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Business
MARKET RADAR: Signs of Short-Term Weakness but Oil is Likely to Hit $107
Sunday, January 23, 2011
By Bill Sarubbi
(PanOrient News) There are signs of short-term weakness for stocks, bonds are likely beginning a bear market, oil is likely to hit $107 before declining, and, for gold, we can expect a low in March, at the earliest.
STOCKS
The primary negatives are excessive optimism and an overbought market. The US indices initially sold off in this holiday-shortened week. There was a weak rally into the Friday option expiration. There is a bias to the downside in the day following expiration, thus the week is likely open up to the downside. Note that the S&P is at the upper end of its range and has room to fall. In addition, many emerging markets sold off sharply on Friday. The market has closed higher for 8 consecutive weeks, and the DJIA has not had more than three consecutive down days since early August. Sentiment remains too bullish. Rallies typically begin when sentiment is bearish, and the only conditions that will erode the sentiment are a sideways or a down market. Below, we see the daily S&P has formed a rising wedge, typically the sign of a reversal to the downside. The question remains as to when this might occur. The month of February is up with statistical significance in the year prior to a presidential election, but March has historically been down. Thus, a top may not be due this week, but it is near.
Several of the emerging markets are likely to be weak over the near term. Indonesia has made lower highs and RS has been waning. India halted at its prior high, and there has now been a lower high, a loss of momentum. This index is likely to weaken more than the average emerging markets. Singapore shows weaker RS versus the S&P, a failure to exceed the prior high, and a broken uptrend. These are signs of short-term weakness.
BONDS
We usually do not review bonds, but it is important to note that bonds are likely beginning a bear market. The current rally in US notes is due to end in the first week of February. Note that the rally has hardly lifted the 10-year note. The bund has hit a new low despite the upturn in the short-term bond cycle. When the cycle turns down in 2 weeks, all fixed-income markets are likely to decline in tandem. Sell into strength.
OIL
Oil broke out of a rectangle formation that projects a $107 price target. Since the breakout that was cited in the last column, black gold has not risen much. Rather, it has hit $92 and simply remained above support at $87. Cycles indicate that oil will remain flat into February 7th when a rally is likely to begin, running into the 22nd of the month. In that time period, oil is likely to hit $107 before declining.
GOLD
The metal failed to follow through to the upside as expected in the last column. The cycles proved to be stronger than the technical breakout. Currently, gold and silver are likely to move higher in the coming week. Gold is likely to top again in February and to fall to new lows. Historically, gold has made most lows in the months in February and in March. Thus, we can likely expect a low in March, at the earliest.
* 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
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