Stock Market Bull 2018 destined to Soar Higher

For a long time, our theme was to view all sharp pullbacks through a bullish lens as the trend based on our trend indicator was trading firmly in bullish territory.  Secondly, one critical psychological component was in our favour too- the masses were either bearish or they cursed this market from the sidelines (neutral camp); hence the slogan the most hated bull market in history.    We must deter for a second by stating that a mild or brutal correction comes down to what level you embraced this market. If you embraced this Stock Market Bull in the early stages from 2009 -2011, then a mild correction would seem brutal or backbreaking in comparison to someone who just jumped into the market. A 15-20% correction would knock the socks out of them, but for you, it would appear to be nothing but a blip; this is why we have consistently stated that the best time to open long positions when the masses are in a state of despair.

Having said that what does the future hold?

Towards the end of last year around Dec, we stated that we were getting a tad bit nervous as the crowd had started to embrace this bull market. Up until the Trump win, which we saw as a bullish event for the markets, while most experts viewed it as a death omen, the masses were either bearish or sitting on the sidelines. Bullish sentiment was generally below 40%, and the combined score of the individuals in the bearish and neutral camp was almost always above 55% and in most cases above 65%.  After Trump had won the markets experienced an initial shock but recouped twice as fast as they did with Brexit and never looked back since.  During this monstrous rally, the sentiment gradually started to improve, and for the past 11 weeks, the percentage of individuals in the bullish camp has always been above the 40% mark. On three occasions in the past 11 weeks, the bullish sentiment soared above the 50% mark something we had not experienced even once over the past 30 months.   As we pay close attention to the masses, this had to be treated as a significant development.

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The anxiety index for the past 24 months has oscillated between the severe and hysteria zones. At the moment the gauge is sitting in the mild zone. When we combine this with the fact that more individuals are embracing this market, it suggests that being cautious might for the 1st time in many months be the most prudent form of action. Additionally, the markets are extremely overbought and are begging for any excuse to let out some steam.

The Dow has experienced a new vertical takeoff after the results of the election results were announced; -fast, furious breaks outs are usually followed with substantial pullbacks.  As can be seen in the above charts the technical indicators are trading in the extremely overbought ranges and given the massive change in sentiment over the past two months caution is warranted. The risk to reward ratio is not in favour of the average investor anymore.  The market needs to let out some steam; a 10% pullback would be quite nice and would pull it back to the point of the current break out-former resistance turned into support.  This would be enough to scare the living daylights out of the masses.  In this case, we would favour an even stronger correction, perhaps a test of the 200-day moving average which would put the fear of God in almost 90% of investors and thus creating a splendid buying opportunity for the astute investor.  Our goal is not to focus on ideal targets but the mass sentiment, and that is why we have developed a host of tools to monitor the masses one of which we have posted above. If the Dow drops down to 18,000 ranges, but the masses are not fearful, then we would not view the situation as a buying opportunity.

A weekly close below 19,600 will signal that of the 18,200-18,600 ranges is likely. If the markets close below 18,200 on a weekly basis, it is possible they could trend much lower, but we do not want to look that far into the future and will address that hurdle when and if the Dow touches that zone.

Buy the rumour and sell the news factor

The masses panicked when they found out that Trump had won. The fake news media sites started huffing and puffing about the dire consequences the markets would face if Trump won. Several weeks earlier we went on a limb and in an article titled “Mass Psychology states Trump win Equals stock market buying opportunity” we made the following comments.

  A Trump win will create uncertainty, and the lemmings will flee for the exits; markets will pull back sharply and viola the same old cycle will come into play.  The cycle of selling based on fear which equates to opportunity for those who refuse to allow their emotions to do the talking. Full Story

We repeatedly advised our subscribers to view a Trump win through a positive lens.  However, now we feel that the markets have priced in the all the positive factors associated with a Trump win (at least in the short term time frames) and some bloodletting is in order.  In other words, it might be time to put the principle of “buy the rumour and sell the news” into use.

