Something happened in the markets this week … I’m just not entirely sure what. Did the bears just get blown out or did we just witness a near term blow off top? I favor the latter.
The stock market, gold and oil all rallied. From Friday to Thursday we’ve had seen the following gains.
- S & P 500: +0.86%
- GLD: +2.21%
- OIL: +2.32%
The S&P 500 is tantalizingly close to its all-time high of 2,130. It closed as high as 2,119 on Wednesday. Gold rallied sharply after its modest correction. Oil closed above $50 a barrel and reached as high as $52.
Anyone who was short any of these assets got hurt this week … and yes, I speak from personal experience.
But as the dust settles and I take a look at the charts that I look at every week … it doesn’t look like to me like much has actually changed. I still see the risks as decisively to the downside … at least through the end of June.
The most important charts for the stock market continue to be this chart … showing the huge overhead congestion that the stock market bulls continue to wrestle with:
There are also some troubling divergences between different indices.
The Dow Jones Transports continue to signal caution … even in the face of higher highs in the Dow Jones Industrials. How is it that industry is thriving if the companies that move stuff around for industry are not thriving?
There is a fly in the ointment that could unravel my on-going thesis for near term corrections – the US Dollar. The dollar corrected sharply lower this week after the terrible jobs report. It was, however, just a correction. It didn’t make new lows.
There is a lot of global political pressure for a weak dollar because the world is awash in dollar-denominated debt. If dollars are more expensive, that debt load is harder to service.
It’s this political risk that scares more than anything. Frankly, it’s disastrous and disheartening that politics have come to be such a big factor in financial markets. Unfortunately, that’s the reality that we’re dealing with today.
Hope you forget all about the markets this weekend!