2013’s Most Important Market …

Editor’s note: Starting today, Larry Edelson will provide our Money and Markets column each Monday. But don’t worry … Martin isn’t going anywhere. He’ll continue to bring you the latest on financial news and how to best protect your financial wellbeing.

First of all, I want to wish you a healthy, happy, and wealthy New Year.

2013 promises to be the most exciting year since the financial crisis started out in 2007, because we’re not finished with that crisis yet.

Here’s what all of my work tells me:

Over the last year or so where we’ve seen markets swinging wildly but pretty much in trading ranges, is really the eye of the hurricane. And almost immediately in 2013 we’re going to start to pass into the back wall of that hurricane, which could last another several years and pack a lot of punches for investors.

Right off the bat we saw Congress agree to a solution to the fiscal cliff. It’s a little bit better of a deal than I expected. However, what they’ve really done on the spending side is push things off to the budget negotiations, which will be ongoing over the next couple months and certainly provide a lot of background noise and volatility for the markets.

That’s why there is one market in particular I want to start out with today. And that is none other than the …

U.S. Treasury Bond Market—
The Riskiest Market on the Planet

Over the holidays, I took a close look at the U.S. bond market. And I believe the 64-year cycle in interest rates, which I’ll be explaining in the upcoming Weiss Wealth Summit Series later this month, has indeed bottomed from the 1989 high to the record low in 2012.

Now the bond market, despite some progress in Washington, is starting to show that the Federal Reserve will not be able to control interest rates going forward.  That means rates are set to rise for many years to come. And the U.S. bond market bubble is already starting to burst.

Below is the weekly chart of the U.S. Treasury 30-year bond. As you can see it’s already broken a significant uptrend line dating back to the mid-first quarter of 2011.

Click chart for larger version

Right after Congress agreed to the fiscal resolution and postpone the spending cuts for further debate, we saw the bond market take a hard hit. And now I have the first daily sell signals …

I’m targeting a move down to system support, which is the red line in the above chart. You can see there’s significant downside potential in the short term. And over the longer term, U.S. bond prices can fall substantially.

I have been warning my readers to get out of U.S. Treasury bonds. And this is pretty much your last chance.

It may look like the safest market around, but ironically it is the most dangerous, riskiest market on the planet.

Today I also want to quickly cover some of the other markets I’m watching closely …

Gold Market—
Not Quite Ready for Next Phase Up

We’ve seen a rally in gold after the fiscal cliff news, but it’s nothing. As you can see below, the gold market is just bouncing back up to overhead resistance, just above the $1,700 level. Gold has not completed its downtrend yet. It remains in a very bullish long-term bull market, but it is not yet time for gold to take off to the upside.

Click chart for larger version

The Same Thing Pretty
Much Applies to Silver

Silver is holding support here. We’re seeing a little bit of a bounce. But silver has significant system resistance overhead and technical resistance. I expect silver to test and probably break the $26 level before it hits a long-term bottom and begins its next phase up in a long-term bull market.

Click chart for larger version

Now the Dollar Index …

The dollar is holding support. That’s basically analogous to what I’m seeing in the metals. The dollar should rally in the weeks ahead, probably going into the budget deficit talks. And then later this year I expect the dollar to resume its long-term bear market.

Another reason the dollar is acting strong and holding support and will probably rally in the weeks ahead is because Japan has come out and officially declared a policy of weakening the yen. So we’re starting to see that shift of money out of yen into dollars, which is holding up the dollar in the shorter-term.

The Dow Industrials —
Obviously a Very Key Market Here

I’ve been saying for quite some time that we’re transitioning to a longer-term bull market in the Dow Industrials. It is close but no cigar just yet. We need to keep an eye on the 13,335 level, a significant level of resistance.

I call it a pivot point for 2013. If we can get a close above 13,335 on a Friday basis, we will begin to see that transformation to a bull market. And it will occur even if interest rates are going up.

You have to set aside an old economic rule of thumb: Rising interest rates are bad for the economy, bad for stocks.

When interest rates start to rise from such a low level it means money is coming out of the bond market. All the money the Fed has printed is starting to move into the economy. The demand for money and credit is going up so the cost of money and credit is going up too. And that’s a very bullish indication for the stock market.

So stay tuned to my columns each Monday here in Money and Markets. I believe 2013 is going to be the most significant year in the markets in our lifetime because it’s going to be, as I said at the outset, a period where we start to leave the eye of the hurricane and enter the back wall, which is often the strongest, most chaotic portion of the financial storm.

Best wishes,

Larry