Conclusion

When you think about it, everything comes down to perception. Alter the angle of the observation slightly, and you modify the perception. What appears bullish to one could be viewed as an extremely bearish development by another.  When it comes to investing the goal should be to determine what view the masses hold whether it is valid or not is irrelevant for the difference between a truth and deception comes down to perception also.  If the masses are leaning strongly towards a particular outlook, history indicates that taking a contrary position usually pays off.

The masses have for the first time embraced this bull market. From a mass psychology perspective, this is alone is not a huge negative. Mass Psychology dictates that the masses need to turn euphoric before one abandons the ship. It is not the time to abandon ship, but it is time to take a breather and let the storm clouds pass.

The Dow industrials exploded upwards and have experienced a near vertical move over the past two months. Under such conditions, one should not be shocked if the markets let out a stronger dose of steam than they have over the past 24 months.

Stock Market Bull 2018 is going to charge higher

Gold: breaking out or just another letdown

From top to bottom of the ladder, greed is aroused without knowing where to find ultimate foothold. Nothing can calm it, since its goal is far beyond all it can attain. Reality seems valueless by comparison with the dreams of fevered imaginations; reality is therefore abandoned.
Emile Durkheim

The fundamental picture according to the data released by the World Gold Council continues to indicate improving fundamentals for Gold. However, we are not believers of fundamental analysis and have proved over and over again that proper technical analysis combined with mass psychology trumps fundamentals by a wide margin.  However, let’s examine some of this data:

Alistair Hewitt, who is the Head of Market Intelligence at the World Gold Council, made the following comments

 “Looking ahead, physical demand will continue to be supported by strong central bank purchases, and continued buying of jewellery, bars, and coins by households across the world, led by India and China. If we just look at the year to date, the investment case for gold is as strong as ever. While stock markets have wobbled, gold has performed well.”

From the fundamental side, there is some more good news; the world gold council released its report for 2015.   In this report, several things stand out which appear to be bullish for Gold.

·         Central bank buying remained strong – up 25% from Q4 2014.  Q4 was the 20th consecutive quarter of net purchasing by central banks.

·         Gold ETFs experienced a slowdown in outflows: 133t in 2015, compared to 185t in 2014.

·         Mining production fell for the first time since 2008; price is based on supply and demand, so if the supply drops and then demand starts to rise, Bullion prices will take off.

The China and India factor

China imported 985 tons of Gold with India coming in at a distant second importing 849 tons of Gold.  These two countries accounted for 45% of total worldwide demand for Gold in 2015.

Global Gold Supplies

Worldwide supplies dropped by 4% from 4,414 tons in 2014 to 4,258 tons in 2015.  Most of this is due to cost-cutting operations.  Production from mines dropped by 10% in the 4th quarter and is the first contraction on record since 2008.

Technical outlook

We would need to see a monthly close over $1200 at the very minimum. However, a monthly close above $1260 would be much stronger signal and confirm that Gold had put in a tradable bottom. As for how fast and how far Gold will rally after that is a different story? The fact that the Central Bankers of the world are embracing negative interest rates could act as a limiting factor regarding the speed at which Gold races towards testing its old highs. We know there are some cranks out there calling for a gold price of $50,000 an ounce. Our response to that is two-fold

1. ·         What century are you referring to; if it’s the 22^nd or 23^rd century then perhaps there could be a grain of truth here
2. ·         Secondly what planet are these dudes residing on? Gold has not even traded to $2,000, and yet they have the audacity to issue insane targets of $50,000 an ounce.

The four top stocks in the mining sector are DRD, LSG, SBGL, and RIC, for those of you that might be thinking of deploying money into stocks. We would hold off from taking any long positions in stocks, but think it’s a good time to deploy some money into bullion. Use pullbacks to open new positions in Gold as for now it appears Gold is still not ready to rock N roll.  

