TRANSITION
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We are getting there on the big Rounded Top for Global Equities and the equivalent bottom for the Precious Metals Sector.
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Lower-grade bonds are well over the Top and facing a Jagged Cliff.
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Depending upon the character of the trading day, central bankers seem to be
jousting at windmills or hoisting petards.
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In April we noted that the potential reversal in the credit markets in May from bullish to bearish would “pre-empt” the big decision by the Fed to end the bond buying spree. Bad news.
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The hit to global credit markets was fast and hard. The rise in yields was natural, but the Fed had to be seen as “in charge” so Bernanke mumbled something about “tapering”.
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The initial bond panic exhausted itself and a week into the rebound Bernanke hinted that the taper was a possibility, but at some other time.
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Good news.
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Bernanke’s prepared remarks for the “testimonial” thing included that “The Fed is
buying $85 billion a month.” Questionable news.
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As with “austerity, “tapering” will not be voluntary policy.
STOCKS
This page has considered that the rebound out of the mini-panic in lower-grade bonds would run through July. This has accomplished a new high for the S&P, but the negative divergence on RSI Momentum is now a caution.
Help from the rebounding junk-bond market is effectively over. It seems to have reached its best yesterday and is working on an Outside Reversal today.
The next drop spells “history” for the lower-grade bond market–around the world.
Showing great enthusiasm, banks (BKX) continued their rally and have clocked 78.15 on the Weekly RSI. This is the highest RSI since the halcyon days of 1997. Financials have been hot.
Not so hot were the base metal miners (SPTMN) that became very oversold in late June. Enough to prompt a rally and the index has stair-stepped from 662 to 744. It can continue through August.
Overall, stock market action has been working on the end of a four-year bull market. Continue to sell the rallies.
PRECIOUS METALS
Gold has bottomed relative to a number of important items. The following chart shows gold relative to the stock market and lists the condition of other significant comparisons.
The importance is that the gold sector is completing a bear market in real terms as orthodox investment sectors are completing a secular bull market, also in real terms.
The bear since 2011 has virtually taken out the inflation bulls. That was the old paradigm.
The bottom in Precious Metals has been a difficult process and we have been buying the bad days.
Gold stocks can continue the revival through August when they could briefly become vulnerable to the re-discovery of liquidity problems.
After that, we are looking forward to a cyclical bull market, in real terms, that could run for a couple of years.
This will be the new paradigm, last seen in the 1930s.
Gold Stocks Beginning To Outperform The S&P
This was one of the items that would confirm the end of the bear market in Precious Metals
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The action became remarkably oversold
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This indicator has reversed.
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Others that are in a similar reversal:
o Gold Stocks/Gold (Tested reversal)
o Gold/Crude ( A week behind)
o Gold/Base Metals ( Almost there)
o Gold/Grains ( Made the turn)
o Gold/CRB (Basing)
BOB HOYE, INSTITUTIONAL ADVISORS
E-MAIL bobhoye@institutionaladvisors.com
WEBSITE: www.institutionaladvisors.com
