Fox Business, Stocks, Bonds, Gold and Oil

I am going to be on Fox Business’ Markets Now at 1:05pm today (Wednesday) discussing the stock market’s recent assault on Dow 16,000, a target I gave several times here and in the media. Now that the market is there, what’s next?

I can tell you that from my perspective, risk has increased substantially, but by no means should the bull market be over. Stocks are overdue for at least a pullback (2-8%), but probably more on the downside next year, especially if they continue to run into year-end.

Both gold and the bond market are very close to their own lines in the sand. A closing move by gold under $1250 opens the door to all kinds of bearish scenarios that frankly, I did not think would come this year. Likewise, the treasury bond market also has a line or two in the sand, but it’s farther away. All year, I have forecasted a late year bond rally, but this one is on the verge of petering sooner than expected if the recent highs cannot be exceeded. The last thing the Bernanke and the Fed and the stock market want to see is the 10 year note yield more than 3%.

Finally, crude oil is trying to find a low above $90 here. If energy cannot stabilize soon, that will usher in more negative scenarios into the $80s.

 

Stocks Growing Tired

With the major indices going vertical since October 9, I am starting to see some signs of tiring. “Tiring” is a lot different than forecasting a full fledged correction or even a deep pullback. It just means that the odds favor either some sideways action to help restart the engine or some sort of mild price decline to shake out the Johnny Come Latelys.

During this rally, we saw the S&P 500, S&P 400 and Russell 2000 hit all time highs with the NASDAQ at its highest levels since 2000. The Dow has been the laggard index, but I do expect that to get in gear after this pullback and also see new highs.

Gold has cooperated nicely from the recent bullish call and I think more upside is ahead for the shiny metal. As I have discussed all year, especially of late, this is the bond market rally I have been waiting for. The train began to leave the station in late August and September and is now in full motion. Treasuries, quality corporates and government bonds all look higher, especially if they see the slightest bit of weakness first. Our clients have owned high yield bonds for some time and that rally has been the strongest so far and may be growing a bit tired itself.

The US dollar has been under pressure for almost four months and it looks like a major bottom is about to be formed this quarter. My long, long-term view remains very, very positive for the greenback. Uncharacteristically, energy has been hit hard even though we have seen dollar weakness. That indicates strong selling beneath the surface with even lower prices to come.

I am about to start working on a Canaries in the Coal Mine update and I hope to post it on Friday.