Stock Market Volatile Corrective Range, Debt Deflation Escape Velocity Towards Inflation
Stock-Markets / Financial Markets 2010 May 23, 2010 - 01:43 PM GMTBy: Nadeem_Walayat
The week started the way it ended - VOLATILE, the Dow came up for a breath of air on Monday by rallying some 100 points above the previous weeks close to 10718, only to be pulled back under water all the way to the bottom of its range, culminating in Fridays sinking towards the low end of its 10,900 to 9,800 range by putting in a low of 9,919.
Thursdays stock market violence triggered the perma-bears to start growling again as a crescendo of short this that and the other bear market calls have returned, as illustrated by Nouriel Roubini's call that the stock market could fall by 20% over the next few months which implied a target of 8,150 on CNBC at Dow 10,185, but Houston we have a problem, read more here.
Last weekends in depth analysis concluded with a volatile SIDEWAYS trading range into mid July 2010, between a range of 10,900 and 9,800 with the immediate trend expected to target the lower end of the range by early June as illustrated by the below conclusion and graph (16 May 2010 - Stocks Bull Market Hits Eurozone Debt Crisis Brick Wall, Forecast Into July 2010)
Stock Market Conclusion
Despite the flash in the pan crash and prevailing Eurozone sovereign debt default gloom and doom, the bottom line is that this is still a stocks bull market with the Dow ONLY down less than 6% from its bull market peak. Therefore the sum of the above analysis concludes towards the stocks bull market under going its most significant and a highly volatile correction since its birth in March 2009 (15 Mar 2009 - Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470 ). This correction could last for several months and may extend all the way into early October, which suggests that the next 2 months are going to see an ABC correction to be followed by a sideways price action between the extremes of 10,900 to 9,800 and so despite continuing wild gyrations I would not be surprised if the Dow is little changed from its last closing price of 10,620 in 2 months time (16th July 2010). Expectations remain for the bull market to resume its trend towards a target of between 12k to 12.5k by late 2010 after the tumultuous trading period over the next few weeks. I have tried to illustrate a more precise Dow forecast projection in the below graph, reality will probably end up being far more volatile.
The stock market correction's assault on the low resulted in the Dow being propelled back up towards the mid way balancing point of the range at 10,350 which implies continued overshoot to above 10,400 in the immediate future.
My original expectations remain for a volatile stock market that targets a bottom in about 5 to 10 days in the target range of 9,800 to 9,850 within a trading range of 10,900 to 9,800, therefore the Dow is expected to trade back below 10k by early June. However the big picture is for this trading range is to eventually resolve to the upside, the forecast expectation is for the Dow to possibly remain stuck in the trading range until mid July, though it is a difficult call to make as to exactly when the Dow will make the breakout higher.
Gold and the Inflation Mega Trend
Gold Buying Opportunity! Notice no question mark, Gold's tumble to about $1,175 is healthy as my immediate take on the event concluded on Thursday (20 May 2010 - Gold Plunge to $1,175 a Buying Opportunity? ). Gold falling towards $1,150 is not even making me blink, its a non event, normal, expected even if I had not written about it before hand, its much better for Gold to be at $1,175 then to have risen to $1,300 BEFORE correcting, the bull is shaking the loose clingers on off of its back. I don't trade gold, but I am a long-term holder with a small investment position that I aim to increase.
Don't forget the big picture of the INFLATION MEGA-TREND (Ebook Free Download), all that money printed by our respective central banks can only end in INFLATION - Not DEFLATION, Gold at $1,175 is a manifestation of INFLATION NOT DEFLATION, the same goes for other commodities and assets to varying degrees as fiat currencies fight to competitively devalue towards Very High Inflation, where its only going to be rare assets such as Gold left standing, especially as we have all recently watched the European Central Bank go from a non-money printer to burning the Euro without limit in its quest to prevent a sovereign debt triggered Eurozone collapse! Though I must admit I was surprised to see the U.S. Fed apparently sending billions of dollars to support the Euro. So the U.S. is now printing money for the Europeans too! The dollar is rising because every currency is falling at different deflationary debt deleveraging escape velocities Towards INFLATION.
Your smoke monster analyst wondering if he will be in any shape to watch the LOST finale at 5am (UK)!
Comments and Source: http://www.marketoracle.co.uk/Article19726.html
By Nadeem Walayat
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