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Market Analysis June 17th, 2019

Summary

Rising gold prices could be indicating several different things, but what is certain is that this was a long time coming.

Recent tariff news out of India could be cause for concern in terms of giving China more leverage in negotiations.

Lumber prices are starting to stabilize again which could indicate rising confidence among the markets.

Markets today on June 17 th, 2019

Today, we are seeing a lot of sideways trading as we wait for the Fed meeting on Wednesday. The technology sector is leading the way as usual, with the NASDAQ (NDX) leading the way. Futures are up and down with Lean Hogs (LH=F) being the biggest % gainer.

Gold has been on a very strong rally that many have been predicting for the past few months now. The next major resistance level we are approaching is going to be $1,337.50. If we do see a break of this resistance in the near term, I think we are going to see a lot more money flowing into gold. I do not view this as people investing into gold because they are bullish on gold in general. I think is can be attributed to fear of a sustained economic downturn resulting from the trade wars. Gold tends to be an excellent hedge in distressed markets and this could be another reason money has been flowing in.

It was reported over the weekend that India has issued retaliatory tariffs against the United States now as well. While the market has not reflected this news yet, as all trade-war news, barring China, is priced into the market. I however believe this is further reason to be cautious because now tensions are heating up globally.

I believe that as more and more countries start to retaliate against the US in the form of tariffs, this could give China even more bargaining power. China knows our stock market (as well as theirs) is on the edge of collapse if this meeting on June 28 th goes sideways. China will start to gain leverage as they know eventually Trump will have to compromise in some way.

We are seeing increasing strength in Lumber again as we approach the $400 levels. As we know lumber is an indicator that the underlying economy is strong because of its heavy use in the construction industry, and how closely it is related to real estate. In distressed markets we tend to see falling lumber prices precede weakness in the equity markets.

As we sit and wait for a direction in terms of trade-war and federal policy news, keep an eye on lumber and gold specifically. If money starts to flow out of gold we should watch closely as investors could be regaining full confidence in equity markets. If lumber starts to plummet in price be extra cautious because of the historical relationship between lumber prices and market prices.