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Stocks, Dollar and Gold Bull Markets Inter-market Analysis
Gold Bull Market Forecast 2009, 2010 Update
Gold has had a stellar run of late, which recently saw Gold pushing to new all time highs on a near daily basis which has galvanised wider mainstream press attention to the precious metal with many gold bugs revising targets ever higher into loftier goals such as $2000 and even $4000+. Gold is one of the most popular asset classes both sought after by readers and written about by market commentators, and one of the most emailed query as to when will I update my original gold analysis of 22nd January 2009 which concluded during mid 2009, therefore this analysis seeks to project the Gold Price trend well into 2010.
Gold Price Forecast 2009 Evaluation.
My original analysis for Gold as of 22nd January concluded with a gold price trend higher into March 2009 towards a target of $960 to be followed by a subsequent decline into mid 2009 as illustrated by the original forecast graph below.
The Gold price forecast proved to be accurate in terms of the projected impulse waves. This analysis seeks to project Gold forward several months into 2010.
Fundamentals - Inflation Driving Gold?
The problem with this scenario is that the inflation of the 1980's and 1990's did NOT drive Gold higher, so clearly the mantra of Inflation driving gold higher is not correct, especially as we are presently emerged in debt deleveraging deflation, and neither does discounting future inflation expectations hold up, as the Gold bull market is now into its 10th year with a gain of 400% to date.
Gold Secular Bull Market
From 1980 to 1999 Gold fell for 20 years, eventually it would bottom and embark on a bull market, eventually, the signs for this would be not in fundamental data, but contained within the price chart as Gold breaks the pattern of corrective rallies followed by the downtrend resuming to new bear market lows. Now some 9 years later gold has corrected the preceding secular bear market by 50% in time and 100% in price. Therefore gold is not in a new bull market which has already contained many vicious bear markets within it as we witnessed last October, so just bare in mind that this is not a fresh young bull market, therefore much of the talk of waiting for public participation to join in can be discounted.
U.S. Dollar / Credit Crisis
My analysis of a positive trend for the USD clearly implies given the inter market relationship between a two for a weaker trend for Gold. However the risk is that amidst the next phase of the global financial crisis as the bankrupt banks have far from recovered, the next stage of the banking crisis accompanied by recognised inflationary panic measures of money printing which devalues all fiat currencies could give a lift to gold.
Quantitative Easing aka Money Printing Hedging
We are in a new world (for the west anyway) and that is a world of Quantitative Easing, the more the governments of the world print money and monetize debt the easier it is for governments to keep printing and monetizing ever escalating amounts of government debt to cover the government budget deficit gap. What this means is collective currency devaluation where relatively speaking there appears to be little change but in real terms the flood of money has to be seen in rising commodity prices and other scarce resources, after all the supply of resources is mostly known and the population of the world is not decreasing so the demand is known to be on an upward curve. Therefore as long as the central bankers are embarked on the experiment of quantitative easing that should give a lift to gold and other commodities as it increases inflation expectations and therefore inflation hedging using gold and more liquid commodities such as crude oil.
Gold Technical Analysis
ELLIOTT WAVE THEORY - The elliott wave pattern implies we are a strong bull market that has much further to run, i.e. in Wave 4 of a larger Wave 2 advance. This also suggests that the immediate future should see further weakness in gold towards $1,000. However, this is just a correction in the trend that projects to a price of more than $1,100 by the end of this year, with the trend continuing into March 2010 toward $1,200 before a more serious correction takes place.
TREND ANALYSIS - Gold's breakout to a new all time high is a clear signal of further strong advances. The support trendline is at $1,000 and therefore fits in nicely with the elliott wave correction projection target. After the uptrend resumes this trendline is unlikely to be revisited until the second quarter of 2010.
SUPPORT / RESISTANCE - Resistance lies at the last high of $1071, Immediate support lies across the string of previous highs of $1033 and $1007, therefore there is very heavy support whilst very light resistance overhead, which again is suggestive of a mild correction in the current phase of the trend.
PRICE TARGETS - The measuring move off of the $681 2008 low projects all the way to $1,350, which looks set to be an achievable price during 2010. Nearer term immediate targets extend to $1,100 then $1,200.
MACD - The MACD indicator signaled a Gold breakout at $960, with a firm established uptrend. The current correction is inline with that of a mild correction within a strong uptrend.
SEASONAL TREND - There is a strong seasonal tendency for gold to rally from November through January i.e. for the next 3 months. This is suggestive that the current correction is living on borrowed time and may not last much longer.
