Wednesday, February 10, 2016

The Market: What I See - Now

- Gravity: what goes up must come down.

Some truths have a universal application. I guess that is why they refer to them as tautologies. Logic if you will. For those of you who see the word to mean redundancy, I prefer its other meaning. In any case the present market is range bound and although the market declined last week, I don't see a follow through at this moment. It is like a glider that is falling, but catches an updraft to defy gravity.
continue to widen, but treasuries continue to be range bound. At present they are testing their highs, but the dollar failed in repeated tests to rise further. The dollar could decline and test the .94 cents level. The bond market is saying that they don't believe the Fed will continue to raise interest rates.
In fact, negative rates are gaining traction with Japan joining Denmark, Sweden and Switzerland. It begs the question, who is next - the EU members?
Stock Market - Present
China's market entered into bear territory and Japan is following their price action. Europe is range bound and in the US, many sectors of the market are in bear territory, although the market itself is only in correction mode. The fear is that oil and oil services will pull the rest of the market south with them.
The commodity rout has put Canada in a recession and its currency, the loonie is in a freefall. Canada is not alone as two other commodity exporting nations, Brazil and Australia are also suffering declines in valuation. Russia is on the brink of a recession because of the oil glut and Saudi Arabia's budget is in the red. When you look at the Baltic Dry Shipping Index it hits new lows every week. It fell below 300 last week. This indicates global trading is lower than even during the recession. Together, the effects is that global banking stock prices are at the same level as the recession. They will need to prepare their balance sheets for defaults with their portfolio of oil loans. As stated in a previous piece, I see a need for a new world forum on currencies because the present race to the bottom could not only trigger a recession, but a depression. The problem is that the so-called leaders generally wait until a crisis is at hand. Then, responding under pressure, they only attempt Band-Aids and never address the cause. Let us dear reader,take a look.
China devalued in early January and after their New Year's holiday, the "Year of the Monkey" their currency could slip like a monkey missing a tree branch and slipping. They won't do this in isolation. Asian nations will devalue to hold market share and Japan could institute another devaluation, taking the Yen to 140 and then, 160 even 200 is possible.
Stock Market - Near Term
With all of the above stated, the market declined last week, I still do not like the price action. There is no conviction in either the up or down movements. Even though the declines took darlings like Apple with them, there is no volume. This is an important indicator. If, they cannot push it down, then they will push it up. I see a bounce. They will try to get oil over $37, but I see this as another failed test. The bounce will be short lived. Then, I see the return to the current downtrend as I predicted in my Forecast 2016. Eventually, I see the market testing the August lows of 2011. By the way, all the effects of QE and debt is making one commodity, gold look more lustrous. I see a retest of the January 2015 highs of $1300. At that point the global fiat powers-to-be will attack it because they fear it and the possibility in an election year, a desperate candidate picking up the torch for true money and the gold standard. We can always hope.