U.S. Stock Market - April 12th Week In Review

Lots of record highs were posted this past week among major U.S. stock market averages The S&P 500 Index posted a record intra-day high at 1.597.35 and a record closing high at 1,593.35 on Thursday, April 11^th. The Dow Jones Industrial Average posted a record intra-day high at 14,887.51 and a record closing high at 14,865.14 on the same day (4/11). The NASDAQ Composite Index posted a new “reaction” high at 3,306.95 on Thursday which is up 161% from its March 2009 low, but still 35% below its all-time high at 5,132.52 set in March 2000 in the “Dot Com” bubble. Other major indexes like the Russell 2000 and the Dow Jones Transportation Average failed to post record highs last week, but they are both very close and can not be considered so-called bearish non-confirmations.

Here are Friday’s closing marks, with changes from Thursday’s close, and also with changes on the week, respectively:

                                                              Friday’s Change                          Weekly Change

DJ Industrial Average               14,865.06       -  0.08     -0.00%        +299.81           +2.06%

S&P 500 Index                           1,553.30       -  4.50      -0.28%        +  35.55           +2.29%

NASDAQ Comp.                        3,294.95       -  5.20      -0.16%        +  91.10           +2.84%

Russell 2000 Index                       942.85       -  4.20      -0.44%        +  19.55           +2.12%

DJ Trans. Average                     6,143.75       -21.11      - 0.34%       +106.39           +1.76%

The latest investor sentiment indicators are mixed. As reported in Barron’s this weekend, the Consensus and Market Vane weekly surveys show 77% and 65% bullish, respectively, on the U.S. stock market. The odd man out is the latest weekly AAII survey which shows only 19.3% of individual investors are bullish while an incredible 54.5% are outright bearish. This latest AAII survey is extremely puzzling to me, but probably shouldn’t be ignored in any market assessment.

Gold/Silver? Friday’s collapse in the precious metals futures, ETF’s, and related mining shares came as a complete surprise to me. The U.S. Dollar Index was mixed against most major currencies on Friday, so we can’t blame the plunge in gold/silver prices on strength in the Dollar. Sure, Cyprus is expected to be a seller of a relatively minor amount of gold from its reserves to fund its recent bailout agreement with the EU/IMF. And yes, India has imposed stiff import tariffs on the yellow metal which has curtailed demand there. However, the long lists of positives for Gold/Silver (central bank purchases by China & Russia, among others, and record “debasement” of currencies through debt monetization programs in Japan and the U.S., among others) clearly support precious metals prices. To explain Friday’s panic selling in Gold/Silver (GLD and SLV down about 5% on the day), we can probably look at hedge fund [forced] liquidations, margin calls, and a major breakdown in all technical chart support. While I view Friday’s collapse as “climactic” and part of a terminal “washout” of weak longs which will inevitably be followed by a V-shaped rally, no one can say for sure when that rebound will begin in earnest. For my managed accounts, I bought Gold/Silver mining stocks on Thursday and then added to these positions on Friday. Needless to say probably, my timing was less than ideal, but I still believe there is a major advance coming in this market.

Bottom Line: In recent columns here, I have been looking forward to a potential peak in the S&P 500 Index on Monday, April 15^th. While I remain convinced that a major correction in the U.S. stock market is imminent, the timing of this actual peak remains illusive. I would like to see early strength this coming week (and maybe even new record highs in both the SPX and the DJIA) followed by a key intra-day reversal to the downside before sinking my teeth into any meaningful short positions.

U.S. Stock Market - Record Highs Today, But Correction Imminent !

The Dow Jones Industrial Average and the S&P 500 Index both posted solid gains and record closing highs today, but the NASDAQ Composite and the Russell 2000 Index were both flat, and the Dow Jones Transportation Average was actually down on the day (-0.27%). NYSE breadth was nicely positive (+3:2), but on the NASDAQ there were actually more stocks down than up today (1,188 issues up vs 1,236 down). Since last Friday’s intra-day upside reversal, I have been suggesting in this column that the U.S. stock market would rally all this week and peak on Monday, April 15^th. However, I now think the peak was either made today or will be made by mid-day tomorrow.

