Sometimes I feel like the worst husband and father in the world. I’ve been home from Asia barely two weeks, and I’ve had little more than one full day to devote to my wife and kids — Father’s Day.
But they understand. I’m immersed in my work, and the markets don’t wait for anyone. The markets are fluid, constantly changing, always opening up new opportunities.
My view:
Over the next several weeks, important signals will be hit. New trends will emerge. Older trends will breathe new life. If you’re not on top of these markets now — no matter how quiet they may seem — they’ll either sting you badly or you’ll miss out on some of the best profit opportunities of the entire year.
So let me get right to it. I’m going to give you some guidelines, signals to watch, my map of the most important markets, and my forecasts.
My publisher hates when I get as detailed as I’m going to get below. But I am compelled to put my signals and forecasts down on paper when they are as critical as they are now, for all to see, for history to record — and most of all, to help you protect your money, and profit.
I will get technical at times, but bear with me. In each of the sections below, I give you my most important signals … tell you what they mean … which ones I expect to see triggered … and what to do, now.
First …
The Stock Market
Watch the following two numbers on the Dow Jones Industrials:
10,519 on the downside
11,410 on the upside
If the Dow closes below 10,519 at any time, I believe the bear market will come back, with a vengeance.
Conversely, if the Dow closes above 11,410 at any time, the current bull market could extend, with new record highs in the Dow likely.
In between 10,519 and 11,410, the stock market is effectively in neutral territory. That doesn’t mean you can’t get hurt or make a bunch of money. There are going to be some very big winners and losers no matter what the broad market is doing.
So what significance do my signals have for you?
A. If the Dow closes below 10,519 — it will also signal that the economy is in trouble.
The main reasons: High energy costs sapping corporate earning power … rising borrowing costs sapping consumer buying power … and more weakness in housing and construction.
But never forget: This market is schizophrenic. So you could easily see the select sectors — like natural resources — surging even as other sectors plunge.
B. If the Dow closes above 11,410, it will be a solid signal that the economy is still humming … that investors are buying stocks as an inflation hedge … but the Fed is falling further behind the inflation curve, still committed to easy money.
That may be good for the economy and stocks for a while longer, but ultimately will end badly.
What You Should Be Doing in Stocks
Despite the big rally yesterday, this is still not the time to be heavily invested in the stock market. I would stay away from the U.S. stock market, with the following exceptions …
1. Gold mining shares, which I see doing well regardless of the broad market’s direction.
2. Energy and other natural resource stocks, especially if carefully chosen.
3. Put options on the likely losers. There are major opportunities to profit from stock market dogs that crash and burn, no matter which way the broad market is going.
Gold
Gold surged $10.50 yesterday, closing at $591 in the July contract. That’s very promising. But it’s still not conclusive.
The numbers to watch here …
On the upside, $618.70
On the downside, $537.80
In between those two numbers, gold is temporarily in a neutral zone. But long-term, it’s firmly entrenched in a bull market.
Why is the range so wide? Because in April and May, gold blasted off from $540 and shot straight up to $732 in barely eight weeks. So, it’s perfectly normal to see a broad trading range develop after a move like that, while gold investors catch their breath.
In the unlikely event that gold does close below $537.80, how low could it get and STILL be in a long-term bull market? Possibly as far down as $439 per ounce. But I firmly believe that’s not going to happen.
Rather, I believe gold is already starting its next leg up. Soon, I expect it to close above $618 … start moving back to the $700 level … then higher.
What You Should Be Doing in Gold
With gold trading at about $590 — and solid support at the $537 level, in my opinion, your downside risk in gold is now lower than it’s been in many months.
That’s why I recently put out a flash alert to my Real Wealth Report subscribers telling them to get back into gold. I can’t release the specific recommendations … that wouldn’t be fair to my subscribers.
However, if you’re not in the gold market, or, you took profits or lightened up your portfolio during the recent correction, now is the time to get back in.
For my specific recommendations, see the latest issue which I just put out. Not a subscriber? Join now and download the issue immediately!
In the meantime, buy a good gold mutual fund such as the Tocqueville Gold Fund (TGLDX), the DWS Gold and Precious Metals Fund (SGLDX), or U.S. Global Gold Shares Fund (USERX).
What will be driving gold higher? The same forces that have driven it higher for the last five years. They have not changed one iota. If anything at all, they are more powerful now:
Inflation is picking up steam.
The Fed is — and will likely remain — behind the curve on inflation.
The dollar is still weak at the knees.
China’s economy remains red hot.
And the threat of widening wars and nuclear showdowns is greater than ever.
We see the crisis in the Palestinian Territories boiling over.
We see North Korea saber-rattling with its new ballistic missile tests.
We see no end, yet, to the Iran nuclear showdown.
And Iraq, despite some victories, continues to sink into civil war.
So where’s the trend change? Where are the fundamental drivers that will bring gold down? I don’t see them. And until I do, or until gold breaks critical support levels on the chart, I’m still a gold bull, and I think you should be too.
Oil and Energy
The points to watch in crude oil, which will dictate the next big move in energy shares …
$72.32 on the upside
$64.05 on the downside
Same deal here. If oil closes above $72.32 — which I fully expect it will — oil’s next move will be to new record highs, well above $80 a barrel, and probably near $100 a barrel. Oil and gas shares will follow right along with it.
Conversely, in the unlikely event that oil closes below $64.05, then I would expect oil to fall as low as $50 a barrel, and we may be in store for more of a correction in oil and gas shares. Anything is possible, but I do not expect this to happen.
Why not? China is chugging along like crazy. Even if demand for energy were to slow in the U.S. and Europe, China’s economy is hot enough to keep oil and gas prices firm for quite a long time. Just consider the latest economic stats from China …
- May retail sales in China soared 14.2%, the biggest increase in 18 months!
- Oil imports soared 19% to 2.93 million barrels per day!
- Fixed asset investment jumped 30.3% in the first five months from a year earlier!
- Industrial output soared 17.9% in May, the biggest jump in two years!
- Money supply expanded 19.1%, the most in four months!
- Real estate investment jumped 21.8% in the first five months from a year earlier!
- Wages for middle management executives in China soared 17% in the first five months of the year!
I’ve said this many times before and I’ll say it again. Do not underestimate China’s impact on the global economy.
China is helping to drive every commodity, service and market from A to Z, and it will continue do so for years to come.
In the year 2050, economic historians will look back at China’s emergence into the global free markets as the critical trigger point of one of the most inflationary periods in economic history. Undoubtedly, more than a billion people improving their lifestyles is extremely inflationary. It’s the same story for India.
For all natural resources, especially oil, that means higher prices to come.
What You Should Be Doing in Oil and Energy
Seriously consider oil service companies. They’ve come down nicely in recent weeks. But just yesterday, they jumped almost 4% on average, and it could be just the beginning of a much larger move.
Lastly, keep in mind that world economic growth is the highest in 30 years, and well above average global interest rates.
That means there’s no central bank anywhere that’s stepping on the brakes. Moreover, there isn’t a central bank in the world that will take the chance at derailing economic growth. There’s way too much at stake.
Best wishes,
Larry Edelson
Editor, Real Wealth Report
For more information and archived issues, visit http://www.moneyandmarkets.com
About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Colleen Collins, Amber Dakar, Ekaterina Evseeva, Monica Lewman-Garcia, Wendy Montes de Oca, Jennifer Moran, Red Morgan, and Julie Trudeau.
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