Weekly Market Update by PLP Advisors
Last week, stocks saw a fairly significant decline, at least significant based on recent market activity.
The Dow Jones Industrial Average fell 1.52% while the Standard and Poor’s 500 fell about the same, 1.44%.
Chart One is a chart of the Dow with prices charted on a weekly basis. Notice that last week’s decline was the most significant of the year and the largest in nearly 5 months when viewing a weekly chart.
Notice also that trading volumes this year have been light. The Dow Chart drawn here as Chart One has trading volume plotted across the bottom of the chart as a histogram.
A rising market on light trading volume is often a red flag that accurately foretells a decline in a market.
Gold, on the other hand rose last week by more than 1%; silver followed suit.
Chart Two is a weekly price chart of an Exchange Traded Fund that tracks the price of gold. While we don’t claim any particular expertise in the area of Elliot Wave Analysis (an analysis technique based on the theory that markets move in 5 primary waves, three in the direction of the primary trend and two counter-trend waves), it seems that gold may be poised for a “Wave Two” advance.
Not surprisingly, since much of the world’s gold is priced in US Dollars, the relative purchasing power of the US Dollar recently fell in line with gold’s advance. Chart Three illustrates.
Last week, we discussed some of the disappointing retail news with many major retailers closing lots of stores in the very near future. That’s not a good sign for the overall health of the economy.
Another fairly reliable indicator of a possible looming recession is the sale of fine art and collectibles. Often, prior to a recession, the sale of fine art and collectibles falls off.
Bloomberg recently reported that the global art market contracted for the second straight year in 2016, falling to levels not seen since the financial crisis. Auction prices at art auctions fell 26% last year.
While retail stores closing point to things getting tighter for the ever-shrinking middle class, when art sales fall it tells you something similar about the wealthy.
Despite the recent stock bull market run, we remain skeptical. US Government debt continues to accumulate at an unsustainable rate and private sector debt levels also remain high. Those are two MAJOR, eventual drags on the US economy.
We continue to believe that fiat currencies will eventually be affected as sovereign debt can’t be paid with ‘honest’ money. We continue to suggest to our readers that they consider accumulating physical gold.
Commodities remain sluggish as well.
Corn prices remain at just over $3.50 per bushel.
Oil prices remain lethargic as well. After rallying to the mid-$50 per barrel last month, crude prices have fallen during the month of March.
Currently, oil prices are between $47 and $48 per barrel
US Treasuries rallies slightly last week, with yields on the 30-Year Bond falling to 3%.
Long term, for the reasons we’ve already discussed, we remain bearish on US Government Bonds and the US Dollar although short term we believe we could see rallies if Europe implodes and stocks correct.
Chart Three shows how parabolic in nature the US Dollar’s rally was from mid-2014 to mid-2015.
Do not anticipate trouble or anticipate what may never happen. Stay in the sunlight.”