Anytime gold spikes up like it did this past week it makes sense to explore whether that type of move is trying to convey a coming problem. Over the last week, Gold, as measured by GLD, was up about 4%. Gold is at an umpteen year high and this last move almost feels like a panic up. Obviously this could change on Monday but this is what has happened thus far.
Copper's chart is also starting to look parabolic. Obviously people don't buy copper in a flight to safety like with gold but something is driving capital in to the commodity complex.
Oil is off of its high but clearly above $70. With the totality of what is going on excluding Iran I think $60 is a high price (I am not saying too high) for oil. I obviously have no idea what the terror premium should be but crude was about $9 lower back in March.
An indicator I like to watch is the Aussie dollar vs. the Swiss franc. Both are developed markets but are thought by some to be at different ends of the same spectrum. It is thought that there is less global anxiety when the Aussie goes up vs. the Swissi.
Over the last few weeks money has clearly been coming out of the US dollar but the Aussie is also down almost 4% vs. the Swissi in the last two months.
The are several markets that seem to be less fazed by the latest in global current events.
The US yield curve has generally gotten steeper. This is generally an optimistic indicator as steep curves are usually associated with good growth prospects. If the bond market was more concerned about this you might expect to see the curve get flatter as money sought the safety of US treasuries. The other side of this particular coin of course is that the US dollar is taken a big hit so interest rates have to rise in order to compete globally.
The VIX index seems to be carefree and easy of late and while I drew in the red trend line it looks like an accurate line. With the verbal sparring under way I might expect VIX to be a little higher.
Most importantly for US equity investors the stock market has not cracked. I do not know if it will. I would not be surprised if it did but we are not that far from the 200 DMA. I feel no need, as usual, to out guess anything big and scary. As I noted during the week I did raise a little cash early in the week but not much.
A last point is that the way I have spelled out all of these indicators is in a basic fashion. I think that once you really have the basics down you can then begin to understand the more complex concepts behind all of them as all of the things listed could be interpreted differently than what I have here.
1 comments:
Hi Roger,
Could you share with us strategies one would employ to protect assests if one forsaw an imminent correction in the US stock market?
Selling stock, buying puts, writing calls or employing some options strategy like writing straddles or doing a ratio spread are things most people look at. Presume, we are aware of the merits and limitations of these strategies. Share with us, if you will, strategies other than these and their merits and limitations.
I understand well the risk of "anticipating" a correction and the cost and consequence if such a correction were not to materialize ("the market can stay irrational longer than you can stay solvent") - so you can choose to forgo the pleasure of dwelling on this as well.
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