After the multi-week rally off the October lows, global stock markets are consolidating their recent gains. However, I am of the view that this pause will prove to be short lived and most indices will probably resume their uptrends soon.
The Fed wants Wall Street to inflate and it has pledged to keep rates unchanged for another 32 months! Furthermore, with US elections approaching in November, you can be sure that US President Barack Obama will do everything in his power to boost sentiment. Thus, investors should be prepared for further policy actions designed to “stimulate” the US economy, which in turn will boost American stocks.
From my perspective, due to reasonable valuations and ultra cheap money, the uptrend in American stocks is likely to continue and the next major resistance on the S&P500 Index should arrive around the 1,500-1,600 area. If the S&P500 Index manages to close above that level for a degree of time, then a new multi-year bull market will probably follow.
If my assessment is correct, the ongoing rally on Wall Street will continue for several months and this will underpin the global stock markets.
Currently, the vast majority of the stock indices are trading above the 200 day moving average and this is a clear indication that the trend is up for now.
Turning to the energy complex, it is worth noting that NYMEX crude is currently trading around the US$105 per barrel mark. Given the sluggish economic growth in the West and the slowdown in China, I believe that the price of crude will probably drift sideways over the summer months.
Moreover, it is my contention that the next big rally in the energy complex will be ushered in by another round of quantitative easing, which is not likely to arrive anytime soon.
Looking at precious metals, it appears as though both gold and silver are struggling and their prices are likely to weaken over the summer months.
At the time of writing, both gold and silver are trading below the 200-day moving average and a close above that level will be required to negate further selling pressure. In terms of the gold mining stocks, it is notable that both the Philadelphia Gold & Silver Index and AMEX Gold Bugs Index have completed rolling tops and a series of lower highs and lower lows can be seen on the weekly charts. Put simply, the mining stocks are in firmly established downtrends and further selling pressure cannot be ruled out.
Over in the currencies patch, there is no clear trend but it does look as though the US Dollar is about to commence another down leg. For now, the Australian Dollar, British Pound and the Canadian Dollar are hovering around the 200-day moving average and the recent pullback seems to be a pause within an ongoing uptrend. Elsewhere, the big story is the persistent weakness in the Japanese Yen. It seems to me as though the Japanese currency’s rise is now over and a new downtrend is in play. If this is true, then the odds favor further deterioration in the Japanese Yen and this will be a boost to the nation’s exporters.
Finally, turning to the government debt market, the weekly charts reveal that US Treasuries have topped out for now and yields have commenced a north bound journey. Across the pond, German Bunds are also struggling and this is consistent with the ongoing rally in risky assets. Due to the ongoing monetary inflation and the associated loss of purchasing power, I do not like fixed income securities but if I were forced to choose, my preference would be for emerging market debt and high yield bond funds.
The author is CEO of Puru Saxena Wealth Management (www.purusaxena.com). The views expressed here are entirely his own.
