Stocks: the leading American indices (S+P 500, DJIA, DJT) closed at new All Time Weekly Highs…again…as did the German DAX and the Dow Jones World Index…which is up nearly 300% from the lows it hit in 2009.
Record high stock buy-backs in the USA…VIX at 7 year lows…Central bank money printing has been a wonderful thing. Stocks look to be headed higher…anticipation that the ECB may go to negative interest rates to provide stimulus to the European markets is fuel for the fire.
Bonds: Yields continue to fall with the 30 year Treasury at the lowest yield in a year. Bond market sentiment: no central bank tightening anywhere on the near term horizon…and if there is any tightening in the distant future it will be cautious.
Everybody and his institutional dog was short bonds into year-end 2013…we are clearly seeing short covering as 2014 progresses and “rebalancing” from stocks into bonds (Gartman estimates as much as $500 Billion switching from stocks to bonds on institutional rebalancing.) Sentiment is that global growth is weak…this inspires bond buying…also geo-political concerns inspire bond buying….and…IF the stock market had a “correction” bond buying would increase…short covering could become intense.
Currencies: We’ve had a Daily, Weekly and now a RARE Monthly Key Reversal Down in the EURUSD. The US Dollar index is making gains…after hitting a 14 month low in early May. Markets await a much anticipated ECB meeting next week…are they are finally going to do something?…expectations are that they may move to negative interest rates…however, if they sit on their hands (again) Euro may pop on short covering…providing a good opportunity to sell it short.
Gold: In a liquidation phase…Open Interest fell on big volume this week as prices took out the April/May lows ($1270)…gold market look set to challenge the 2013 lows of $1180. Silver is even weaker…closing at a weekly 4 year low.
Crude: WTI rallied from $98 in early May to a high of $104.50 this past week. $105 has been a “roof” on prices on 3 separate occasions over the past year. Supply/demand fundamentals appear bearish (Schachter) but prices are at risk of a geo-political shock which could reduce supply…however…a perception that supply is growing while a weakening global economy reduces demand could pressure prices lower.
Our Trading positions:
Stocks: No positions…looking to get short on the first signs that the rally is running out of steam…patience may be required!
Bonds: No positions…might short them if they jumped higher on a break in the stock market.
Currencies: 1) We’ve had long US Dollar positions on for over a month. Looking to add if the Euro jumps on “no action” from the ECB…anticipating a long term bull market in USD.
2) Long CAD against AUD. Basically a bullish bet on America, bearish China.
Gold: We’ve maintained short gold positions for 3 months…waiting for this break…anticipate more selling…will try to add to our short position.
Crude Oil:…short…new position this week. Will cover if WTI trades up through $105…the supply/demand story is compelling…large speculators are heavily long…could see prices break $20 or more.
Copper:…short…new position this week….anticipate weakness from other metals to hurt copper…also anticipate weaker Chinese demand. Copper rallied 30 cents from 4 year lows the past 2 ½ months…but it’s been in a downtrend for 3 years…looking for that downtrend to continue…could see 50 cents or more on the downside.
