Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Stock Market Trend Decisively Broken, Trading on Emotion – Eurozone Blues

Stock-Markets / Stock Markets 2010 May 15, 2010 - 09:55 AM GMT

By: Peter_Navarro


Best Financial Markets Analysis ArticleLast week, I indicated that the market trend was broken and that the best strategy for a risk-averse retail investor in the absence of a clear upward trend was a move to cash. So emotionally, just how did you handle that observation when the stock market soared on the following Monday?

If your reaction to that sucker’s rally was: “boy, I wish I’d been in the market and that Navarro is an idiot” then you may not quite understand the underlying macro logic of a cash call in the absence of a definable trend. At times like these, market participants have no clear consensus view on the future direction of the economy. Some look at the robust leading economic indicators here in the U.S. and a (slightly) improving job market and are bullish. Others look at the Eurozone debacle and see a collapse of the global economic recovery and are bearish.

At such times, “playing the market” is like playing roulette. It’s a 50-50 gamble (less your trading costs) rather than an intelligent speculation. In such circumstances, you may well experience the “high” of winning for a day such as we had last Monday. BUT you are just as likely to get hammered – as the market was in the last two trading days of the week.

The broader point here is to get your emotions out of your trading. If the market has an up day in times such as this when there is no clear market trend, don’t regret sitting on the sidelines. When the market has several down days, don’t even gloat that you were out of the market. Just wait and watch for the trend to reestablish itself and then implement whatever stock-picking strategy you have found to be best.

The Euro is Dead

Now let’s switch gears and talk about where the trend is likely to go – up or down – and what the falling euro means:

1. The euro is likely to continue in a long term decline
2. The euro will continue to decline because “Le Tarpe” will either lead to a massive boost in the euro money supply OR a collapse of the euro if countries that want to borrow “Le Tarpe” funds refuse to agree to the conditions of accepting the money. There is NO third option so the euro must fall!
3. A falling euro will hurt the U.S. economy directly by reducing U.S. exports to Europe. But this is a small effect since European exports only account for about 2% of the U.S. GDP
4. A falling euro will indirectly hurt the U.S. economy by reducing the probability that China will revalue its yuan relative to the dollar. This is the far greater impact because it will mean continued trade deficits with China here in the U.S.
5. China won’t revalue the yuan at this time because as the dollar is rising, so, too, is the yuan. This hurts Chinese exports to Europe – its largest market. Ergo, there is no way China would allow further strengthening of the yuan to the euro by strengthening the yuan relative to the dollar!!! (If you don’t understand this one, please re-read until you do. It is the single most important dynamic right now in the global recovery besides the euro collapse itself.)
6. The decline in the euro boosts gold and silver prices by raising the probability that gold and silver will be de facto “reserve currencies” in a world where high sovereign debt levels in both the U.S. and Europe make the dollar and euro less attractive as reserve currencies over time.
7. The usual positive correlation between gold vs. oil and commodity prices has been decisively broken by the euro crisis. A stronger dollar drives down oil and commodity prices BUT a weaker euro boosts gold as a reserve currency play.
8. It is easier to paint a bearish global scenario from the euro collapse than a bullish one. The bearish scenario is this: Europe stagnates as “Le Tarpe” fails because of political pressures that were not present in the U.S., i.e., while the U.S. could make demands on Citi and AIG et al, the Eurozone bigwigs can’t bend Greece and Portugal and Spain to their will. China implodes on a combination of collapsing real estate and stock market bubbles coupled with a fall in exports to the Europe. The U.S. continues to be leached by Chinese mercantilism while it loses its export growth in Europe while internally states like California and Illinois undertake contractionary measures that ripple across the nation.

Of course, despite this colossal bummer scenario I have presented, the global economy may still recover and the bullish market trend may soon resume. But to come full circle, why would you want to be fully invested on the long side at this particular point in time? Unless, of course, you prefer emotional gambling to intelligent speculation.

I leave you with this observation from Market Edge about the technical condition of the market:

The technical condition of the market stayed in a weakened state last week as the CTI and the Momentum Index remained in bearish territory while the Strength Indexes collapsed. Following the nasty sell-off which occurred the week ending 05/07/10, it came as no surprise to see the market bounce last week. What was somewhat of a shocker was the size of the rebound which saw the DJIA gain 3.9% and the NASDAQ 4.8% on Monday alone.

Despite the fact that both the DJIA and the NASDAQ finished the week with a gain, the technical picture continues to point to rough sledding over the next several weeks. … With the negatives far outweighing the positives, the probabilities are high that the correction has a way to go. Typically, sharp declines are followed by a series of failed rally attempts over a 3-4 week period with a valid test of the previous lows needed before a genuine rally can develop. Monday's bounce was a good example of such a bounce.

Navarro on
Click here to review my videos on

Professor Navarro’s articles have appeared in a wide range of publications, from Business Week, the Los Angeles Times, New York Times and Wall Street Journal to the Harvard Business Review, the MIT Sloan Management Review, and the Journal of Business. His free weekly newsletter is published at

© 2010 Copyright Peter Navarro - All Rights Reserved
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 losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules