Reflation Supported By Stocks, Commodities, and Crude Oil
Stock-Markets / Financial Markets 2009 Oct 16, 2009 - 03:21 AM GMTBy: Chris_Ciovacco
Last week in Gold, Recessions, Bonds, and 1987, we stated the following:
- A major objective of all the money printing, government intervention, and low interest rates is to create positive inflation, which includes asset price inflation.
- Asset inflation helps heal sick balance sheets and repairs a portion of the lost "wealth effect".
- When gold lies dormant, it means reflation is not working all that well in the minds of market participants. Gold’s recent breakout may indicate that in the minds of market particiapants reflation of assets is working. That mind set results from the fear of future inflation caused by money printing, intervention, etc.
Crude oil also can lend support to the relation case as market participants look for ways to protect purchasing power and profit from slowly improving fundamentals. Regardless of whether or not crude oil can hold the recent breakout as of the close Friday (10/15/09), the primary trend for oil will remain up.
The CRB Index is a basket of commodities including, but not limited to, copper, sugar, heating oil, wheat, live cattle, crude oil, platinum, natural gas, and soybeans. The CRB Index also experienced a breakout this week contributing to bullish reflation trends evident across many markets.
Stock Market Remains Healthy
On Friday, the S&P 500 will be trying to hold above its 89-week moving average (green line in chart below). As of Thursday’s close the 89-week stood at 1,066.83. As you can see in the spring of 2008, the 89-week acted as resistance. A sustained break above 1,066 would provide some support for the current bull market (resistance becomes support).
Expecting More Of The Same Also Involves Risk Management
We often say:
We will expect to see more of the same (bullish trends, higher highs, and normal corrections), until we see significant evidence to the contrary.
By Chris Ciovacco
Ciovacco Capital Management
Copyright (C) 2009 Ciovacco Capital Management, LLC All Rights Reserved.
Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com
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