Has the penny finally dropped?
As I have often posted, these bubble markets have long been looking for a pin – and it appears they have found it in the form of spiking Treasury yields (which I was fortunate enough to predict last year). In fact, this is the pin I have been banging on about for months (see previous posts). And in the final flourish, my sense of reality was being stretched to the limit on Wednesday when already Treasury yields were crashing to the 2.4% print (they have doubled since August) – and traders pushed the Dow right up to my forecast 32,000 target area as a last hurrah.
And then started the severe pull-back on Thursday. So with stocks and bonds heading south, this unison pattern is fulfilling another of my long-standing prophesies – all assets will decline together. Even that ‘safe haven’ market – Gold – is in free-fall.
I am sure many bulls are scratching their heads over this set-back – after all, the vaccine roll-out has assured investors the sunny uplands of booming growth is just around the corner as pent-up demand hits freedom. And wasn’t the economy going to run ‘white hot’ this year? But that of course ignores the elephant in the room in the shape of looming interest rate rises. I have always believed that to be the Achilles heel of the equity bull case. The Fed is now being forced to think about dragging forward their timetable for tightening to choke off incipient inflation signaled by soaring commodities.
All of this has pushed bullish expectations to the max with everyone fully invested. Even Junk Bonds have exploded (remember, these are issued by the dodgiest companies). They trade like equities – and are subject to the same extreme hazard when interest rates rise. Now everyone is levered up to the hilt, how much more debt can they take on, especially when bond yields are exploding?
The picture does not look good (for the bulls).
So does the Fed still have investors’ backs? Will any moves to add even more stimulus do the trick of keeping the bubbles inflated this time? Or has the effect of adding more stimulus reached the point of no return? And has it even become counter-productive as investors smell a rat and peek behind the curtain to reveal the Wizard of Oz is no wizard – just a guy with levers to pull on an old creaking out-of-date machine.
As I have long predicted, faith in the Fed is being eroded as more investors realise the Fed does not control the economy or interest rates – the markets do.
To my simple mind, when bond yields rise (prices fall), that indicates a swing in the supply/demand balance in favour of too much supply and not enough demand (and vice versa). So now there is too much supply for the market to digest compared with recent times. And with the dollar about to turn higher, overseas bond demand (such as from the biggie – China) is being hit.
In fact, we may have the perfect storm for stocks and bonds – spiking bond yields (inflation expectations rising rapidly) and greater pressure on the Fed to move forward plans to tighten by raising policy rates sooner rather than later. And a rising dollar.
Already, risk is being taken off many highly speculative markets with Tesla in free-fall as is Bitcoin – the two poster children of the mania for speculative assets.
The bottom line: Watch out below!
This is the Dow chart I posed to VIP Traders Club members early Friday. On Thursday, I kicked off my campaign and issued a Sell Short Signal at the 31,820 level just pips from the high. And in two days, it has declined by over 1,000 points. And on Friday, my ‘overshoot’ has been confirmed and that brings my main target around 29,000 into play.
But just admire how the market finally made it to my upper tramline 32,000 target – and then reversed. It was as if there was a huge magnet there, stretching the rubber band to the limit! And the snap-back will be just as fierce. The huge power of tramlines!
I foresee huge moves lower in the stock indexes this year – and they will be rapid. At the same time, I believe the US Dollar will surge in value especially against EUR, GBP and CAD. We have already started campaigns in all these markets.
Huge rewards are available for early birds so take a two week Free Trial to my VIP Traders Club here.
Have soaring commodities topped out?
We have been riding the commodities boom since last year as I spotted the great potential for massive reversals out of the doldrums they had been in for some time. I was particularly excited by the prospects for Soybeans, Corn and Wheat and since then, all three have performed spectacularly. But with last week’s market tumult, I am seeing signs of at least a faltering.
Here are my thoughts on that most crucial commodity, crude oil. Here is the monthly chart
I have a stunning 13-year trendline with highly accurate touch points and last week the market rose up to touch it. For 13 years, that line has provided solid resistance to advances. The previous downturns from that line have been sharp. So, will history repeat now crude has reached my target around the $60 print? Here is the daily:
Our latest trade was our long entry at the $47 mark in December and despite the very bearish sentiment in most MSM posts, it continued up to last week’s hit on the trendline where I advised members to take profits. Note the mom div at the high – one of the reasons I took on board to exit.
That was a very tidy gain of $30,000 or a spread bet of only £20 per pip.
To some extent, the rally was helped along by the dollar’s weakness, but with it turning around, that following wind is no longer present. And that applies to all commodities now, including the grains and softs.
We are now in a very different world.