We have found supports across many different asset markets from industrial metals to softs to equity markets. Vs this we have extreme political and central bank involvement in asset markets. Their actions are driving price potentially overwhelming the technical issues. Extreme spikes down are very possible therefore as the technical supports and up draft is temporarily over whelmed by these macro issues. This makes for potential sharp legs down as you get temporary failed up moves. As the sentiment and indicators remain over sold and supportive of an up move any negative legs down should short lived and therefore buying opportunities. Its risk reward. Its possible policy makers completely stuff it up but the probabilities suggest this is unlikely given the extreme levels we see. Even a fumbled attempt by the world’s elite at solutions should be enough short term to get us quite a rally. I’d ref the UBS comments to support this though there are many external feeds suggesting the same.
The CRB index (commodity index) sums this up nicely for us..
Oil is the bell weather indicator for the entire commodity sector and her failure to go parabolic at the 115 area always was the key moment for 2011 and this occurred end of April.
Ever since the CRB has been in decline. Where and when oil bottoms we will find our entry point to rejoin the industrials, oil, etc. I haven’t traded oil since this may period. I was expecting an entry around the 88/89 level as forecast but no entry showed. She pushed south and continued on her way. Oil’s chart is demonstrating a near term base for her cyclical bear. This is coming as the CRB is at a key support. I’m therefore intermediate bullish industrials inc oil. I do expect a retest however of these supports during the next 6 months.
We continue to see the HUI and PMs in trouble here.. I get all sorts of emails and phone calls and goodness knows what else from friends and readers here regarding this asset class. No other asset class in the market is as prone to emotion it seems. We have had a wonderful run up. In 2011 both gold and silver have recorded their first parabolic chart breakouts. The fact these breakouts were limited is a good thing not a bad thing. We flagged the parabolic areas spot on. Hopefully you banked some of the move. Now we likely have a little consolidation before the next wave up and perhaps the greatest parabolic wave seen in the last century or so. The fundamentals remain exactly where they were.. blah blah.. Nothing has changed so for long term investors i wouldn’t lose one seconds sleep over these recent price moves.
Re the breakdown of the PM miners. The HUI continues to disappoint. We got the breakout which lasted about 2 or 3 weeks. The markets rolled over inc gold and the whole sector fell to the bottom of channel again. Technical theory suggests the channel should now break to the down side as we have a significant failed move. From failed moves come fast moves.. Having said this the HUI was under performing her underlying in the first place so can we expect a complete breakdown? I cannot tell you what will happen i can show that now we are at a support in an under performing asset class. A bounce is likely therefore from this support. This support is likely to get tested a few times and with meaning given the hedge funds like to short the HUI. I would ideally like to see the support broken to the downside and then this break of channel reverse in lightening speed to take price back to mid channel from where she can rebuild and reattempt to the upside breakout. We ideally want to see the shorts come forward with their best shot and get smashed. This would be the most bullish scenario for the HUI. I have barely moved on my HUI holdings or pm holdings. I’m a long term investor..
Here the HUI and GLD compared.
Putting this all together.. how can it be id be bullish all asset classes near term, bullish equity medium term, even industrials and pms medium term.. longer term bullish all asset classes due to monetary reasons and out performance hard assets. Why the intermediate under performance of industrials and pms? We can see the monetary batten has passed to Europe, UK and Japan here. These countries will print to ‘save’ the perpetual DM money growth system. This means an out performance for the USD. As per the BIS the euro may become the funding currency in the medium term. In this scenario money supply can expand alongside USD relative strength (not super strength). All currencies will continue to lose purchasing power vs hard assets of course but some like the Euro ad GBP will have a period of being debased more meaningfully than the USD. This explains the under performance of the industrials and PMs in USD terms.
Having said all the above the PMs are the wild card. I continue to be a mainly buy and hold investor in the pms as they are thin markets vs a giant pool of currencies. The PMs continue to have stunning upside potential. Market time some pm leverage if you like to market time but i strongly suggest holding a core for as long as money printers hold court.
Rich
p.s. in the last few minutes Germany has approved expansion of the EFSF. There is a surprise.. Onwards we go..
http://www.marketwatch.com/story/wall-street-futures-extend-gains-after-german-vote-2011-09-29
Good German Jobs data alongside yesterday’s reasonable durable good nos out of the US providing better data this week with no ‘off a cliff’ fall in the data.
(3 votes, average: 5.00 out of 5)
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