Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
The Inflation Mega-trend and UK House Prices - Housing Market Analysis Trend Forecast 2022 to 2025 - 5th July 22
Gold Price Summer Seasonal Doldrums - 5th July 22
Tame Budgies Having Fun on a Grape Vine - UK Parakeet Easy Training - 5th July 22
Is the US Yield Curve Inversion Broken? - 3rd July 22
New Signs Economic Turmoil Will Prompt Fed to Lose Its Nerve - 3rd July 22
Stagflation With Powell Could Make Gold Price Happy - 3rd July 22
UK Housing Market Analysis, Trend Forecast 2022 to 2025 - Part 2 - 30th June 22
Stock Market Turning the Screws - 30th June 22
How to Ignore Stocks (and why you should) - 30th June 22
Top Tips For Getting The Correct Insurance Option For Your Needs - 30th June 22
Central Banks Plan To Buy More Gold In 2022 - 30th June 22
AI Tech Stock PORTFOLIO NAME OF THE GAME - 29th June 22
Rebounding Crude Oil Gets Far Away from the Bearish Side - 29th June 22
UK House Prices - Lets Get Jiggy With UK INTEREST RATES - 28th June 22
GOLD STOCKS ARE WORSE THAN GOLD - 28th June 22
This “Bizarre” Chart is Wrecking the Stock Market - 28th June 22
Recession Question Answered - 28th June 22
Technical Analysis: Why You Should Expect a Popularity Surge - 28th June 22
Have US Bonds Bottomed? - 27th June 22
Gold Junior Miners: A Bearish Push Is Coming to Move Them Lower - 27th June 22
Stock Market Watching Out - 27th June 22
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stocks, Bonds and Dollar Markets Review

Stock-Markets / Financial Markets 2013 Mar 01, 2013 - 07:31 AM GMT

By: Puru_Saxena

Stock-Markets

According to our methodology, Wall Street is currently in correction mode and this is not the time to invest fresh capital in stocks. It is notable that although major US indices advanced on Tuesday and Wednesday, volume was very low and this warrants caution. Moreover, volume picked up during Thursday's late stage sell-off and this negative action suggests that the ongoing stock market pullback may continue.


Given the recent weakness on Wall Street, we believe that investors/traders should keep their holdings on a tight leash and refrain from allocating fresh capital. For our part, we have recently been stopped out of a few positions and currently, approximately 30% of our equity portfolio is in US Dollar cash. Furthermore, we are protecting each and every open position with a trailing stop and should the market head lower, our stops will allow us to defend capital. At this stage, we cannot predict the depth or the duration of the ongoing correction, but given the loose monetary policy, Wall Street is likely to climb to new highs. In any event, as long as the market is in correction mode, we suggest a defensive posture.

In terms of specific sectors, it is worth noting that consumer staples and utilities are performing well, whereas some of the cyclical areas are coming under pressure. Such price action is typical of stock market corrections and until the uptrend resumes, the high-beta cyclical names will probably continue to feel the heat.

Over in the commodities space, the Reuters-CRB Index has weakened further and it is now trading well below the 200-day moving average. Furthermore, it is notable that the prices of copper and crude oil have also rolled over and it appears as though the sellers are in control. Contrary to what the 'hard asset' bulls may tell you, the truth is that aggregate global demand is currently weak and the world's reserve currency is strengthening. Therefore, this is not a favourable environment for commodities and we do not recommend exposure to this sector.

Looking at precious metals, it is becoming clear to us that both gold and silver put in major tops in 2011 and the onus now lies on the bulls to reverse the downtrend. As you will recall, we sold our positions last spring and since then, our advice has been to avoid this sector. Whichever way you cut it, the reality is that the price action in both gold and silver has been extremely disappointing and despite the ongoing QE-ternity, the selling pressure has overwhelmed the buyers! Look. If you review the price charts objectively, you will note that both gold and silver have formed a series of declining tops and they are currently trading well below the 200-day moving average. Needless to say, such price action is bearish and in our view, there is now a real risk that the prices of both gold and silver will fall below last summer's lows. If that happens, the secular bull-market will be over and prices will probably drift lower for several years.

At present, nobody knows whether last summer's lows will be breached, but the recent abysmal performance of the mining stocks suggests that next big move may be to the downside. Contrary to the bullish chorus of the 'gold bugs', the AMEX Gold Bugs Index has already sliced through last year's low and it is now trading at levels not seen since 2009. We are sure you will agree that any market trading at a multi-year low cannot be in an uptrend; thus this is not the time to have any exposure to the mining stocks. Yes, central banks are creating additional currency units and yes, monetary inflation is here to stay. Nonetheless, all this is yesterday's news and by now, 'stimulus' has already been discounted by the market. Thus, if you own precious metals and are convinced about your thesis, you should wonder why then, are prices falling?

Turning to currencies, the world's reserve currency is strengthening and the US Dollar Index has now climbed above its November high. By doing so, it has also broken through the 200-day moving average and the trend is up for now. Elsewhere, the charts reveal that the Australian Dollar, British Pound, Canadian Dollar and the Euro are weakening and with the exception of the single currency, the others are now trading below the 200-day moving average. Once again, although it is very difficult to make accurate predictions, it does appear as though the US Dollar is likely to strength over the following months and it is conceivable that we may be in the early stages of a multi-year rally. After all, the US Dollar Index fell by over 40% between 2001 and 2008 and today, most people are convinced that the world's reserve currency is a lost cause. Thus, bearing in mind the magnitude of the previous downtrend and the lopsided bearish sentiment, the stage may now be set for a big rally in the Federal Reserve's currency.

Over in the bond market, high yield credit has firmed a tad over the past week and we maintain our view that income-seeking investors should allocate some capital to this sector. Although rising interest-rates are a real threat to high-yield bonds, if these securities are held until maturity, this risk is removed from the equation. From our perspective, our US-Dollar denominated fixed income portfolio is still yielding approximately 6% per annum. Finally, it is interesting to observe that both German Bunds and US Treasuries have appreciated over the past week and it appears as though this recovery may continue over the following weeks.

Puru Saxena publishes Money Matters, a monthly economic report, which highlights extraordinary investment opportunities in all major markets.  In addition to the monthly report, subscribers also receive “Weekly Updates” covering the recent market action. Money Matters is available by subscription from www.purusaxena.com

Puru Saxena
Website – www.purusaxena.com

Puru Saxena is the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients.  He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.

Copyright © 2005-2013 Puru Saxena Limited.  All rights reserved.


© 2005-2019 http://www.MarketOracle.co.uk - 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