Here are today’s closing marks, with changes from Wednesday’s close:

                                                                                    Thursday’s Closing Prices                 

Dow Jones Industrial Average                        14,865.14        +62.90             +0.42%

S&P 500 Index                                                  1,593.37        +  5.64             +0.36%

NASDAQ Composite Index                               3,300.16        +  2.90             +0.09%

Russell 2000 Index                                              947.05        +  0.96             +0.10%

Dow Jones Transportation Average                 6,164.86         - 16.47             - 0.27%

And what about Gold? SoGen made headlines last week with a negative report on the yellow metal, and both Goldman Sachs and Deutsche Bank weighed in this week with negative outlooks of their own. Goldman slashed its target to $1,545 per ounce for 2013, down from its previous estimate of $1,610. It also lowered its outlook for 2014 to $1,350 an ounce, down from an earlier forecast of $1,490. And Deutsche Bank reduced its year-end forecast to $1,637 an ounce. While that's still higher than gold's current price, it's almost 12% below Deutsche Bank's previous forecast of $1,856 per ounce. In support of their newfound bearish views on Gold, analysts for both banks cited an improving U.S. economy, a stronger U.S. Dollar, and a rotation by investors away from “safe haven” assets in preference for “risk assets”. Cyprus has announced that it will now sell 400 million euros worth of its gold reserves as part of the latest “bail out” agreement between Cyprus and the EU/IMF.

The price of gold has dropped more than 10% during the past six months and is now nearly 20% below its all-time high above $1,900, reached in September 2011. Can SoGen, Goldman, and Deutsche Bank all be correct now with their bearish calls on gold? Should we even listen to these well paid analysts? To answer this question, I am reminded of a period in mid-2008 when crude oil prices were skyrocketing every day. $150/barrel was just hit and a major investment bank came out with a report which suggested that $200/barrel was the next stop and that this lofty level would be breached very soon. $150/barrel was the top, of course, and six months later, crude oil prices had plummeted to $35/barrel. At $35/barrel, this same investment bank was out again with another report which suggested that $30barrel was the next stop and support there was questionable. Of course, crude oil prices promptly rose to near $100/barrel. The lesson is simple: The folks at Goldman, SoGen, and Deutsche Bank are all smart people, but they don’t know where gold prices are headed tomorrow, next week, next month, or next year. These guys probably work very hard and have exceptional resources, but they just don’t know!

However, given the fact that my computer system just triggered daily and weekly chart sell signals in the U.S. Dollar Index, I believe that Gold (and Silver) prices are headed higher (much higher) very soon, and over the next several quarters, and maybe even over the next several years. The Canadian Dollar made a 7-week high against the U.S. Dollar today, and Gold/Silver prices are clearly finding decent support here despite a deluge of “bad” news recently.

  

Bottom Line: In the interest of full disclosure, I started accumulating the S&P 500 Index double-short SDS ETF in last hour NYSE trade today. And I also started accumulating Gold/Silver mining shares late today. Unless there is new compelling evidence to suggest otherwise, I will probably add to both positions tomorrow in the accounts that I manage. By Monday’s close at the latest, I expect the U.S. stock market to be in full retreat. While there may be a few Fed Governors who “protest too much” in the media about Central Bank bond purchases (QE3), I don’t think the Fed will scale back its buying anytime soon. And U.S. stocks will go down anyway because corporate earnings estimates are too high and too many things can go wrong right now (black swan?). While no one can say what the catalyst for the imminent downturn will be, I feel confident that there is a negative catalyst for U.S. stocks on the very near-term horizon. Will gold/silver stocks benefit from a correction in the U.S. stock market? Since I don’t see a liquidity squeeze anytime soon (with central banks all over the world in print mode), I think Gold/Silver stocks will do very well from here.

U.S. Dollar Index (DXY) Weekly Bar Chart with Computer-generated Buy & Sell Signals