The recent volatility in the markets is prompting a lot of questions from readers. So instead of writing my usual type of column today, I’m going to answer a handful of the most important questions and thoughts on your mind.
Let’s get started …
Q: Stocks really took a nosedive over the past couple of weeks. Is this the start of a big bear market again, another crash?
A: It is not the start of another crash. Nor is it the beginning of a new long-term bear market.
It is merely a much overdue correction within a new longer-term bull market.
Keep in mind that for any market to ever head higher, it needs to occasionally pullback … wipe out unsuspecting investors … and thereby gather the fuel it needs to continue higher.
According to my trading models, the worst-case scenario for the Dow is the 13,400 to 13,937 levels, where there is very strong long-term weekly and monthly support. However, I wouldn’t be surprised if the pullback ended once key long-term daily support is hit at the 14,000 to 14,373 level.
For the S&P 500, the worst-case level is monthly support at 1,524.50.
So worst case, you are looking at about a 20 percent decline. That’s big enough to scare the heck out of the majority of investors and analysts, which is what we need to see happen for the markets to regroup and then head higher again — to Dow 31,000-plus within the next few years.
Per my warnings, you should already be out of stocks. I would not hold one single stock right now. I would look to aggressively reenter the long side of equities near the end of the correction, which I hope to identify for you. In the meantime, for speculative funds, play the short side with futures or inverse ETFs.
Q: What do you think of the situation in the Ukraine? It fits in perfectly with your war forecast.
A: It sure does. The situation in the Ukraine is very bad indeed. All-out civil war is possible, and a split between Russia and Europe and the United States is in the cards.
Russia wants to take over the Ukraine. Keep in mind Kiev was a former capital of the USSR and half the population there speaks Russian and wants to become part of Russia again, while the other half wants to become part of the euro area.
Meanwhile, the U.S. has already moved tanks back into Germany, after pulling out just a year ago. Why? Because the situation is reaching critical mass and there is a very high chance that Putin will attempt to occupy the Ukraine, probably during or right after the Sochi Olympics.
Remember, Putin is an authoritarian, to put it lightly, plus he is still very much angered by what happened to big Russian money last year when it was confiscated in Cyprus. He could care less about what Europe thinks or what we think.
This is very serious stuff, and yet, we are only about one year into the war cycles, which rise all the way into 2020.
Q: You have forecast a rise in the dollar, and it is indeed creeping up. But not much. Why?
A: You are referring to the Dollar Index, which is a mixed basket and doesn’t reflect what the dollar is doing against individual currencies. The dollar has risen substantially against emerging market currencies, but is sideways to neutral against the euro, bullish against the pound.
The emerging market currencies are weakening out of an unfounded concern about another emerging market crisis now that the Fed is tapering its easy money policy.
Meanwhile, the ongoing strength in the euro is not a sign of strength in the euro. It’s merely the impact of deflation in Europe, which is causing many investors to go to cash, just like the Japanese yen surges every time Japanese investors go into a risk-off mentality.
The euro is doomed; it is just a matter of time.
The dollar is in a temporary bull market, but within the confines of a long-term bear market.
Q: Almost everyone I know and read says gold has bottomed. You disagree. Why?
A: It’s simple. Three reasons: First, gold has not yet perfected a test of time and price, meaning that it has not yet tested major long-term support at the right cyclical time period.
Second, its recent rally has not elected one single buy signal on my systems, and instead, gold remains well below the confirming signals needed to indicate a new bull market has arrived.
Third, silver has not even confirmed the recent rally in gold, let alone a new bull market of its own. Silver is acting terribly, unable so far to even get above resistance at the $20.50 level.
As to mining shares, I do not believe they have bottomed yet either.
Q: I have two questions for you. Last week you said the U.S. stock market could slide all the way into August/September. Won’t that destroy the bull market? And second, will Europe’s markets also fall into the same time period?
A: No, such a decline will not destroy the bull market. It will, however, destroy bullish sentiment, which ironically, is what is needed to fuel the next stage up.
Europe’s markets will also slide into the same time period. Asian markets, however, have likely already bottomed, and should move largely sideways during the next several months, with some upside progress. But then, once the U.S. markets bottom, we should also see renewed bull markets in Asian equities.
Q: You were right about the collectibles markets. They are red hot, with some new records just being set for art, with Edvard Munch’s 1893 painting “The Scream” recently selling for a record $120 million. Is this a sign of the times?
A: You bet it is. The collectibles market is red hot because the savvy money wants alternative assets for wealth preservation and to get off the grid, so to speak, and to the highest extent possible.
This will indeed continue as the bankrupt Western governments of the United States and Europe become more and more authoritarian and hunt down every penny of one’s wealth. This trend is only beginning.
Notably, I find “The Scream” to be a very accurate portrayal of what is going on in the world and how much uncertainty and anxiety is enveloping the masses.