Are you a speculator?

Never mind, because whether you like it not – you are now. Investing now is first and foremost about speculating on the next central bank move – and the kingpin is the Federal Reserve. Hint of a rate rise in the US brings the loonie, oil and other commodities and stocks down. Nothing else seems to matter.  

The same thing is happening in Europe and Japan where the stock markets have moved up in response to their central banks’ easing. And today China announced it is hopping on the bandwagon before bad loans threaten to swamp the system.

The focus on the Fed and other central banks is nothing new. It’s been going on since March 2009 but now it seems that everyone is on board and watching for signs of the Fed’s next move.

A Warning

While many investors have been uncomfortable with Quantitative Easing and the manipulation of interest rates by central banks for a number of years – some big names are now getting very nervous.

For example, legendary money manager Stanley Druckenmiller recently stated, “I know it’s tempting to invest, but this will end very badly.”

Famed bond investor, Bill Gross, said last week that playing the German government 10 year bonds to go down was the trade of a generation. And if he’s right then look out.

And let me reiterate that I am avoiding any government bonds with maturity out more than two years.

The market will dictate the timing but the fact that such sophisticated investors are showing that level of concern warrants my attention. It tells me to have very clear exit points based on technical patterns. The most straightforward being the break down from the up trend line.

The 3D printing stocks – which I correctly advised to exit in November, 2013 – illustrate how severe the downtrend can be. The leaders are all down more than 70% from their highs.

The point is don’t be greedy when it comes to exiting growth and aggressive growth stocks that have been in strong uptrends.

The Canadian Dollar

A quick rule of thumb after major market moves like the Canadian dollar experienced in the last two years is that they will correct about 50% of the move. This is why I have been waiting for a rebound from the low of 78 cents to about the 84 to 86 cent level.  (Half of the drop from 94 cents to 78.) Obviously this is just a guideline and I will watch the market action closely to determine when to convert more Canadian to US dollars. With the loonie above 83 it bears watching.

A rise in US interest rates, which most analysts are predicting for later this year, would be bearish for the loonie – so that’s one indicator to keep an eye on.

Oil

The same technical picture holds true for oil. We are now in the bounce phase from the strong drop from June 2014 to the end of January. I still expect a further downside to develop but I would love to see a stronger bounce before committing to playing it to go down.  A bounce to $70 plus would make it a lot easier – but we may not get there given the declining storage capacity. Once the storage facilities at Cushing, Oklahoma are full oil will be forced onto the open market thereby pushing prices down. Josef Schacter predicts that the next leg of the decline could take oil down to the mid 30s by June.

If that happens I’m planning to step back into the market for a more significant up move.