Gold Conclusion
I started off this analysis skeptical of the prospects for gold given the 10 year bull run to date, but the price that is talking off the charts is pretty bullish! enough for me to consider accumulating a position. In the immediate future Gold appears to be targeting a continuing correction towards $1,000, after which it targets $1,200 by March 2010 and a price of $1,350 later during 2010.
Gold Long-term - Gold has broken out to a new high and it does look as though it is going much higher in the long run, there are multiple measuring moves that one can consider, such as 133%, 150%, 1.618% etc. However given the gap in time between the all time peaks, Gold of $2000 plus would now not surprise me.
Gold Bull Market Inter market Implication - Bearish on the U.S. Dollar.
Stocks Bull Market Forecast Update Into Year End
The update on the stocks bull market of early September called for a continuing trend towards a target range of 9,750 to 10,000 by late September / Early October to be followed by a correction in the region of 10% towards a target zone of 8,900 to 9,100, as illustrated below.
The market subsequently peaked in the middle of the target zone and began a correction which took the Dow down to 9,430.
This was soon followed by surprisingly quick and powerful reversal to the upside that that lifted the Dow to above 10,000, peaking at 10,120. Readers of my weekly newsletters will know that I was skeptical of this phase of the bull market because it had not allowed both enough time and price to correct the preceding advance and therefore was not seen as being sustainable.
Bull market Re-cap - The stocks bull market that began in early March has so far from trough to peak advanced by 56% on the Dow against the preceding peak to trough decline of 54%. Those that refer to this as a bear market rally do not know what they are talking about as the rules have ALWASY remained the same in that a bull market is recognised by a 20% rally from a bear market low and a bear market is recognised by a 20% drop from a bull market peak. It is only that many analysts don't follow the rules! Instead much rather prefer to re-write history. THIS IS a STOCKS BULL MARKET, and when it will resolve into a bear market depends on when we next get a 20% confirming trigger ! (allowing for short-term whipsaws), so until I see such a definitive trigger the market will be treated as a bull market.
Stock Market Crash Again?
Forget swine flu, the pandemic doing the rounds is that of another Crash with the 1930's chart dusted down and presented as near fact of what is to transpire on every correction. However the markets response has so far always been to push to a new high for the move.
What happens to the crash calls ? They again get rolled out again on the NEXT correction! However the damage has been done as short stops are hit and losses accrued, that no broker will refund for the next crash call.
Stock Market Crash Calls
1. You CANNOT know with any reliability that the stock market is going to crash until AFTER it has actually peaked and entered a downtrend. Anyone that tells you a bull market pushing to new highs is going to crash is going to lose you all your money, as the market rallying significantly from the crash call NEGATES THAT CALL where trading is concerned, because any short positions enacted upon the call are stopped out!
2. You can only enter a Crash TRADE barely a day or hours before the crash event. Crash calls made weeks, months or years in advance are WORTHLESS where trading is concerned, and where investing is concerned, all investors should have stops on their positions based on technical considerations of where they would admit their analysis is wrong on a particular stock.
Crash calls are dangerous in that bring emotions into play which instead of staying focused on reacting to price action, adrenaline gets traders to commit to positions that will soon most probably bust their accounts where EVEN if the market eventually does CRASH, they will have been wiped out by the intervening rally SINCE the crash call! It is this fact that that is always forgotten.
Don't believe me ? Go check ALL of the hyped stock and other market crash calls that in actual fact WERE FOLLOWED by moves that would have wiped out REAL trades had those calls been acted up on.
In recent weeks I have been sharing a some of my trading ideas that I do not have the time to turn into a book -
Depression, What Depression ? - US GDP soared in the third quarter to 3.5%, yes, the rate of accent is probably NOT sustainable, but the debt fuelled bounce will continue a while before it peter's out into. The key point is as I pointed out in the analysis of October 2008. That we are NOT heading for another 1930's GREAT DEPRESSION, and therefore scrub the notion of following the 1930's chart pattern towards anything like a 90% stocks crash. So far the analysis is proving correct.
Good News Turns Bad - Stocks fell following strong US GDP data, which tells you that the market wants to head lower in the immediate future regardless of whether the news is good or bad, this supports the view that the market wants to break below the 9430 low.
Corporate Earnings - Corporate earnings have FOLLOWED the stock market higher, so what happened to the doomsayers of 6 months ago that repeatedly stated that corporate earnings forecasts implied stocks could NOT rally ?
ELLIOTT WAVE THEORY - The elliott wave pattern is not clear, at best it resolves towards an ABC correction that sees an assault on 9430 and probable break.