Tactical Investor

Euro crisis; the hidden agenda

Watch out for emergencies. They are your big chance.
Fritz Reiner

While everyone is focusing on the so called obvious factors, they have missed the most important factor; the real reason behind the crisis. The crisis started in Greece and the top EU members knew they were going to bail out Greece and potentially any other member that needed help, but they pretended that they would not. One of the obvious reasons for the bailout was not to protect Greece, but to save the bond holders; most of the bond holders are foreigners. That’s the same reason the banks were bailed out in the US, to protect the large shareholders; it’s all a game of smoke and mirrors.

Our hypothesis is that the main reason that the Euro crisis was allowed to evolve was to deflate the Euro. Note that we have stated many times in the past that we have now entered into the competitive currency devaluation era, where the theme is or will soon be “devalue or die”. Or maybe we should add “devalue or die trying to”, for nations are going to do whatever it takes to keep their products competitive in the global market. We recently spoke of this phenomenon in two separate articles Currency-devaluation-a-race-to-the-bottom and the devalue or die era is picking up steam

Germany was knocked out of the top place and replaced by China as the world’s largest exporter and that must have hurt. Thus by allowing the crisis to progress, the EU could, in fact, devalue the Euro without actually issuing new currency. And then when things started to look really bad, they could pretend to help by approving a huge package, but this package would now devalue the euro even more. Thus with one stone they killed two birds in the sense that it produced double the effect. If they had approved a bailout package immediately, the euro would not have shed as much as it did. In a matter of months the Euro dropped almost 24%; in the currency markets, this is considered to be a very large move.

Another factor to consider is that no government wants to pay its debt in a stronger currency; governments borrow money so that they can pay it back with cheaper currency.

Thus while one currency might appear to be appreciating against another; the truth is that they are all falling down, some faster than others. Take a look at some long term commodity charts, and you will notice that most of them are in up trends, regardless of which currency they are priced. For example, a 3 year chart of gold priced in any currency shows that it's in an uptrend. The race to the bottom has picked up in intensity. We would not be surprised now if some sort of crisis hits Asia soon; this would complete the circle perfectly. A position in precious metals is recommended; view this as a hedge/insurance against another potential crisis; if you have no position wait for a pull back before deploying new money.

Crises refine life. In them you discover what you are.
Allan K. Chalmers

 

Ultimate futures timing system

Is Apple Overvalued?

From top to bottom of the ladder, greed is aroused without knowing where to find ultimate foothold. Nothing can calm it, since its goal is far beyond all it can attain. Reality seems valueless by comparison with the dreams of fevered imaginations; reality is therefore abandoned.
Emile Durkheim,1858-1917, French Sociologist

Let’s do some simple math.

There are roughly 910 million shares of apple in existence and the entire company has a valuation of 231 billion dollars.

To put things into perspective let’s examine the valuation of the following companies.

 

Stock	Valuation in billions	Comments
ABX	43	The worlds largest Gold company
NEM	28
CDE		One of the world’s largest Silver producers. It has over 269 million ounces of silver in reserve.
DD	34	one of the worlds chemical giants
FCX	29	One of the worlds top copper producers
CCJ	9.7	One of the worlds largest uranium producers
SWC	1.42	North Americas largest Palladium producer
SII	10.69	One of the worlds largest sellers of oil and gas services
CHK	14.5	Largest producer of Natural gas in the US
VLO	11	One of the largest refiners in the US
HRB	5.6	The largest tax preparer in the US
CLF	7	A large producer of Iron
ADM	17.4	One of the worlds largest agricultural conglomerates

All the above companies put together would still have a valuation lower than that of AAPL. Roughly, they would have a combined valued of 214 billion. If one had to choose between buying AAPL and all the above companies, the wise choice would be to dump AAPL and jump into the above companies, especially since we are in the midst of a commodity bull. With left over change, you could purchase HL, KGC, RGLD, and you still would have some money left over.

