Weekly Market Update by PLP Advisors
All markets rallied last week with the exception of the US Dollar.
Last week, we commented that the US Dollar may be forming a megaphone pattern. This week, we have redrawn the megaphone pattern lines slightly and we are now more confident in the validity of this pattern.
As we explained in the last issue of Portfolio Watch, a megaphone pattern often occurs at major market tops and bottoms and often form after the market has made a big move.
Chart One shows this potential megaphone pattern which has formed after a big move up in the US Dollar index.
Megaphone patterns can be continuation or reversal patterns which further confuses the issue when it comes to predicting future moves of the US Dollar.
For a little help in trying to ascertain the future direction of the US Dollar we might look at some fundamental facts:
-the Chinese currency, the Renminbi is beginning to gain respect versus the US Dollar. The currency has strengthened against the dollar of late posting gains of about 2% in August alone.
-China is getting ready to launch a Renminbi based crude oil contract to compete with the US Dollar that has been 7 years in the planning and development. (Source: http://www.scmp.com/news/china/economy/article/2111892/central-bank-official-says-china-keen-promote-use-yuan-commodity).
While the global move away from the US Dollar may take some more time, from our perspective, it is well underway. That’s why we believe prudent investors should hold about 10% of their portfolios in physical gold.
Historically speaking, whenever intentional currency devaluation has occurred, it’s always ended in a way that has made tangible assets more attractive.
Stocks remain in a solid uptrend. A review of Chart Two, a weekly chart of the S&P 500, which has the stochastic oscillator drawn across the bottom of the chart shows that stocks may be a bit overbought here and ready for a pullback.
That said, we want to be clear, there is currently no technical reason for us to believe that the uptrend in stocks is ready to reverse. There are, however, many fundamental reasons for us to come to that conclusion which we have discussed in past issues of Portfolio Watch.
Gold rallied last week as did silver. The yellow metal rallied more than 2% while it’s weaker, more volatile precious metal relative, silver, advanced more than 3.5%.
Chart Three is a weekly chart of gold. Notice that the long term down trend, which was a downtrend in the context of a larger uptrend, was recently broken to the upside as is illustrated by the blue trend line drawn from top left to bottom right.
On that same chart, we’ve drawn a new, possible price up trend channel. Gold is in a technical up trend by our measures and it appears that this nascent price uptrend channel may be valid.
Commodities, particularly agricultural commodities, continue to hover near their lows. Given that current prices of these agricultural commodities are below production costs for many producers, we expect prices to stabilize in this area and then rally at some point.
As the old market adage goes, “the best cure for low prices is low prices”.
We expect 2018 to be an eventful year for many financial markets.
To help our clients understand these markets and how they may be affected, we will begin to publish a monthly report titled, “You May Not Know….”.
This report is designed to educate our clients on economic and financial events as well as provide insights on ho we are interpreting market activity. This publication will be provided at no cost to clients.
Due to numerous requests, we have added a New Retirement Rules class for this year. There will be tow more classes held this year at the East Beltline Campus of Western Michigan University. One class will be October 21, the other November 11. Both classes begin at 9:00 AM and conclude at 2:30 PM. For more information or to register, visit www.NewRetirementRules.com.
“Nothing is particularly hard if you divide it into small jobs.” -Henry Ford