TREND ANALYSIS - The Dow has now fallen to the major support trendline, which implies immediate term support, i.e. stocks 'should' rally here early next week. The question is will the trendline break or not ? Its a tough call but I would go with yes, which would target 9430. As you can also see the stock market is losing momentum as the last rally failed to reach the second trendline which is suggestive of a tougher trend into year end, though also implying that the market is not as overbought in terms of trend.
SUPPORT / RESISTANCE - Immediate minor support is at 9654, then the last low of 9430, 9250, then 9,100. Resistance over head is at 99,17, 9980 and 10120.
PRICE TARGETS - Downside price targets resolve into the 9100 to 9430 zone. Upside trendline projection implies 10,500 into December.
MACD - The MACD continues to show negative divergence to the price, though this has been ongoing since late August which implies an unraveling of the overbought state.
VOLUME - Volume has been WEAK during the rally, which contrary to much bearish commentary implies that this rally has NOT been bought into. So all of the talk of hyper bullishness is basically rubbish as there is no sign of such irrational exuberance in the volume, which remains heavier on the declines than the rallies and thus suggestive of selling rather than buying into the rally. Which is good behaviour for a stealth bull market.
SEASONAL TREND - There is a strong seasonal tendency for stocks to rally strongly during the months of November and December, following a weak September and October. The trend to date suggests right translation in the seasonal data i.e. pushed forward a month or so which implies that the trend into Mid November may be contrary to the seasonal tendency.
Stock Market Conclusion
There is nothing to suggest at this point in time that the stocks bull market is over which means that that corrections are for accumulating into, the overall trend is for stocks is to continue climbing a wall of worry whilst investors are scared by the vocal crash is coming crowd that will continue to re-write history to always be right in hindsight to again come out with more crash calls over the next few months as the Dow chart of the 1930's gets it's start / end date manipulated again so as to fit fresh crash calls.
The stocks bull market that has raged since the March low has fulfilled the original objective for a 50% advance, therefore upside for the next two months looks limited with greater risk of downside in the coming weeks though pending a break of the major support trendline which implies a rally in the immediate future. All in all this is suggestive of a downtrend towards 9,400 into Mid November with a year end rally to back above 10,000 targeting a rally high in the region of 10,350 to 10,500 during December.
Inter market Implications - Suggestive of a mild dollar rally, and a mild uptrend for commodities.
U.S. Dollar Bull Market Scenario Update
The most recent price action has seen the U.S. Dollar manage to hold onto USD 75 support that has propelled the dollar back through 76, however the trend over the past 2 months has been weak. The last update of the US Dollar bull market scenario of mid August 2009 called for a rally that targets USD 90 by the end of this year as long as 75 holds, as indicated by the original chart below :
More analysts joining the Dollar bullish scenario- The bullish dollar scenario is increasingly being joined by more 'big named' analysts including Robert Prechter and then Mike Shedlock, though the U.S. Dollar in actually bottomed in March 2008 with the subsequent trend having deviated little from projections as the January 2009 update illustrated which a forecast sideways ABCDE trend into a late July low.
DEVIATION FROM THE FORECAST - The USD has under performed during the past 2 months which is a sign of weakness and therefore suggests upside action over the coming months will be limited with a far greater risk of downside breakdown then before, so signaling caution.
ELLIOTT WAVE THEORY - The elliott wave pattern nicely resolves to a ABC decline, with C wave comprised of 5 waves down to the recent low. With the USD at 76.36 it is therefore make or break time for this pattern which suggests that the low is in and therefore the trend should now be higher in terms of the wave pattern.
TREND ANALYSIS - USD has marginally breached the down trendline from the 89 high which is a positive, however it has yet to make a higher high which would require the USD to rally and close above 76.60, which is not too distant from the last close. However the trend of the past 3 months has generated much price action in the 76 to 81 range which means its going to be tough for the USD to overcome this and is suggestion of volatile price action.
SUPPORT / RESISTANCE - Immediate support is 75 a decided break of which would target 71. Near term key resistance is as 77.50. As mentioned above there is heavy overhead resistance which implies a volatile trend through it.
PRICE TARGETS - The USD has yet to give any confirming price triggers for the uptrend, the nearest of which is at 77.50. Therefore the USD is still in its downtrend until it manages to break above 77.50 that would target a push towards the 80-81 resistance area. A longer range target for the USD is now 84.
MACD - The MACD indicator is signaling a breakout to the upside for the USD, and is just about ready to give a higher high trigger on a further bounce from the up-trendline, so suggesting the current bounce is more significant than the preceding one from 76 to 77.50.
CYCLES - The recent price action puts the USD into the 2.5 cycle low time window, the question is, is the low a technical bounce or the start of a larger trend ?, but what it does suggest that the current trend has more upside the time, which it can spend either drifting sideways or push the USD through resistance.