Some other facts to consider

BHP is the largest mining company in the world and yet its valuation is well below that of AAPL, as of Monday it has a valuation of 182 billion shares.

You would be able to buy all the following Gold mining companies and still have a huge amount of change left.

• Barrick Gold $40 billion
• Goldcorp $29.478 billion
• Kinross Gold $13.50 billion
• Agnico-Eagle Mines Limited 9.84 billion
• Eldorado Gold Corporation $7.95 billion
• Yamana Gold Inc. $8.17 billion
• IAMGOLD Corporation $6.87 billion
• Red Back Mining Inc $5.80 billion
• Osisko Mining Corp. $2.86 billion
• Centerra Gold $3.03 billion

 

 

What would you do given the choice; buy apple or purchase a stake in some of the top commodities based companies in the world.

 

Tactical Investor

The ultimate futures timing system

Dow’s new highs all lies

 

All pain is either severe or slight, if slight, it is easily endured; if severe, it will without doubt be brief.
Marcus T. Cicero,c. 106-43 BC, Great Roman Orator, Politician

As the saying goes, a picture speaks a thousand words and the charts below quite clearly illustrates that the Dow has not put in a single new high in the past 3 years.

When the Dow is priced in Gold all we get is a long term down trend line. This clearly illustrates how the masses are being fooled into believing that these illusory highs are real highs.

When the Dow is priced in Canadian dollars, we also get a similar picture though not as striking as when it’s priced in Gold.

When priced in Australian dollars the picture is almost as striking as when it’s priced in Gold. These charts clearly illustrate the sinister nature of inflation; your wealth is literally being stolen right in front of your eyes.

Conclusion

Inflation the silent killer tax is being used to fleece the masses; you work hard for your money, you pay taxes and instead of getting a pat on your back you get a kick in the cahones. Welcome to the real world. The way to protect oneself from this insidious disease is to stay one step ahead of the central bankers. Precious metals are one way to hedge oneself, but they are not the only way and not always the best option. For example, from the mid 1990’s to 1999 the dot.com era was a good way to stay ahead of the inflation game, and then from 1998 to roughly 2006, real estate was a good bet, and so on. Given the rate at which new money is being created and the fact that many nations are reaching the point of no return in terms of paying back their debt, it would be extremely wise to have a position in precious metals (Gold, Silver, etc). In fact, having a position in any commodity is a good idea for the current commodity bull still has a long way to go before a long term top is put in.

 

You know the world is going crazy when the best rapper is a white guy, the best golfer is a black guy, the tallest guy in the NBA is Chinese, the Swiss hold the Americas Cup, France is accusing the U.S. of arrogance, Germany doesn’t want to go to war, and the three most powerful men in America are named Bush, Dick, and Colon.
Chris Rock Comedian

Tactical Investor

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Trichet, Euro bailout bought time that's all, nothing more

Observation more than books and experience more than persons, are the prime educators.

Amos Bronson Alcott,1799-1888, American Educator, Social Reformer

 

There is a need for a quantum leap in the governance of the euro area," European Central Bank (ECB) President Jean-Claude Trichet told Der Spiegel magazine.

Echoing his call, ECB Executive Board member Juergen Stark said turbulence in the euro zone would calm down only if member countries reformed their economies and cut their deficits.

"We have bought time, nothing more," he said in an interview with the Frankfurter Allgemeine Sonntagszeitung.

Euro zone governments agreed a 750 billion euro ($1 trillion) rescue last weekend to end a crisis of confidence in the euro triggered by financial problems in Greece, which had threatened to envelop the region's much bigger economies.

"It is not an attack on the euro," he said. "It is clear that it is the primary responsibility of the Europeans to take the appropriate measures in order to counter the present severe tensions which have erupted in Europe."

Trichet has long urged euro zone governments to cut budget deficits to stop debt piling up. The failure of the Greek government to take this advice led to a debt crisis that risked spreading to other euro zone countries with similar problems.

