Weekly Market Update by Retirement Lifestyle Advocates
Stocks were flat last week while the metals continued to decline.
The US Dollar fell against the major trading partners of the US and the yieldon the 30-Year US Treasury jumped to north of 3%, closing the week at 3.03%.
Gold has now definitively broken the support of the long term trend line as seen on Chart One and plotted in blue on the chart.
This break below long term support could be significant as the uptrend line began at the beginning of 2016 and continued to the present time.
We will continue to monitor gold prices along with the other markets that we analyze week to week. We did however lighten our position in gold or eliminate positions if un-hedged in several managed portfolios. It’s important to note that we did not lighten or eliminate hedged positions.
We continue to be of the opinion that accumulating gold with a long term time perspective makes sense for many investors.
Stocks are very overbought here, and valuations are at historic highs, pointing to a stock market correction at some future point.
We once again repeat the market adage that the sock market can stay irrational longer than investors can remain solvent.
Chart Two is a daily chart of the Standard and Poor’s 500 with a slow stochastic oscillator plotted across the bottom of the chart.
There are two observations that we make when viewing this chart.
One, the stochastic oscillator on the bottom of the chart is plotting an overbought signal. That means that stocks may be poised for a near-term pullback in price.
Two, notice that the Standard and Poor’s 500 Index made it’s high, at least so far, at the end of January this year. Since that time, although the Russell 2000 and the NASDAQ have made new highs, the Dow and the S&P 500 have lagged – a likely bearish divergence that signals lower stock prices ahead.
As we also often state, the “what” is easier to predict than the “when”. So, while stock valuations and chart patterns seem to point to a stock market correction, “when” that could occur is difficult to predict.
At this time, stocks remain in a technical uptrend; however, un-hedged, open stock positions should be protected perhaps with a trailing sell stop loss.
US Treasuries fell this week as seen on Chart Three, a chart of the long Treasury bond price as tracked by an exchange traded fund with that performance objective.
Looking at the chart, one can see that US Treasuries have been in a trading range since early 2017.
The US Dollar, as we stated in last week’s “Portfolio Watch” is forming a megaphone pattern, a chart pattern that often precedes a big market move. The large size of this potential megaphone pattern indicates that if that is the case here, the move subsequent to the megaphone pattern will be big.
Getting back to stocks briefly, when looking at world stock market indices, 5 of the 8 largest are negative year-to-date. The S&P 500 is one of the stock market indices that is positive year-to-date, rising between 4% and 5%.
Finally, this week, economic conditions dictate that given the level of debt that exists in the private sector, deflation will have to be the dominant market trend.
Should the Federal Reserve, the central bank of the US decide to try to combat deflation via easy money policies, we could see inflation first, followed by deflation.
Either economic outcome will make retirement income planning difficult.
We provide specific strategies and ideas at our New Retirement Rules class.
We have another New Retirement Rules class scheduled that will discuss how to hedge against future, dramatic and significant changes in currencies. The next class will be held on July 28, 2018. It will be held at the East Beltline Campus of Western Michigan University. The class begins at 9:00 AM and concludes at 2:30 PM. Lunch is also included. More information is available at www.NewRetirementRules.com. You can also register for the class there.
“Any fool can make a rule, and any fool will mind it.”