Keep your eye on the prize– watch the low of the week of March 11 in stocks!
Over the past several weeks we’ve talked about the importance of this low of March 11, 2014. From a cycle standpoint it is one of the most important cycle lows that we’ve had in the last several decades. Actually it is as important as the low from 2009 in my opinion. As you can see from the chart of the New York Stock Exchange index we’ve had higher bottoms since that time and it is formed a natural trend line from those lows. We are rapidly approaching the strong seasonal pattern of sell in May and go away which is one of the better seasonals in the stock market. The New York Stock Exchange index is actually doing much better than the Dow Jones industrial average, the S&P 500, and the NASDAQ. These 531 stocks have led the market higher for six years and now there is rotation into the other stocks. The Dow Jones transportation’s and Dow Jones utilities are exhibiting much weaker markets which is part of the Dow theory which also falls into place. The theory states that if there is no confirmation in these two indices versus the Dow Jones industrials than a major correction is at hand. This will not be a correction! This will be start of a major bear market that will last several years at least, probably 3 to 5 years. However, we must go below the lows March 11 to get the ball rolling in the right direction.
The new services are reporting that Hillary Clinton will be the next president of the United States. They cite her warchest of $2 billion and the fact that there is no one running against her of any significance as the factors leading to her presidency. If you recall our current president Barack Obama was basically unknown as a junior senator from Illinois and upset Hillary Clinton to take the presidency. Is about 18 months until the next election so anything can happen but election years have a positive bias on stocks and we are already three years up into that bias.
Gold and silver continue to hold key levels but have not broken to the upside as yet. They still have a chance to be bullish but is important that they stay above the lows of the last several weeks that we mentioned several times and are noted on the charts in this letter.
Crude oil is in the same situation as gold and silver however it is far less bullish. It will be difficult for crude oil to get above $60 a barrel in my opinion from a technical standpoint. Gasoline futures and heating oil futures is held up much better than the crude oil.
Treasury bonds and treasury notes have made some type of a correction high this past week as interest rates of start to rise again. The Federal Reserve is continuing its quantitative easing program and every time the market sells off rumors come out that it’s going to continue for some time. More on this at the end of this letter.
Foreign currency markets are still watching the US dollar is a continues to rise at 100. The euro appears to be heading towards 99 but it is extremely oversold could still rally to the 114 level however after last week’s action this seems highly unlikely.
Folks something big is ready to happen in the stock market. A been watching these markets for 55 years and you get a sense that something is foreboding much like what happened in 2000, and 2007! This time it’s different! The reason it’s different is because there are two factors that are present that are very troubling. The first is counterparty risk. This means that people on one side of the trade have a much greater risk than people on the other side of the trade because they’re not able to perform their part of the contract. I believe this is extremely important when you’re trading ETF’s. These vehicles were brought out and it becomes extremely popular but they came out of thin air. I must admit that I’ve not studied them very carefully but just watching them trade tells me something is not right. Many of these instruments do not follow the underlying idea of the trade. The second thing that is troubling is the overall complacency in the market for stocks and bonds when so many warning signs are there. These warning signs we’ve gone over many times but will do it one more time just to remind ourselves. Never in history have we had such a bullish consensus that stocks are going higher. Never in history have we had such margin debt. Never in history have we seen so many negative expanding triangle patterns that are indicative of a major top in US stocks.
In this letter you’ll see a global picture of the stock markets of the major economies in the world with the exception of Russia. These markets have been in bear markets for quite some time and have had rallies recently due to the quantitative easing.