U.S. Stock Market
Last week all the major stock indices (NDX 100, Nasdaq Composite, S&P 500, Russell 2000) started to retrace its prior move up and looks likely to retest their recent lows over the next week or two. The NDX 100 and Nasdaq Composite have been the strongest indices since making a bottom on August 24th but could have a very swift final move down to the price area of its prior, recent bottom before bouncing back up. I still think the most likely direction, after the completion of this digestion of the prior volatile moves, is up. I still see stocks setting up for likely moves in the upward direction. The stocks that I have recommended in previous posts based upon the less prudent approach (I may stop calling it the less prudent approach if the U.S. stock market shows signs of a significant move up) are the type of stocks I see going up. In addition, I see NDX 100 favorites such as AAPL, GOOG, and possibly AMZN setting up positive looking patterns of accumulation. That said, it is more important than ever to use stops as recommended in previous posts to protect your new positions from turning into big losses. I would wait until the indices have fully retested their recent August bottom and shown some upward movement before entering this market.
As far as commodity related stocks, they still appear to be bottoming. This includes oil, natural gas, mining, agricultural, and commodity equipment stocks. Contraction of supplies in many commodities continues due to the extended and continuing low price environment. As I have mentioned previously, big money and insiders have already started to take major positions in several commodity and precious metals (I try to keep precious metals as a separate entity from commodities because here we are talking about something that historically has been and still is real money) stocks. For long term investors, I think taking carefully selected positions here in general will pay nicely in one to three years down the line. But a better approach might be to take a small to moderate initial position, then just sit tight for awhile (or dollar cost average buying on any dips) and wait for the start of significant upward momentum or a Buy alert from yours truly. One thing you need to be careful about, is most of these commodity related stocks are very capital intensive and many have debt issues mostly due to buying properties at the top of the last commodity cycle and in the case of shale oil companies thinking the price of oil was going to stay much higher than where it is now. In the case of the shale oil companies, I would generally avoid them. Their wells are short-lived, relatively expensive, and many of the prime areas have already been drilled and pumped. In general, going forward they will be drilling on less productive prospects, and will require significantly higher oil prices to be sustainably profitable. On any oil related companies including oil services companies, I would wait until after October. In many cases, their debt comes up for renewal in October and banks are probably going to be much tighter about lending them more money if oil and natural gas prices are still low, particularly if the company is already showing itself to be in a very shaky financial position. The lack of easily available financing is also contributing to the contraction in the supply of many commodities and precious metals as companies are closing or slowing down production and/or selling some of their properties to shore up their financial positions while waiting for the return of higher commodity prices.
For the gold market, we saw the continuance of the prior week’s rally. Silver was not quite so positive as gold last week and ended up a little lower than the prior week’s close. This looks to me to be nothing more a little rally in a bear market for both gold and silver. I think you may see some continued upward action early in the week but I think the main trend will turn down for one final blast below $1000 before all hell starts to break loose (commencement of major governmental, economic, and societal problems in the U.S. and probably many other places as well due to central bank funded big governments running up sky high debts and smothering economic activity particularly if not generated by a big corporation or one of their cronies thinking they can make these desperate, corrupt, criminal governments survive if they can keep printing more paper money). Then you will definitely want to have significant allocations to physical gold and/or silver as well as precious metals mining stocks. As with the commodities, I think you can wait on positioning yourself significantly in the gold and silver mining stocks until after October. I do not think the gold and silver price (although supply is drying up in the physical market) will make a bottom before the December/January timeframe.
I saw a movie this week called “The Forecaster”, a documentary-based film on the hell that the U.S. “justice” system and government put Martin Armstrong through for an extraordinary lengthy period. The government locked him up for 11 years without convicting him of anything – frickin amazing. It is another example of where the U.S. government is concerned that might makes right and the law and a person’s inherent rights have nothing to do with the government’s brand of justice. I strongly recommend it but I do not believe it is currently showing in the United States (I am in Spain currently). I believe the film had to be made in Germany, because no one in the U.S. film industry (one of the U.S. government’s primary propaganda and social conditioning machines) would touch the subject since it provided plenty of damning evidence of how corrupt the U.S. government really is. I think you can get it online.
Junk bonds (JNK and HYG ETFs) are looking very weak here. This is a bad omen of what is to come. Interest rates on high yield issues will continue to rise if they do not reverse trend. Rising interest rates are an indicator of rising risks in these companies and in the economy, too. If junk bond yields continue to rise, then this should be a leading indicator for corporate and Treasury rates to follow suit at some point. Central banks can continue to print money to keep the Treasury yields low as long as the market cooperates and all significant parties to this madness remain somewhat aligned. But cracks in the dam are starting to appear as foreign creditors have shown an unwillingness (by selling Treasuries in large amounts) to continue supporting the U.S. government spending addiction. We know there is hidden QE going on here because there are no other buyers for these Treasuries other than the Federal Reserve and their proxies. To put it in clearer terms, who in their right mind is going to buy Treasury Notes and Bonds from a bankrupt government, even if they have the largest military in world. In fact, one of the primary reasons the U.S. is bankrupt, is because of the exorbitant military spending. The U.S. military has never met a potential war that they did not want to fight – need to keep those credible enemies in front of the American public to justify the existence of an outlandishly large defense force or is it to spread freedom and democracy – I keep forgetting which one is its primary tasking (BTW, job well done!).
The large printing of U.S. dollars to buy these discarded bonds by foreign holders may also help explain why the U.S. dollar has not already gone higher with all the turmoil being experienced around the world. If the U.S. is still being perceived as the world’s financial safe haven, then money from Europe, Middle East, and China should still be flowing into U.S. dollars. The outflow of money from China has been well documented. But the U.S. dollar keeps going sideways and money velocity keeps declining. I expect to see some more upward movement on the U.S. dollar but I would not be surprised if this subsequent rise is much less than is being expected in many camps.
None of this money is reaching the American public as exhibited by the continual decline in money velocity. It first went to bail out the big banks, then went into the stock and bond markets, then to big corporations to buy back stock, and now the hidden Q.E. to buy back the newly discarded Treasuries. The Treasuries are not being held onto by China and Russia as they know the U.S. is bankrupt. In addition, they do not like being dictated to, especially by a rapidly deteriorating and degenerate paper tiger whose primary source of remaining power is their paper currency being the primary reserve currency in the world. As the Federal Reserve continues to print money to fund its government and keep interest rates low, then the value of the currency will have to depreciate at some point. So you will get a rapidly depreciating currency (hyperinflation) and/or rising interest rates. Both spell doom for the U.S. government’s insane and corrupt pyramid scheme and we should not have to wait too long for the real fireworks to begin.