Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Currencies & Commodities: QE3 Not Imminent - Remain Defensive

Stock-Markets / Financial Markets 2011 Jun 10, 2011 - 10:55 AM GMT

By: Chris_Ciovacco

Stock-Markets

Best Financial Markets Analysis ArticleDespite weak economic data, most economists remain optimistic about a second half rebound in the economy. From Bloomberg:

Rising exports, stable fuel prices, record levels of cash in company coffers and easier lending rules will be enough to overcome the damage done by one-time events like poor weather and the disaster in Japan, economists said. Nonetheless, the current slackening means Federal Reserve policy makers will wait even longer to raise interest rates next year, the survey shows.


Markets are not currently aligned with the economists, at least in the short-term. The U.S. dollar remains the world’s reserve currency and still serves as a ‘safe haven’ in times of economic weakness or uncertainty. All things being equal, a strengthening U.S. dollar (UUP) tends to be a negative for stocks, commodities (JJC), and precious metals (GLD).

If market participants were anticipating the Fed to signal another round of quantitative easing or QE3 (see videos), we would expect the U.S. dollar to be weak and commodities/precious metals to be strengthening in a convincing manner. That is not what we have at the present time, which means aligning your portfolio for QE3 may be premature at this point.

A bullish divergence occurs when price makes a lower low and a technical indicator makes a higher low, which indicates slowing downside momentum. Divergences on weekly charts are more important than those on daily charts.

The U.S. dollar recently experienced bullish divergences on its weekly chart – two are shown below. Notice how price made a lower low (see red arrows), while the indicators made higher lows (see green arrows). Bullish divergence is abbreviated BD in the chart below. All charts and analysis are as of the close on Thursday, June 9, 2011.

If you own stocks (SPY), commodities (DBC), or precious metals (SLV), you should be aware of the dollar’s current state and be somewhat concerned. The chart of silver below shows bearish divergences. A bearish divergence occurs when price is trending higher (see green arrows) and the indicators continue to decline (see orange lines). In the charts that follow, negative divergence is abbreviated ND. The chart below tells us to be patient in terms of considering buying back the silver we sold several weeks ago.

There are no bullish divergences present on the weekly chart of the S&P 500 Index (see below). Price is declining and the indicators are “confirming” the decline. This tells us to continue to err on the defensive side and to be in no big rush to redeploy our cash into stocks. We did not buy during the rally on June 9.

Late in 2010, we stated that a break above the moving averages shown below (green, red, and blue lines) would open the door to further gains in stocks, which is what indeed happened. If stocks should continue their current short-term downtrend, then we will look for buyers to possibly step in near the weekly moving averages shown below. The current levels to watch are 1,225, 1,182, and 1,148.

Shifting back to the currency markets, the recent rally in the Australian dollar (FXA) has not been confirmed by the indicators shown on the weekly chart below. We may consider cutting back on our holdings again soon.

The Merk Hard Currency Fund (MERKX) is described by Merk as follows:

The Merk Hard Currency Fund seeks to profit from a rise in hard currencies versus the U.S. dollar. The Merk Hard Currency Fund typically invests in a basket of hard currencies. Hard currencies are currencies backed by sound monetary policy; sound monetary policy focuses on price stability.

We like the Merk Hard Currency Fund from a long-term perspective and often monitor it to better understand the general tone in the currency and stock market. The weekly chart of MERKX below looks relatively bearish with sluggish indicators not giving us a lot of confidence in the recent rally. Like strength in the U.S. dollar, weakness in MERKX tends to send bearish signals about stocks, commodities, and commodity related currencies, such as the Austrian dollar (FXA) and Canadian dollar (FXC). We may cut back on our somewhat limited exposure to MERKX.

The one exception or mixed bag from a bull/bear perspective is the broad basket commodities. The weekly chart of the CRB Index looks a little better (not great) than silver, the Australian dollar, or S&P 500 Index.

How does all this help us? As long as the charts above remain in a similar state, it is prudent to continue to raise cash and manage risk closely. With the Fed in the background, we must keep an open mind about bullish developments. If the charts above improve, we may need to be nimble in terms of backing off our defensive stance. For now, the pressure is on our defensive coordinator – we have given our offensive coordinator some time off pending further developments.

By Chris Ciovacco
Ciovacco Capital Management

    Copyright (C) 2011 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

    Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. As a registered investment advisor, CCM helps individual investors, large & small; achieve improved investment results via independent research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions. When looking at money managers in Atlanta, take a hard look at CCM.

    All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

    Chris Ciovacco Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in