Oil, Gold, Silver, US Dollar, Dow Jones, Copper, Steel……Anglo Elite, China, Japan Earthquake….what moves markets?
Friday, March 11, 2011
What moves markets?
What is the market’s next move?
According to one RIDICULOUS headline today – Oil dropped below $100 per barrel because of the Japanese earthquake! Serious as it is to those affected, the earthquake DID NOT affect the oil market – not even one little bit…………
Last week it was war in Libya, this week it is a Japanese earthquake….next week perhaps a balding man with a greying beard speaks to a bunch more balding men with designer suits and the oil price will triple, quadruple or fall by half………..really, if you listen to the stations, channels, web sites and commentaries that pour forth these days you would be, probably are utterly confused.
Simple truth is that the Oil market is a ……..wait for it…….a MARKET! Wow, this guy knows his stuff!!
Really it is a market, made up of people who have varying interests in the market and the product. Together their emotional state combined with real supply and demand issues (not the hyped, supposed and ridiculous issues spewing from the media like a Texas gusher) dictate the Oil market’s next move.
To my mind there may well still be some more upside for the black stuff, but as I have stated before we are nearer the end of this run than the beginning. We probably need a little more hysteria regarding the supply of the stuff, most likely emanating from the Middle East and North Africa before we can call a top.
Gold, Silver and equities bounced around a bit more this week – What can we make of all this “bouncing”?
In truth, I am still waiting for a clear answer to that. The “risk” assets, incl equities, metals, commodities and just about everything else look like they are trying to form a top, but that top is not formed just yet. The yellow metal might have another push to new highs in store, along with the black stuff mentioned above. Silver is very dangerous at these levels, although with it’s history of vertical, intraday, moon shots we cannot rule out higher prices before the mania exhausts.
As previously stated the key to predicting the most probable “next move” in all these markets is understanding the emotional state of the market participants. At present they are ALL in an unequivocally bullish, high stress (by virtue of the leverage many have employed), overly excited state. That alone does not mean that these markets have to crash tomorrow, but the next big move should be easier to predict with this “background information”.
For some time the markets have been giving us another tool to use – The US Dollar! How?
For some years the markets – that is the risk markets have been moving more or less inversely to the US Dollar – “All the same market” was first identified and analysed by Robert Prechter of Elliott Wave International.
So what does this “extra indicator” tell us?
The US$, as you know has been falling for some time and has recently penetrated it’s multi year supporting trend line. The moments around the greenback’s penetration of this trend line elicited very excited chatter from all manner of participants and commentators. The trend line IS THE Line in the sand – If the dollar crashes below this trend line we all go to hell in a hand basket of hyperinflation…..or so we are told.
Interestingly the dollar rallied off this trend line this week – what are we to make of this?
Well, if the dollar continues to rally and the inverse correlation of all risk assets continues we will see a top in all risk assets and a new period of correction, sell off, panic – depending upon the degree of US Dollar rally we get. Is this going to happen?
To my mind – YES! But perhaps not just yet – I am not convinced the greenback’s rally this week is the real deal – it might be, I am just not convinced. I still believe we might get a new low in the dollar, perhaps even a violent thrust below the said “line in the sand” – that would convince the 1 or 2 market participants that are not dollar bears to put on their grizzly suits…….then the stage would be set for a violent about turn and panic short covering.
Whether that happens next week or sometime later this year it is, in my humble opinion, the most likely outcome.
Other stuff
UK mortgage lending drops to 2008 crisis lows. The housing market in the UK has been weak since 2007 – about 1 year or so behind the USA. It looks like this Spring the level of transactions could be very low indeed. Mortgage lenders are as tight as ever and in truth borrowers are just not that interested these days – As you know when it comes to housing – Prices follow transaction levels -UK housing looks headed for a double dip by year end.
PIGS can fly – Or at least their sovereign debt yields can. Irish, Portugal Greece yields increased to record levels this week. Speculation is beginning to build again regarding the timing of Portugal’s request for bailout funds – Cap should be in hand by May.
Spain gets a downgrade from those useless rating agencies who still insist on being years behind the curve – Never mind the reason is of most interest – More capital needed for the Spanish Banks – this is a story that has some way to run and the numbers of billions of dollars needed will likely increase four or fivefold before we get anywhere near reality.
Stock Market merger mania rumbles on! I have lost count – can someone tell me how many markets are openly talking about / engaging in mergers / takeovers. This could be the biggest SELL signal of all time – There must be something like 75%+ of all equity market capitalisation involved. – The world is merging!
IMF again calls for a Global currency. The noises from this quarter are getting louder. This will happen – We will have a global currency forced upon us sometime in the future. I think we will see a strong dollar first but in one form or another the Global dollar IS COMING……..more on this later.
Theme for 2011 – CHANGE – BIG CHANGE COMING SOON!
About the Author
Self taught market analyst, historian and participant with 10 years experience. Predicted the Financial Crisis and is predicting another in the form of a new more powerful wave of deflation.
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