Global Market Analysis, August 26

EXECUTIVE SUMMARY

The Spin Continues

The talk in the US from some pundits and Fed officials is that an interest-rate hike is still on the table for the September FOMC, while NY Fed President Bill Dudley and Vice Chair Stanley Fischer muse that they are close to their targets. But when one examines the numbers, one has to wonder what they are talking about. The PCE rate of inflation has sat around 1.6% for months, short of the Fed’s 2% target. Up until the Great Recession of 2007-2009, the PCE rate of inflation was consistently above 2%. The current Fed funds rate does not appear to have priced in a rate hike. So if the Fed actually hiked in September, it might cause a commotion. But the Fed is out of ammunition, and the Eurozone and Japan are stuck in endless recessions, and there is even more talk of further BOJ stimulus. The Eurozone is plagued with banking problems, as their banks are actually weaker than recent stress tests indicated. We take a look at some recent economic numbers, including industrial production, capacity utilization, new home sales and existing home sales, and wonder what the fuss is all about. It is all like the saying of putting “lipstick on a pig.” It may look more dressed up, but it is still a pig.

A Different Perspective Part 2

Last week we covered the S&P 500 in inflation-adjusted terms and in terms of other major currencies to gain some perspective on the markets from a different angle. This week we cover gold and add one more chart with the S&P 500:Gold ratio. One of the main conclusions was that gold was at important resistance in terms of CPI inflation-adjusted gold, US$, euros and Japanese yen, but had broken out in terms of Cdn$ and British pounds. Could they be leading?

Weekly Market Review

Stocks

The S&P 500 has backed off its recent all-time highs but has not broken down. This week we take a look at the VIX volatility indicator, a measurement of fear and greed in the markets. An interesting pattern has formed on the VIX that looks eerily like the pattern on the VIX that formed for the year prior to the 2008 financial crash. Is something about to happen? Right now the VIX is showing no fear and complacency in the market. But that could change quickly. We also note some interesting megaphone patterns forming on the S&P 500, and what are their implications.

Currencies

The US$ Index and the euro both continue their seesaw pattern. Both have been in long consolidations for the past 18 months, and the pattern is inconclusive. For the US$ Index it could be a consolidation pattern or a topping pattern. Conversely, for the euro, it also could be a consolidation pattern or a bottom pattern. Breakout/breakdown points are noted.

Gold and Precious Metals

Gold and the precious metals, along with the gold mining stocks, are continuing their recent correction phase. Gold is either forming a bullish pennant formation, or it has made a double top. The market awaits as to which one it might be. Silver has formed a similar pattern. The gold mining stocks have had a sharp break, and are now easing some of the extreme bullish sentiment that had built up following 100% plus moves so far in 2016. Gold and the precious metals all remain in bull uptrends and it would take a considerable drop to eliminate that, even against the backdrop of some bearish analysts calling for a return to the 2015 lows. There are a lot of positive reasons to be long gold today and, once again, we iterate those reasons.

You can download a free copy of this week's full report here.

David's Signature

Disclosure: None.

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Chee Hin Teh 6 years ago Member's comment

Thanks for sharing