SEASONAL TREND - The recent trend was inline with the seasonal tendency for the USD to weaken between August and October 2009, a continuation of which would suggest a strong November and a weak December.
USD Conclusion
The dollar trend has been much weaker than expected therefore this has to factor into the conclusion which now resolves to a much shallower uptrend than previously anticipated, however I do still expect an uptrend to materialise that now projects to a more conservative 84 to be hit during the remainder of this year, probably by early December.
Inter market Implications of a Stronger Dollar - Downward pressure on stocks and commodities priced in dollars such as gold. However as I have stated above competitive devaluation may not lead to any significant downward pressure, so we could yet see all three bull markets exhibit an upward bias over the coming few months.
Overall Inter market Conclusion
It looks like all three markets will manage to trend higher over the coming months, however given the technical pictures some are expected to perform stronger than others. I would put gold on the strongest footing then the dollar followed by stocks, of the three stocks present the biggest question mark at this point as the immediate future appears bearish. But given the last closing prices of Gold $1046, USD 76.36 and the Dow at 9,712, I would expect all three to be significantly higher by year end, which is contrary to the consensus view of the inter-market relationship between these markets.
Your analyst focused on commodities for out performance.
Source : http://www.marketoracle.co.uk/Article14697.html
By Nadeem Walayat
http://www.marketoracle.co.uk
Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
UK Inflation Forecast
RPI deflation in the face of panic interest rate cuts from 5% at the beginning of October 2008 to just 0.5% by the last cut of March 2009, coupled with unprecedented quantitative easing aka "money printing" to drive down long-term interest rates and hence mortgage rates resulted in deflation for those with large mortgages of as much as minus 5%, therefore this as I mentioned some 4 months ago would provide for a for mini 'temporary' cash flow boost for those mortgage holders that have secure employment during the recession and therefore contributing to the summer bounce in house prices that has now transpired and looks sent to continue into the end of the year and therefore contribute towards upward pressure on consumer prices.
However the temporary bounce in house prices needs to be set against the bursting of the asset bubble that has seen UK house prices fall by 21% from the peak of August 2007. UK deflation in the face of the bursting of the asset bubble has now hit the deflation targets for 2009 and therefore the expectation is for the trend to start reversing back towards inflation over the coming months with signs that RPI has already bottomed out and the CPI warning of gathering inflationary clouds as the gap between RPI and CPI Inflation hit extreme levels during mid year which now looks set to narrow.
The trend in inflation data remains inline with my original forecast as of Dec 08 that forecast deflation into mid 2009, followed by a slowly rising inflationary trend during the second half of 2009. RPI of -1.3% will also have the effect of depressing wages as this measure is used to determine pay deals therefore continuing deflation throughout 2009 despite money printing which suggested overshoot on RPI to the downside that has come to pass.
My recent article Bailed Out Banks Not Lending, Sitting on Tax Payers Cash, illustrated why quantitative easing is not resulting in run away inflation that many gold bugs have been hoping for as basically the banks are refusing to take risks and instead using tax payer cash to earn interest on deposits at the Bank of England.
UK Money Supply - Deflation
Whilst UK Money supply M4 (blue) remains at a high 10% off of its earlier high of 17.7%, on face value this is highly inflationary and has been taken by some economists and market commentators to suggest much higher forward inflation. However the money supply adjusted for the velocity of money which takes into account the state of the economy as a consequence of the credit crisis tells a completely different story. The UK economy remains in extreme real monetary deflation of approaching -25%. Both this and the leading indicator of the implied money supply, are suggesting that the deep interest rate cuts to just 0.5% and quantitative easing of £175 billion have halted the economic collapse into out of control deflation, but we are far from a state of entering a high inflation environment which therefore continues to suggest strong deflationary pressures for rest of 2009 and into 2010.
Budget Deficit and Quantitative Easing
Virtually all of the mainstream press swallowed the Bank of England's hints and winks that Quantitative Easing had ended at £125 billion. All except myself that projected towards Quantitative Easing of £300 billion by the end of this year with the current tally now standing at £175 billion of money printed so as to mainly buy government bonds in response to the huge budget deficit that the Labour government will rack up by the end of this year that projects to £175 billion which is up from Alistair Darlings projection of £38 billion in November.
The outlook for subsequent years also remains for bleak with deficits expected to continue for many years as Alistair Darlings own forecast for government net borrowing over the next 4 years has grown from a deficit of £120 billion in November 2008 to £608 billion as of the budget, which is still significantly below my forecast total of £735 billion and therefore the expectation remains for further revisions to the upside over the coming years. This confirms my view that the Bank of England will continue printing money into year end to beyond the £175 billion revised arrangement though probably less than the £300 billion suggested some 10 months ago. Which on face value is both inflationary and supportive of the economic bounce.
