher this week but the Dow has still not been able to make it back up to that target area of 35,000. Indicators are still mixed – my Geniuses are back up to 68% invested after being at 44% last week. So they have ploughed some of that money that was on the sidelines back into the market but there is still a handy chunk left for them to mull over. How many more days will they need to use it up? Meanwhile quite a number of the “big names” have been back on the positive lists as money scrambled to find a home. However, I was rather concerned how the indices in New York mostly all closed on Friday near their low for the day after a strong trading session.
The same sort of decisions coming up on the US dollar. Still holding around the lows registered earlier in the year which just happens to coincide with the long-term uptrend. Talk about finely balanced. However, here again I am very concerned that there is suddenly so much bearish talk as to the demise of the dollar etc. Markets don’t like doing what everyone thinks is going to happen. At the same time, the daily effect of the dollar movements on the precious metals is very clear. Gold is currently consolidating having broken the downtrend I highlighted a few weeks ago. My indicators here are getting quite overbought but as we know, markets can stay overbought for an extended period. Just something else to be aware of. As well looking at the chart of Sprott’s Silver Fund PSLV (which is backed by fully allocated metal and I think this could become very important over coming months) is quite enlightening. It has pulled back up under the resistance from the high last year. I think this may be a good indicator for precious metals over coming weeks.
Meanwhile the cryptocurrencies are giving the best example we have ever had of the 1637 Dutch Tulip Bulb boom.
And can you believe that our market, having exceeded the last high, is still in the same pattern that we have been locked in since November last year. The major buying pressure here seems to gravitate between the major miners and the banks with smaller “fashionable stocks” having a turn in the background. On the speculative side, I really am concerned that there seems to be even more “ramping” of stocks taking place. Just remember if you are new to this game, morality is not one of the high points of the markets.
(20min delay)