June 18, 2016, Weekly Summary: Market influences tugging in different directions
A number of fundamental and technical factors force us to view the present stock market valuation as being overly-rich:
- The PE ratio is 17.6 (average has been 16.0)
- earnings and sales continue to deteriorate
- the monetary policy of the FED is confusing
- the uncertainty of Brexit and possible breakup of the European Union
- counter-trend sentiment indicators
Combine all that with the strangest and nastiest US presidential election in history, and we are left with a queasy feeling about the stock market.
The FED, once again, holding steady on rates, but maintaining the July FOMC meeting as still live, seems to have provided the market with some comic relief. The market found the concept of a July rate hike to be unreservedly hilarious; the CME probability of a hike in July is now a comical 7.2%. So with nowhere to go for returns, funds continue to stay in equities, even though the S&P 500 is flirting with all-time highs and is only up 1% this year.
But what if the payroll numbers for June return to the +200k level, and the May numbers are revised up even slightly? What if that gives the FED the excuse to demonstrate their success by raising rates in July? What might that do to the dollar? What might that do to the top-heavy stock market?
{This section is for paid subscribers only}
Most of the patterns that we have been following, are still intact, but not all. The sentiment counter-trend pattern is still in play (chart below).
The close-up bull sentiment pattern continues to unfold (chart below)
The divergent move between the SPX and the Rydex Bull assets is still forming (chart below).
{this section is for paid subscribers only}
Gold and the dollar continued their normal pattern of dollar down, gold up. As long as the dollar does not drop below the lower trading range of 92, gold can still weaken.
Gold and 30-year bond continue to rise on the expectation that rate hikes are not going to materialize in the next six months, but gold produced a long upper tail when it was unable to hold the $1320 level. This indicates some underlying weakness in gold even as it broke above the $1300 level (green oval on the chart below).
The commitments of traders report this week showed just how polarized the commercials and the speculators are. Both have surpassed their recent record high positions; commercials are 78% short, while speculators are 84% long. The commercial traders are happy to sell gold above $1250, while the speculators are greedily buying it. They both can’t be right. History shows that the commercials usually are right.
{this section is for paid subscribers only}
Special Note: We realize that we use a number of acronyms and terms in our writing that our subscribers, especially the newer ones, may not be familiar with. We do not wish to clutter the weekly summary with repetitive explanations, so we invite any subscribers that are confused by any terms, to email us at [email protected] and we will be happy to help clear-up any difficulties on a one-to-one basis.
Quelle: Nicholas Gomez