Engineering an Election 'Winning' Economic Recovery
The forecast date for the next General Election as of October 2007 has been for May 2010, with the projected seats implying a small Conservative victory of a majority of 36. Clearly all is not lost for the Labour government, therefore the primary aim now is to reduce this projected small majority by as much as possible if not to totally eliminate it, to achieve this the government has thrown ALL of the fiscally responsible rules out of the window starting last October having embarked on a programme of maximising the number of seats Labour will retain at the next general election. One of the key milestones set by the Prime Minister Gordon Brown of achieving this objective is in successfully and publically achieving a strong economic bounce into May 2010. My on going analysis confirmed a bounce into a May 2010 general election as long ago as February 2009, with more recent analysis confirming this outlook (UK Economy Set for Debt Fuelled Economic Recovery Into 2010 General Election)
Whilst the OECD and other mainstream organisations / press have been busy in recent months revising their economic forecasts, my forecast remains as is and continues to project towards post general election tax hikes and deep public spending cuts that will in my opinion trigger a double dip RECESSION, even DEPRESSION 2011 to 2012 as illustrated by the graph below.
Deflationary Impact of Rising Unemployment
The original forecast of October 2008 (July 08 data) as illustrated by the below graph, forecast UK unemployment to hit 2.6 million by April 2010. The actual data to date of 2.47 million to July 2009 clearly continues to suggest a much higher peak which remains on track to hit 3 million, as unemployment tends to lag economic recoveries by anywhere from between 6 to 12 months.
A poignant reminder of the lack of accuracy in the official unemployment data is observed in the announcement that 1 in 6 households have no wage earner, i.e. all adults are unemployed in a total 3.3 million households, which clearly suggests a number of unemployed significantly above the 2.47 million official data of those unemployed. The rising number of unemployed will continue to exert deflationary pressure on the economy.
UK House Prices Against Unemployment Trend Analysis
The original forecast of August 2007 concluded with a forecast drop in UK house prices of between 15% and 25% by August 2009, which has materialised.
August 2007 Forecast Conclusion - The UK Housing market is expected to decline by at least 15% during the next 2 years. Despite the 2012 Olympics, London is expected to fall as much as 25%. UK Interest rates are either at or very near a peak, as there is an increasingly diminishing chance of a further rise in October 2007. After which UK interest rates should be cut as the UK housing market declines targeting a rate of 5% during the second half of 2008. The implications for this are that the UK economy is heading for sharply lower growth for 2008
The above chart indicates that there does exist a strong relationship between house price trends and the unemployment benefit claimant count, more so than the unemployment data. The possible reason for this is that those made unemployed that do not claim benefits are not in as financially distressed state than those that have no choice but to claim benefits, therefore house prices can and have risen in the past whilst the official rate of unemployment rose, if at the same time the claimant count did not rise.
The on going bounce in house prices is tracking quite closely with the stabilisation of the unemployment claimant count numbers, which therefore suggests that as long as those claiming unemployment benefits continues to stabilise at the current level of 1.6 million then the outlook remains positive for UK house prices to continue drifting higher, this is despite official unemployment data that looks set to continue to rise towards 3 million from 2.47 million.
Summer Bounce 2009 - The unfolding bounce in UK house prices prices is inline with my May analysis that concluded that UK house prices will experience a bounce during the summer months from extremely oversold levels as a consequence of liquid buyers returning to the market and the debt fuelled economic recovery which 'should' be reflected in rising house prices during the summer months that is increasingly being taken by the mainstream press and vested interests to announce that the house prices have bottomed, my next analysis will seek to expand on house price expectations during 2010.
UK Interest Rates
The existing base interest rate forecast as of December 2008 is for UK interest rates to resume an upward curve towards the end of this year as a consequence of the debt fuelled economic recovery into a projected May 2010 General Election as illustrated by the below graph. UK interest rates hit bottom in March 2009 with the subsequent trend to date suggesting an unchanged base rates into late 2009.
However real interest rates have been in a steady climb since March 2009 which has increasingly meant that the base interest rate has become irrelevant to the market place as explained in the article - Bailed Out Banks Not Lending, Sitting on Tax Payers Cash.
The outlook remains for rising market interest rates charged to retail customers regardless of the base rate being held at 0.5% into the end of the year, which is inflationary in terms of rising mortgage costs.
