G7, Central Banks and US Fed Will Drive Stock Prices This Week
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
After last weeks closing bell for stocks and the early signs of the Capital Market Shift which we mentioned previously was taking place are now clearly evident. We wanted to alert all of our followers that this week could be very dramatic with a number of key events playing into global expectations.
Our research team at Technical Traders Ltd. have been combing through the charts trying to find hints of what may happen and what to expect in terms of price volatility next week. We know our ADL price modeling system is telling us that certain price weakness will continue in certain sectors and strength in others – but we are searching for the next opportunities for great trades.
One of the key elements of the G7 meeting is the continued communication regarding global participation in key infrastructure projects and national cooperation in regards to economic stability.
Over the past 8+ years, the bulk of the global recovery has been based on the US economic stability and recovery. US interest rates allowed for a global “carry trade” that supported a large component of the economic bias in foreign countries. Additionally, the deeply discounted US bonds provided a “fire sale” opportunity for many countries to secure US Treasuries at a time when global central banks were printing cash to support failing economies. Overall, the economic conditions from 2009 to 2015 were such that every opportunity was provided to the global markets to make it easier to attempt a proper recovery.
Some nations were able to capitalize on this environment while others squandered the opportunity to create future growth, capabilities and new opportunities for success. Given the current global market environment, we expect some harsh comments to come from the G7 meeting as well as some wishful thinking comments. Overall, we believe the outcome of the G7 meeting will become a defining moment for the remainder of the year in terms of global economic expectations and forward intent. It will certainly be interesting to see how these leaders decide to operate within the constructs of the ever-changing global market liabilities to say the least.
Right now, a lot of concern has been directed towards the Emerging Markets and what appears to be a near term market collapse. Debt spreads and global indexes have been moving in a pattern that clearly illustrates the Central Banks problems in containing the diverse economic conditions throughout the globe. Infrastructure projects, social/political shifts and currency valuations are complicating matters by creating extended pressures in many global economies recently. All of this centers around the strength of the US economy and the US dollar as related to expectations and valuations of other foreign economies and currencies.
Almost like a double-edged sword, as the US economy/dollar continues to strengthen, foreign capital will migrate into these US assets because of the inherent protection and gains provided by the strength and growth of these markets. While at the same time, the exodus of capital from these foreign markets create a vacuum of value/capability that results in a continued decline in asset valuations and more.
Almost like the 1994 Asian Currency Crisis, the more the US economy strengthens, the more pressures the global markets feel as valuations and assets become more risky to investors. As investors flee this risk, they search for safe returns and value that is found in the US economy/Dollar – driving US equities higher and strengthening the US Dollar. It is a cycle that will likely continue until some equilibrium point is reached in the future.
The US markets are on a terror rally because global capital is searching and seeking the greatest returns possible – and the only place on the planet, right now, that is offering this type of return is the US economy and the US equities market. Our recent research shows that the NASDAQ indexes may stall and rotate over the next few months as price valuations have accelerated quite far and because the blue chips are relatively undervalued at the moment. This means, capital will likely continue to pour into the S&P and DOW heavyweights as this capital shift continues to play out.
The G7 meeting, in Toronto, this week will likely present some interesting outcomes. Early talk is that the G6 nations (minus the US) may enact some deal that they believe would be suitable for these nations going forward. Our concern is not the deal or the threat of these nations trying to engage in some deal without the US – far from it. Our concern is that their wishes may be grandiose and ill-timed given these currency and valuation issues.
Imagine, for a second, the G6 nations engage in some grand scheme to engage in something to spite the USA. Some plan that seems big and bold and over the top. Yet, 5 months from now, debt issues plague these nations, currency valuations have destroyed any advantage they may have perceived they had and the member nations are beginning to feel the pressures of their own entrapment. What then? The USA to the rescue (again)?
Recently, Ben Bernanke, a Senior Fellow at The Brookings Institute, warned that Donald Trump's economy was like a Wile E. Coyote going over a cliff. Everything seems well and fine till the road ends and the cliff begins. I would like to remind all of our readers that The Brookings Institute does not have a stellar record of predicting much of anything over the past 10+ years. Take a look at this graph showing the economic expectations and predictions from The Brookings Institute over the past decade or so. Do these people seem capable of accurately predicting anything regarding the US or global economy?
Now, ignoring all of the what-if scenarios that are being presented by different people. The bottom line is that the next 6+ months are going to be very exciting for traders and investors. There are huge issues that are unfolding in the global economy right now. Currency levels are about to be shaken even further and the G6 nations, by the time they complete their high-priced dinners and evening events, will walk out of the G7 meeting staring down a greater global debt/currency/economic beast of their own creation.
SE Asia is in the process or rewriting and resolving issues of the past 10+ years (see Malaysia/Singapore).
China is in the midst of a massive debt cycle that is about to play out over the next 18+ months (totaling about 1.8 Trillion Yuan).
The Brasil Bovespa Index has rotated into new BEARISH territory.
The Mexican iShares (EWW) ETF is about to break multi-year lows.
The Hang Seng Index is setting up a possible topping pattern that could break down given state and corporate debt concerns.
The iShares Turkey (EURONEXT) index has already broken to new multi-year lows.
The G6 better have some rabbits in their hats that they can magically transform into big bullish projects over the next 12 months or the economic functions that are at play in the world already are likely to steamroll over the top of any news that originates from the G7 meeting.
The US markets are setup for a continued bullish rally with a bit of Summer capital shifts. Our recent research called the rotation out of the tech-heavy NASDAQ and a renewed capital shift into the S&P and the DOW leaders. This rotation is likely to continue for many weeks or months as global investors realize the earnings capabilities and dividends values within the US blue chips are of far greater long term value than the risks associated with technology and bio-tech firms. Because of this, we believe the S&P and DOW/Transports are setting up for a massive price rally to break recent all-time market highs.
Here is a Daily chart of the YM futures contract showing the recent price breakout and rally. Our expectation is that 26,000 will be breached within 30 days or so and that a large capital shift will drive a continued advance through the end of 2018 – possibly further.
Here is a Daily $TRANS chart showing a similar bullish move. Although the Transportation Index has not broken to new highs yet, we believe this upside move is just beginning and we believe the continued improvements in the US economy will drive the Transportation index to near 11,450 or higher before the end of this year.
Our opinion continues to support the hypothesis that the US markets are the only game on the planet (at the moment) and that a great capital shift is underway in terms of investment in, purchases of and generally opportunistic investment opportunities for US equities and markets going forward. Until something changes where the US dollar strength, foreign economic weakness and foreign debt cycles are abated or resolved, we believe the great capital shift that we have been warning of will continue which will put continued pressures on certain foreign markets and expand debt burdens of at-risk nations over time.
Smart traders will be able to identify these opportunities and capitalize on them. They will see this shift taking place and take advantage of the opportunities that arise for quick and easy profits. If you like our research and our understanding of the global markets, be sure to join our premium research and Trade Alert Wealth Building Newsletter. Our valued members stay with us because we have continually proven to be ahead of nearly every market move this year – in many cases many months ahead of the global markets. So, with all of this playing out over the next 6+ months, we suggest you consider joining www.TheTechnicalTraders.com to learn how we can help to keep you out of trouble and ahead of the markets for greater success.