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06212010 June 21, 2010

Posted by easterntiger in economic history, economy, financial, gold, markets, stocks.
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Weather Report 06212010

Current Positions  (No Changes)

I(Intl) – exit; S(Small Cap) – exit; C(S&P) – exit ; F(bonds) exit;  G(money market) – remainder

Weekly Momentum Indicator (WMI***) – last 4 weeks, thru 06/18   -18.34, -30.98, +0.43, +9.3

(3wks ago/2wks ago/1 wk ago/thru Friday)

With the overconfidence in many sectors fading, interest rate weakness is again evident in the return of bonds to their safe haven status, which places rates below several long-term moving averages and trend lines.  Therefore, in spite of several attempts by relevant factors to push rates higher over short time periods, the long-term trend will continue to be down, as it has been since the last high in 1981.  A recent release of the Consumer Price Index (CPI) trends indicates more fact than myth to the concept of longer term deflation, and less to the ‘bond bubble’/hyperinflation scenario.

A slowly rising channel exists for both gold and silver, with silver not reaching up to it’s most recent highs, at around the low 20’s.

·Gold – if the price is above $1120 at year-end,  it will be the 10th consecutive positive year; any price below $1050 equals a ‘buy’; any price below $900 equals screaming ‘buy’;  gold could fall between Sept and December, to a short-term low, before resuming it’s rise into next year.

·Silver – as it consolidates and holds a broad range near $17.50, plus or minus $2.00, it is not yet clear whether the shorter term expectation of a normal price contraction or the longer term connection to gold and higher relative asset value is actually the dominant theme.

Regarding world market indexes and positions, earlier this month, new lows for the year were set in the Dow Jones  Industrials.  It is important to recall the psychological impact of the 1000-point drop in the Dow on May 6th.  Explanations of accidents aside, I believe that this was a signal to those ‘in the know’ that the ‘total recovery‘ masquerade is over, and that it’s time to get real on justifications for positive scenarios, beyond hope,  euphoria and the appearance of stabilizing the 2008 crisis.

Since new lows were not set in the Nasdaq and the S&P 500, this created a positive divergence.  New lows were set in the Nikkei, while lows were set in markets in Australia, India , China, as well as in Europe.  Since all lows have appeared to hold, no immediate danger is expected.   Whether or not the 4-year low in the Euro currency holds will depend on how the world feels about debt in Greece and Spain, in general, and debt elsewhere, more specifically, in the months to come.

On the year-to-date picture, most of the major world-wide indexes are either barely above or somewhat below the points from which they began on the 1st of January.  This is a reason to be mostly cautious until several measures change to a more positive condition and remain so.

On one positive note, the following indexes have returned to just above or have mostly remained above what should be a support line in the short to intermediate term, often called the ‘bull/bear’ market line, specifically known as the 200-day moving average:

S&P500, Dow Industrials, Dow Transports, Dow Utilities, S&P Mid-Caps, Nasdaq 100, Russell 2000 Small Caps, Wilshire 5000 (this first 8, all U.S.), FTSE (London), DAX (Germany), EUR (European Top 100)

Unfortunately, the following indexes have remained below this same 200-day moving average, indicating a somewhat ‘split’ personality of the current world-wide market condition:

S&P100 (U.S.), Hang Seng (Hong Kong), CAC (France), Nikkei (Japan), SPASX200 (Australia), BVSP (Brazil), NZ50 (New Zealand), SSEC (Shanghai)

Several of my personal momentum indicators turned slightly, positive last week, apparently affected by the push of some indexes above the 200-day average.  I must emphasize that these are short-term indicators which average over weeks, rather than months.  Because of some temporary overbought conditions, a pullback is expected in the days to come.  From that point, I will look for a near-term low within the next few weeks to move up to 15% in the equity positions among the C, S and I funds.   This would be a MEDIUM RISK position.  I would expect those positions to be productive for 2-9 weeks afterward, whereupon I will be returning to seeking safety in the G or, if appropriate to falling interest rates, the F fund.

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