UK Inflation Conclusion - The trend into Extreme UK Deflation as measured by RPI has come to an end, forward inflation is expected to rise at a subdued rate as result of the economic recovery into the 2010 general election with RPI targeting +1% so Yes RPI Deflation will come to an end, but thereafter the high risk of a double dip recession expectation suggests the shallow uptrend in inflation will come to a halt during 2010 despite further quantitative easing and arm twisting of the banks to LEND into 2010 as the Bank of England attempts to increase the velocity of money by all means with even the option of negative interest rates to force the banks to take risks rather than park their tax payer bailout money at the BoE to earn risk free interest on.
In summary, I see no signs of a return to high inflation during the balance of 2009 or whole of 2010, with the CPI trend expected to hover around the BoE 2% target. I will produce an inflation forecast chart for 2010 later this year.
Ensure that you are subscribed to my always free newsletter to receive in depth analysis on UK house prices and also in the works a forecast for the UK economy covering the next 10 years.
By Nadeem Walayat
http://www.marketoracle.co.uk
Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
The Stocks Bull Market and the Cadbury Bid
Meanwhile bull market deniers in the face of overwhelming evidence of a bottom i.e. as evidenced by the price trend continue to cling on to literally anything that leaves the door ajar towards revisiting the March lows and below. Even resorting to delving back into the midst of time to the 1930's for any glimmer of hope. It should be obvious by now to everyone that transposing current price action onto a graph of the 1930's bear market makes it rather obvious that THAT is NOT going to happen?
One of my fundamental rules of analysis is that the further one deviates from the present the more probable that one is going to be wrong, and the 1930's is more than just a deviation, at most I would go back perhaps a year to look for relative strength and weakness. But nearly 90 years? That era is long gone and buried and bears NO significance to the PRESENT! Yes we have echo's through time, but NOT THAT FAR BACK ! For actual market impact events on to today's markets one needs to look at the peak in the housing markets and credit crisis events of the past 2 years where the three most notable events were -
a. The Lehman's sparked Financial collapse of Sept / October 2008
b. Zero Interest rates.
c. the implementation of Quantitative Easing.
They are the most important echo's from the recent past impacting on the present, rather than trying to match a chart from the 1930's to the present.
Is this a Bull Market or a Bear Market Rally?
My point of view is simple (it is good to keep it simple)- Pick up any reputable technical analysis book and you will read that that a bull market in stocks is confirmed when an major stock indices (that's the DJIA) rallies by 20% from the low (allowing for a few days of whipsaw), similarly a bear market is confirmed when an stock indices falls by 20% from the high , therefore regardless of perma views of this being a bear market rally, the facts are clear that under the basis of technical analysis this rally has long since been confirmed as a bull market more than 30% ago!
The Rules exist for a reason and that is for the investor / trader to recognise when they are WRONG ! Okay for several reasons, another is to arrive at a FIRM TRADEABLE CONCLUSION.
However, the answer is NOT to change the rules ! But to change your opinion ! Being stubborn in the face of the trend is the sure fire way towards financial oblivion!. Yes those that clutch to perma views will soon eventually have an opportunity to crow loudly, but the bottom line is to monetize on analysis through means of investing and trading and in that regard making say 15% on a plunge is pretty much meaningless against a 50% loss on the preceding rally. For me, the bull market remains in tact as long as the DJIA steers clear of 20%+ declines, for if such a decline occur then that is the market telling me what it wants to do rather than me telling the market what it should do!
Stocks Bull Market Trend Update
The stocks bull market continues to resolve towards the pattern I painted some 7 weeks ago - Vicious Stocks Stealth Bull Market Eats the Bears Alive!, What's Next?
CONCLUSION - My earlier fears about a bull trap appear to be unfounded, the stock chart is talking that we are in a stocks bull market, and is suggestive of a trend higher towards a 2009 target of between 9750 and 10,000, with a high probability that we may get there before the end of October!. Key danger areas for this scenario are a. for the trend line to contain corrections, and b. that 8080, MUST HOLD.
The last update of 3 weeks ago (Stocks Stealth Bull Market Crushes Bears Hopes Again) showed the trend resolving towards an earlier peak given the strength of wave 1 which implied a weaker waves 3 and 5.
The Price action to date has shown relative strength against the forecast of a month ago, this suggests a higher target than the original 9750 to 10K before the end of Oct 2009, the secondary stated target was 10,450. However it also suggests that the market may put in an earlier peak. I am still leaning towards the next correction AFTER the peak to be of greater significance than the last correction from June to July. Also, whilst my in depth economic analysis is on the UK economy, however much of the conclusions could equally be applied to other western economies, the analysis of February 2009 has been projecting towards a a DOUBLE DIP recession (updated June 09) which has negative implications for stocks during 2010, but for now DON'T be silly, don't fight the stocks bull market (time to drop the word stealth).
