Business

Bullish Year for Stocks and Gold, and Oil Barrel Might Reach $107

Monday, January 3, 2011

MARKET RADAR
By Bill Sarubbi

(PanOrient News) Presently, I am retaining a bullish position on stocks, but I do expect a short-term correction. This could develop into a larger decline, primarily due to monthly time cycles combined with the high degree of optimism and technical divergences discussed below. If I do detect such a sell- off, an interim report will be issued.

There are a number of factors that are likely to influence the US stock market in 2011:

· This is the most bullish year in the 4-year presidential cycle

· In the decennial cycle, this is a year ending in ‘1’, a year that has had no particular historical bias, having been up a little over 60% of the time since 1885.

The combination of the 1, 4, and 10-year cycles projects a rising market into mid-August with brief corrections in March and April. The projection line then falls into mid-December. Based upon these two cycles, I suspect that the market will be about 15% higher by yearend.

The primary negatives are:

· Excessive optimism

· Time cycles.

Polls of investor opinion show that there are too many bulls, a condition that typically occurs at tops.

The time span from the December1974 low to the September 1976 high is 21 months. I consider the period that we are in to be equivalent to the 1966-1982 period and the December 1974 low to be equivalent to the March 2009 low. Measuring 21 months from the March 2009 low equals December 2010. The 1976 high was followed by a 28% decline into March 1978. Measure from the October 2002 low to the October 2007 high; multiply this amount by .618 and add to October 2007, and the result is December 2010. This technique frequently points to turning points.

The net result is likely to be a January correction followed by further gains.

Oil

Oil has broken out of a rectangle formation. In technical analysis lore, a breakout will usually propel prices higher by an amount equal to the height of the rectangle, about $20 in this case. Add this to the top of the rectangle ($87), and the price projection is $107. This can also be viewed as Richard Donchian’s trading rule: if a market does not make a new high or low in 4 weeks, then buy in the direction of the breakout.

Gold

This remains a gold bull market and the UGL remains in the recommended portfolio. No strategy outperforms in a bull market like a buy-and-hold. The December report projected a low in the December 17-20 time period; the low was on the 16th.

As mentioned in prior reports, there have been more highs in gold in the month of December than in any other month. Until Friday, the high had been on December 7th. Most gold corrections occur in the first quarter. The average high in any year lies around January 18th. Despite that, a breakout above the 1415 level indicates higher prices over the near term. The Friday breakout above that level implies a rise of over $70. The fact that it has occurred despite the unfavorable seasonal is especially positive. Likely short-term turning points are on the 9th and 20th. There is confirmation from other markets. Copper, oil, and the CRB index have all risen and appear poised to move higher.

I shall be speaking at a 1-day market conference in Budapest on January 15th:

“We are pleased to announce the MTA Central Europe Regional Chapter kick off meeting on Saturday, January 15th, 2011. It will be held at UNIQA Business Center in Budapest, Hungary. It is an all day event, followed by a cocktail reception dinner. All are welcome, and this event is free for all that wish to attend.”

Here is the link to the meeting details: http://www.mta.org/eweb/dynamicpage.aspx?webcode=central-europe


Bill Sarubbi, a strategist and portfolio manager currently operates his own business from Europe. He spends most of his time in Vienna, London, Tokyo, and Abu Dhabi.

PanOrient News



© PanOrient News All Rights Reserved.




Business