Weekly Market Update by PLP Advisors
It was a negative week for stocks last week as the Dow Jones Industrial Average fell 1.54% and the Standard and Poor’s 500 dropped 1.24%.
We anticipated this move last week when we wrote:
Last week, we commented that this rally remains suspect for many technical reasons.
This week, we have the same opinion.
The NASDAQ did make a new high last week as we noted which may have been some good news for stocks but Elliot Wave International published some interesting research on that very topic.
The organization noted that the NASDAQ has a history of topping later than the Dow Jones Industrial Average at major market tops. It happened prior to the market declines in 1987 and 2000 and now is possible happening again.
In 1987, the Dow made a new, all-time high on August 25 and the NASDAQ followed suit on October 5. In calendar year 2000, the Dow made a new, all-time high on January 14 and the NASDAQ followed on March 27.
This year, the Dow made a new, all-time high on January 26 and the NASDAQ followed on March 12.
We will soon know.
Chart One is a daily chart of an exchange traded fund with the objective of tracking the price action of the Dow. Chart Two is a daily chart of an exchange traded fund that has the objective of tracking the price action of the NASDAQ. Notice the peak in the Dow in late January compared to the more recent peaking of the NASDAQ.
We continue to believe the most likely move for stocks from this point on is downward. We would suggest that our readers holding stocks consider exit strategies or protective measures for their stock holdings.
Gold and silver both declined last week.
Year-to-date, gold is flat; the yellow metal has advanced and then declined and now stands at about the same price as it began the year.
Long term, as our longer term readers know, we are bullish on gold for fundamental reasons.
US Government Bonds rallied last week, but the chart pattern looks potentially ominous.
We discussed this chart pattern in detail in a past issue of “Portfolio Watch”. It is a “head and shoulders” pattern which is often a reversal pattern that appears at market bottoms and market tops.
Chart Three is a weekly price chart of an exchange traded fund that tracks US Government Bonds. Notice the blue “neckline” drawn on the chart.
The “head” of the potential head and shoulders top formation is the high point in the center of the formation with the left shoulder and right shoulder flanking the head on either side.
This is almost a textbook head and shoulders top formation and would seem to suggest more downside for US Government Bonds.
While a decline in bonds would be inconsistent with a simultaneous decline in stocks historically speaking, from a fundamental perspective, a decline in bonds seems probable.
The US has official debt of nearly $21 trillion with trillions more in underfunded liabilities. Seems likely that short of Fed intervention, bond yields are headed higher which means bonds will go lower.
We have another New Retirement Rules class scheduled that will show you where we are going in the financial markets and in the economy based on historical cycles. The next class will be held on April 14. 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.
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