Subsequent price action has continued to imply a scenario that resolves towards a 5 wave pattern, though this is now far too easy to interpret which therefore suggests a more complex pattern. The velocity of the uptrend is also in line with the original projection of 22nd July as indicated by the Blue Arrow, which continues to resolve towards a target juncture date of mid October 2009.
The target for the termination of the current phase of the bull market rally was between 9750 and 10,000. As mentioned above, I am not expecting an easy ride for the fifth wave as clearly it is an obvious pattern to interpret following waves 1,2,3,4. What does this mean ? Well wave 3 is screaming weakness, so that suggests a weak push higher rather than something that resembles wave 1.
The MACD is also signaling serious price weakness as there is clear divergence taking place between the rising trend and a falling MACD, very similar to the June peak.
Two possible outcomes -
a. That the fifth puts in a lower peak than the wave 3, which is significantly more bearish.
b. That we get some sideways drift (possible false break lower) before a sharp rally for a higher fifth into the target zone.
Despite the increasingly bearish technical indicators at this point I continue to march with the bull market and favour outcome b. ahead of a more serious correction that would first 1. target target the main support trendline and 2. 8900 Previous Peak.
Robert Prechter presents an alternative view for the 'bear' market in his latest 10 page newsletter, which can be downloaded for free here.
Trading Lesson From this Update - The further you deviate from the present in terms of analysis / trade scenario building, the greater the probability that you will be wrong and therefore MUST attach LESS importance to whatever you are looking at, particularly a chart of the Dow from the 1930's for EVEN IF it repeats it will be pure coincidence, as there CANNOT BE ANY ECHO from the events of that time into TODAY's Market ! You are much better served by practice reacting to price movements in real time then getting sidelined by historic events or fundamentals.
Very, very quick Gold update - Double Top? For my next in depth analysis of Gold subscribe to my always free newsletter.
Your stock index trading analyst.
By Nadeem Walayat
http://www.marketoracle.co.uk
Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 300 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
Stocks Bull Market and US Dollar Update
Stocks Stealth Bull Market Crushes Bears Hopes (Again).
The weeks price action on the major indices once more illustrated the dangers of letting emotions influence ones judgment when it comes to trading and investing. Which was never more evident than during the early week correction that once more suckered many bearish commentators into calling an end to the 'bear' market rally, right from the top of the analysts food chain right through to the bottom. Again nothing new was called on to justify FIGHTING against the trend other than references to the 1930's depression era rally! Well Shall I let you into a little secret ?
EVERY BEAR MARKET / MAJOR CORRECTION IN THE STOCK MARKET since the Great Depression HAS BEEN COMPARED TO THE 1930's BEAR MARKET RALLY BUT NEVER ONCE HAS IT REPEATED !
The only way people REALLY learn from their analysis mistakes is by getting burned in their trading account / portfolio balances, nothing else works, analysts and economists living in ivory towers will never learn!
Look, I beat the GREAT CRASH! Yes that still means 1987 ! BUT being naive, and young at the time, I believed in the 1930's DEPRESSION model and the FIFTH of a FIFTH on Elliott Wave which I learned within a short period of reading Asimov's foundation series therefore was primed to believe in elliott wave being a manifestation of psycho-history, What did I know? After all it all seemed highly convincing, so I fought against what I had actually made me a fortune during the crash and continued to view each post crash peak as a shorting opportunity for a good year ! Much as the bears are doing so today ! This is 2009 and NOT 1930 ! and the Markets DO NOT REPEAT ! It is ALWAYS DIFFERENT EACH TIME!
If your finding yourself keep shorting this rally then you seriously need reappraise as to why you are fighting against the price by means of the diffusion responsibility onto indicators, fundamentals, theories, historical patterns and such like which is not what you are actually trading !
It is simple, you stick to the direction that increases your account balance! Don't try to THINK to hard about it! It is THINKING that will be your downfall. Where trading is concerned, THINKING is not good, in fact if you THINK too much you may wake up one day some years down the road to wonder, what the hell have I been doing for the past 3 years???? I have learned all these wonderful theories that produce diddly squat when it comes to actually making money!
Here's a tip for if your stuck in a losing streak, SCRAP everything you know and use a coin toss to pick the direction, then focus on the proper application of money management (i.e. targets, stops, stop and reverse, adjusting position sizes etc), and see whether or not you start to make money or not ;). I demonstrated the winning coin toss trading system 5 years ago on in REAL TIME on moneytec.com (Mr 50%) trading the British Pound That yielded a 380 pip NET profit over ONLY 11 trades. Also ensure to bookmark walayatstreet.com, which when when its live will cover REAL TIME TRADING (100% FREE).
