AN OVERVIEW OF FINANCIAL MARKETS FOR THE SECOND HALF OF 2013
I would like to post some brief comments about where I think the markets that I follow on the website (i.e. the U.S. stock market, crude oil, gold, silver, the Swiss Franc and U.S. Dollar) will be heading over the next six months or so. Because I write the Trading Blog several times a week I am often focusing on short-term patterns and cycles in these markets, and I realize that blog readers may not be aware of the medium and long-term patterns that I am also using to make my trade decisions (although I do try to point out some of these to make my stategies more clear).
The following comments are intended to give a broader overview of the markets.
GOLD AND SILVER
It looks like gold and silver are now setting up for a major long-term rally that will likely take both metals to new highs and possibly much higher. The recent crash in the prices of both these metals is thought to be a major corrective phase in a longer-term bull market that began in 2000 and will continue to be bullish for at least several more years.
The bottom of this major correction may already be in with gold's $1321 low and silver's low at $20, but there is some chance it is still forming and prices may drop to new lows before the end of the year. [UPDATE 6/28/13 : Prices have broken below $1321 in gold and $20 in silver so the final bottoms are still in the process of forming.]
This corrective low is presenting a rare buying opportunity for investors in precious metals before prices begin to take off again. In my opinion, precious metals are currently one of the best investments going (but I would advise new investors to hold off buying until we are reasonably certain that the current corrective phase bottom is in).
U.S. STOCK MARKET
The U.S. stock market is also looking like it has the potential to make dramatic moves (both up and down) over the next six months (and longer) and may present some excellent opportunities for nimble traders. This market could be in a "blow-off" mode (fueled by the Federal Reserve's policy of continuous quantitative easing, media driven positive public sentiment, and other forms of market manipulation) and, if so, it has the potential to rise rapidly in a short period of time. Of course, a blow-off is always followed by a severe crash, and calling the top of such a market can be very difficult. Many of the financial analysts I study believe that a crash in the U.S. stock market similar to (or possibly worse) than the one in 2008-2009 may be just around the corner (i.e. sometime over the next several years). In such volatile markets traders must be alert and nimble, but good profits can be made in relatively short periods of time (going long as well as selling short). Despite the potential bullish blow-off energy in the stock market now, I am expecting a significant correction (maybe 10% or more) within the next several months, and we will want to watch for trading signals to sell short then. After the correction, though, the market may resume its buoyant rally.
[UPDATE 11/27/13 : The DOW has taken two 5% corrections since June (one in August and one in September), but in both instances the index bounced back and fully recovered within two weeks. It now looks like the bigger correction I had been expecting before the end of this year may be pushed into early next year. The recent promise of more QE from Janet Yellen combined with holiday season optimism may fuel a "Santa Claus" rally into the end of the year.]
CRUDE OIL
Crude oil, which usually follows the stock market, should also be making a significant correction shortly (within the next month or two) which we will try to sell short. Once this correction is over, crude should turn bullish again and perhaps rise in sync with a "blow-off" bullish stock market. It should also be kept in mind that any escalating tension in the Middle East can light a fire under oil prices (as it is doing now) and accelerate any rally (or reverse a downtrend).
[UPDATE 12/1/13: Crude oil made a 7% correction in late June and then experienced a vigorous rally into late August that culminated with a steep surge fueled by the Syrian crisis. Prices have since been falling from that "blow-off" top (that peaked just under $108) and for the last two months oil and the broad stock market have diverged and are moving in opposite directions.]
THE SWISS FRANC AND U.S. DOLLAR
In March and April of this year the Swiss Franc appeared to be establishing a baseline and support (at 1.050) for a new bullish cycle and rally but then it suddenly turned bearish in May and dropped to a new low (around 1.020). This May low could turn out to be the bullish turning point we were expecting, but this is not clear at the moment. A major bearish factor now weighing on the Swiss Franc is the rapidly weakening European economy due to the fact that the value of the Swiss Franc is now pegged to the Euro.
Several financial analysts I study are very bullish on the U.S. Dollar for the year 2013. Why would global investors be attracted to the currency of a country (the U.S.) whose present economy is shaky at best and possibly on the verge of collapsing into a deeper recession/depression? The simple answer is that other major global economies (specifically Europe and Japan) are in even worse shape, and as the old proverb goes: "In the land of the blind, the one-eyed man is king". The dollar's strength, however, now seems to be in question as the U.S. Dollar Index broke down early this month from a bearish chart pattern that had developed over the previous four months. While it is possible this plunge is just a temporary correction, momentum in the U.S. dollar at the moment is 100% bearish. The direction of the Swiss Franc and U.S. Dollar for the rest of the year is, therefore, unclear at the moment (due primarily to the recent dollar breakdown). However, because a sudden recovery in Europe and Japan's economies seems unlikely, the dollar could reassert its bullish momentum before the year is over. We will have to wait and see.
[UPDATE 7/2/13: The dollar appears to be recovering from its breakdown and momentum is now medium-
term bullish.]
[UPDATE 9/1/13: The dollar seems to have recovered from its correction and its momentum is nearly
100% bullish again.]
[UPDATE 9/19/13: Wow! What a roller coaster ride! The dollar is "crashing" again. Over the last five days
momentum has switched from 100% bullish to 100% bearish!]
