I admit I’ve seen tops in the S&P for quite some time. For many reasons eg
- ¥ troughed v US$ in May – I guess I expected a bounce back, instead we have had this coiling
- DJ is flat since May
- Prior fast moving tech stocks (eg TESLA, NETFLIX etc) have been topping and pulling back sharply
- US$ has been hammered since the Summer (when for the last 2 years it has risen as has the S&P)
However, I am saying it again.
The ¥:$ seems to be playing a most important role in global equity prices. As ¥ plummeted from last October, equities soared.
Look at the NIKKEI and the ¥. You will see they are mirror images – ¥ down, Nikkei up. ¥ coiling, Nikkei coiling. It’s quite a sight.
So what happened yesterday to make me write this post?
The €uro area is so strong, economically, that the ECB decided to cut interest rates. Let me put that another way, the €uro area is seen to be the basket case it obviously is but for the lies of the establishment and the bankers.
So, the US$, at first, soared then fell against most currencies. The $ has been strong these last couple of years as funds flowed into the US from the EU and Emerging Markets. These funds went into US stocks.
So, is it the case that the ECB cut rates and the $ cannot hold its rise?
If so, then the $ may fall, generally, and the ¥ will rise v $. The Nikkei will fall as will the S&P (and associated indices). Also, EMs may rise as their currencies strengthen, relatively, even if S&P falls. However, on very recent evidence that is unlikely.
Also, if $ falls, then precious metals should do well.
Also, we saw lots of buyers come in for US Treasuries and this further indicates USTs still rallying, from low levels a couple of months ago.
Big picture I am saying there are strong reasons why investors should be very cautious about expecting more and more equity gains. If it falls and it breaks important support at c 1620 and then major support at c 1550 then watch out below.
I am saying precious metals may be in line for a significant rally. I would be surprised if we have seen THEE bottom but we may have seen A bottom. NB though. If Silver breaks below $20 and Gold below $1250 then likely we’re still heading way down.
Whether or not we’ve seen the bottom, a buy of a generation is coming. It may be here now (with a possible rally) but more likely it’s in 2015 or so.
I am saying the $ may be at risk here of continuing its downtrend, started this Summer. I am not clear on the $, generally. I see both sides, short term. I guess if ¥ soars v $ then that may be the decider. Longer term, if there is a major global economic shock (eg China – to be subject of future post) then $ would normally soar.
I am saying IF ¥ strengthens, short to medium term (ie weeks to months), then the Nikkei may fall considerably. That would set up the buy of a generation from much much lower levels (10,000-11,000?), though you’d have to hedge out the currency risk for the longer term.
So, the risks are there and the opportunities too. Understand that markets are inter-related. Some go up and down because others go up and down, normally. Some go vice versa, normally.
Some are unclear.
But clarity eventually arrives along with sensible markets movements.
WHATEVER, PLEASE MAKE SURE YOU ARE REVIEWING YOUR INVESTMENT HOLDINGS RIGHT NOW AS THE CYCLE OF 2009 TO DATE MAY BE ENDING.
Copyright Jonathan Davis 2014
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