Stocks Stealth Bull Market Road Map into October 2009 - July 23rd 2009 Conclusion
CONCLUSION - My earlier fears about a bull trap appear to be unfounded, the stock chart is talking that we are in a stocks bull market, and is suggestive of a trend higher towards a 2009 target of between 9750 and 10,000, with a high probability that we may get there before the end of October!. Key danger areas for this scenario are a. for the trend line to contain corrections, and b. that 8080, MUST HOLD.
Current Price Action
The Price action to date has shown relative strength against the forecast of a month ago, this suggests a higher target than the original 9750 to 10K before the end of Oct 2009, the secondary stated target was 10,450. However it also suggests that the market may put in an earlier peak. I am still leaning towards the next correction AFTER the peak to be of greater significance than the last correction from June to July. Also, whilst my in depth economic analysis is on the UK economy, however much of the conclusions could equally be applied to other western economies, the analysis of February 2009 has been projecting towards a a DOUBLE DIP recession (updated June 09) which has negative implications for stocks during 2010, but for now DON'T be silly, don't fight the stocks bull market (time to drop the word stealth). To keep up to date on the state of the stocks bull market, ensure your subscribed to my always free newsletter.
Financial Crisis Worst is Not Over?
Robert Prechter in his latest 10 page Elliott Wave Theorist Newsletter states that financial crisis is NOT over and gives a warning he's never had to include in 30 years of analysis, Read it now for free!.
U.S. Dollar Bull Market - 14th August 2009 - Conclusion
Conclusion
The USD at 78.40 is not far off its recent low of 77.40, so whether or not it breaks below 77.40 before going higher, the overall conclusion is positive for the US Dollar to exhibit a volatile uptrend into the end of 2009 and probably beyond. Key resistance lies at USD 90, which it should achieve before year end. This scenario remains in force unless the USD breaks below 75. The implications of a dollar bull run is generally bearish for commodities such as gold, which I will cover in a future newsletter
Current Price Action
The U.S. Dollar reversed direction after failing to break above 80 and still some way below the confirming trigger of 81. The corrective move to date is of little consequence to the forecast which remains as is.
The most recent price action implies the following -
a. That the USD puts in a double bottom before busting through above 80/81 for a strong rally.
b. A break below 77.40 would trigger a sharp drop towards 75.80 which would seriously risk a re-evaluation of the whole dollar bull market scenario which would be negated on a break below 75.00.
At this point in time I continue to favour outcome a. over b.
By Nadeem Walayat
http://www.marketoracle.co.uk
Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 300 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
U.S. Dollar Bull Market Update 5
Dear Reader
This analysis seeks to update the existing U.S. dollar analysis of January 2009 by evaluating whether or not the U.S. Dollar bull market remains intact and to project a trend for the USD into year end. The sideways trend of the USD for the past 6 months in the wake of the "Quantitative Easing" headlines that has repeatedly brought the Dollar collapse proponents back out of hibernation on each down leg has shown little deviation from the road map of 20th Jan 09 as illustrated by the below original price chart.
More »Vicious Stocks Bull Market Eats the Bears Alive!
The price action following the SELL signals earlier this month can only be described as a VICIOUS BEAR TRAP !, We got sell signals, good ones for Stock BULLs such as myself (as of Mid March 2009) it was a clear sign to get ready to accumulate more, for bears it was a sign to double up for the long awaited bear market RETEST and maybe to make back some of the money lost shorting the rally ?
Even though rising prices for a bull during the stealth bull market is good, however, the vicious rally FOLLOWING Clear Technical SELL SIGNALS is something that signals alarm bells, as while it can be entertaining to gloat at the crushing of the bears, however when I look in the mirror, I have to wonder will I be next to be caught in a vicious BULL TRAP ! This is a vicious market and whether one is a bull or a bear one NEEDS to be on their guard as the consequences of getting sucked into TECHNICAL ANALYSIS, as opposed to REAL TRADING i.e. REACTING to Price movements in REAL TIME, could easily wipe traders out. More on REAL TRADING in my site walayatstreet.com which will go live once it is ready, yes people have been patiently waiting but the site cannot go live until it has the requisite articles to explain the many aspects of trading as the consequences of not doing so will result in a deluge of emails, so as with the markets PATIENCE is in order.
Back to the stock market, let's dissect what happened, the precise point where the summer correction scenario abruptly terminated and where we are heading to next:
More »