I would like to post some brief comments about where I think the markets that I follow on the website (i.e. the U.S. stock market, crude oil, gold, silver, the Swiss Franc and U.S. Dollar) will be heading over the next six months or so. Because I write the Trading Blog several times a week I am often focusing on short-term patterns and cycles in these markets, and I realize that blog readers may not be aware of the medium and long-term patterns that I am also using to make my trade decisions (although I do try to point out some of these to make my stategies more clear).
The following comments are intended to give a broader overview of the markets.
GOLD AND SILVER
It looks like gold and silver are now setting up for a major long-term rally that will likely take both metals to new highs and possibly much higher. The recent crash in the prices of both these metals is thought to be a major corrective phase in a longer-term bull market that began in 2000 and will continue to be bullish for at least several more years.
The bottom of this major correction may already be in with gold's $1321 low and silver's low at $20, but there is some chance it is still forming and prices may drop to new lows before the end of the year. [UPDATE 6/28/13 : Prices have broken below $1321 in gold and $20 in silver so the final bottoms are still in the process of forming.]
This corrective low is presenting a rare buying opportunity for investors in precious metals before prices begin to take off again. In my opinion, precious metals are currently one of the best investments going (but I would advise new investors to hold off buying until we are reasonably certain that the current corrective phase bottom is in).
U.S. STOCK MARKET
The U.S. stock market is also looking like it has the potential to make dramatic moves (both up and down) over the next six months (and longer) and may present some excellent opportunities for nimble traders. This market could be in a "blow-off" mode (fueled by the Federal Reserve's policy of continuous quantitative easing, media driven positive public sentiment, and other forms of market manipulation) and, if so, it has the potential to rise rapidly in a short period of time. Of course, a blow-off is always followed by a severe crash, and calling the top of such a market can be very difficult. Many of the financial analysts I study believe that a crash in the U.S. stock market similar to (or possibly worse) than the one in 2008-2009 may be just around the corner (i.e. sometime over the next several years). In such volatile markets traders must be alert and nimble, but good profits can be made in relatively short periods of time (going long as well as selling short). Despite the potential bullish blow-off energy in the stock market now, I am expecting a significant correction (maybe 10% or more) within the next several months, and we will want to watch for trading signals to sell short then. After the correction, though, the market may resume its buoyant rally.
[UPDATE 11/27/13 : The DOW has taken two 5% corrections since June (one in August and one in September), but in both instances the index bounced back and fully recovered within two weeks. It now looks like the bigger correction I had been expecting before the end of this year may be pushed into early next year. The recent promise of more QE from Janet Yellen combined with holiday season optimism may fuel a "Santa Claus" rally into the end of the year.]
CRUDE OIL
Crude oil, which usually follows the stock market, should also be making a significant correction shortly (within the next month or two) which we will try to sell short. Once this correction is over, crude should turn bullish again and perhaps rise in sync with a "blow-off" bullish stock market. It should also be kept in mind that any escalating tension in the Middle East can light a fire under oil prices (as it is doing now) and accelerate any rally (or reverse a downtrend).
[UPDATE 12/1/13: Crude oil made a 7% correction in late June and then experienced a vigorous rally into late August that culminated with a steep surge fueled by the Syrian crisis. Prices have since been falling from that "blow-off" top (that peaked just under $108) and for the last two months oil and the broad stock market have diverged and are moving in opposite directions.]
THE SWISS FRANC AND U.S. DOLLAR
In March and April of this year the Swiss Franc appeared to be establishing a baseline and support (at 1.050) for a new bullish cycle and rally but then it suddenly turned bearish in May and dropped to a new low (around 1.020). This May low could turn out to be the bullish turning point we were expecting, but this is not clear at the moment. A major bearish factor now weighing on the Swiss Franc is the rapidly weakening European economy due to the fact that the value of the Swiss Franc is now pegged to the Euro.
Several financial analysts I study are very bullish on the U.S. Dollar for the year 2013. Why would global investors be attracted to the currency of a country (the U.S.) whose present economy is shaky at best and possibly on the verge of collapsing into a deeper recession/depression? The simple answer is that other major global economies (specifically Europe and Japan) are in even worse shape, and as the old proverb goes: "In the land of the blind, the one-eyed man is king". The dollar's strength, however, now seems to be in question as the U.S. Dollar Index broke down early this month from a bearish chart pattern that had developed over the previous four months. While it is possible this plunge is just a temporary correction, momentum in the U.S. dollar at the moment is 100% bearish. The direction of the Swiss Franc and U.S. Dollar for the rest of the year is, therefore, unclear at the moment (due primarily to the recent dollar breakdown). However, because a sudden recovery in Europe and Japan's economies seems unlikely, the dollar could reassert its bullish momentum before the year is over. We will have to wait and see.
[UPDATE 7/2/13: The dollar appears to be recovering from its breakdown and momentum is now medium-
term bullish.]
[UPDATE 9/1/13: The dollar seems to have recovered from its correction and its momentum is nearly
100% bullish again.]
[UPDATE 9/19/13: Wow! What a roller coaster ride! The dollar is "crashing" again. Over the last five days
momentum has switched from 100% bullish to 100% bearish!]
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