"There need to be major improvements to prevent bad behaviour, to ensure effective implementation of the recommendations made by 'peers' and to ensure real and effective sanctions in case of breaches."

In Zagreb, EU Economic and Monetary Affairs Commissioner Olli Rehn said bailouts had to be harsh to avoid encouraging reckless behaviour by governments.

"This mechanism must be made so unattractive that no leader of any (EU) country is voluntarily tempted to resort to this system," Rehn said in a speech.  Full story

 

Exactly, we could not have said it better; if any help is offered (we are against this, but if the measures implemented are harsh enough it might just work) the restrictions should be so painful that it will make others think twice before breaking the rules. So far, all we have is talk; let’s see if it turns into action.

Now the head of European central bank finally agrees with what we have been saying all along. As we have stated before when bankers make comments that actually make sense one should pay heed to them. We feel that only a severe lesson will be sufficient enough to trigger the other laggards into finally pushing in long term meaningful measures to balance their budgets. Until then they will nod yes but in terms of actions nothing will change; it will be the business as usual.

The Euro has already hit one of our targets; when it was trading at or close to new highs we stated that it would trade down to the 120 ranges before putting in a bottom. However, the picture has changed slightly, and it now appears that the Euro could potentially trade down to the 115 ranges. We recommended shorting the Euro Via Euo several times, but at this point in the game, we think it’s a bit late to open up new positions, unless the Euro mounts a strong rally over the next few weeks.

Related Articles

Euro; the Worst is yet to come,  May 12, 2010

Euro shock and awe bailout, more like shock and shake May 10, 2010

Ulterior motive behind Greek Bailout, May 3, 2010

Roast the PIIGs; End the Euro crisis April 30, 2010 

The Threat of Hyperinflation real or not?

 

Try not to become a man of success but rather to become a man of value.
Albert Einstein

Higher Gold and Petrol prices are some of the clear signs that inflationary forces are gathering steam. Do not confuse inflationary forces with inflation; inflation is defined as an increase in the supply of money.

There are several reasons why inflation could become a threat in the years to come

1) Government spending is going through the roof; they seem to think that we will never have to pay this money back.

2) Unfunded liabilities for Medicare, social security, etc, add up to over $108 trillion. This is a ticking time bomb for everyone claims that our national debt is high but in comparison to the unfunded liabilities, the national debt is child’s play.

3) As the Fed has dropped interest rates almost to Zero, it has very little firepower left. It could take rates to the negative level and pay people to borrow money; this will really stimulate the economy in the short run before burning it up completely. However, this option is more of a dream than a reality. The truth is that fed is almost out of options. If the economy should slow down and move back into a recessionary phase, then the only option available would be to print boat loads of money. The net result would be stagflation; higher inflation and slow growth and also the odds of entering a hyperinflationary phase would go up significantly.

Look at the price of Petrol; when oil was trading at $140, petrol was selling for 3.30-3.50 a gallon. Oil recently did not even make to $85 but the cost of petrol is already 3 plus dollars a gallon. Based on this it would be fair to state that when oil trades back to the 140 ranges, the price could surge to the $6-$7 ranges.

Many point out that we could face deflationary scenario for years to come. Well, this might be true; there is nothing wrong with hedging yourself, that’s what investing is all about. One should not bet all of one's money on a single strategy.

In an inflationary and hyperinflationary environment, commodities perform very well. Having positions in precious metals, base metals, energy, and select agricultural stocks would be a good way to protect hedge oneself. One should also have some of their assets in pure bullion (Gold, Silver, etc.).

For those who are against precious metals, one other option is to invest in TIPS and one of the ways of doing this is through TIP, iShares Barclays TIPS Bond Fund.

  You cannot have what you do not want.

John Acosta, Poet

 

Disclosure

We have positions in Gold and Silver bullion

Tactical Investor

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