Originally published by Chamber of Merchants
Final Stretch
I’ll make a few comments on what I see and expect. I’ll also end off on a note of hope for today, which is a special day of reflection for myself, my family and community.
The Market
The S&P 500 appears to be running out of steam. Friday’s trading got a big push back showing the lack of rally power. Remember, when everybody’s buying, pretty soon you run out of buyers. At that stage selling begins.
On the Ichimoku or cloud balance chart one can see that on the 1 hour graph, the S&P 500 has turned bearish in the short term(the cloud has turned red), and the index is heading up against what has become a new resistance level.
Now, having read a few commentaries and having listened to a few economics podcasts, there seems to be a notion that nobody is selling. Even Carl Icahn says the problem is ” no one is selling.” This is mainly being attributed to the expected Trump tax break that will be enjoyed by Americans if they hold off selling until January.
Now hold the phone here.
Everyone is holding off selling until the tax break after December?
Imagine if everyone starts selling first thing January?! It will be a rush to the door.
First to sell gets the highest profit.
And at a certain level, you should have sold because the profit you wanted to save tax on will be non existent.
Knowing that a large part of the market will refuse to sell reminds me of December 29th 2015:
The sell-off was brutal, but note: it only happened after the Christmas break.
Why is that?
Well, if I were to call the stock market for what it is, I would have to say it’s a Ponzi Scheme. Now this has been the case for a long long time. We simply want to profit from that scheme.
Why didn’t the sell-off occur prior to the the holiday break?
A system that requires millions of investors to feel good and trust the system would not benefit from gatherings of people across the globe, depressed and lamenting their losses. Rather, this holiday, conversations around BBQ’s and fireplaces (depending on your hemisphere) will be all about major profits, the 20,000 level of the dow and how great Trump is for the stock market.
Do I expect another sell-off this year? Yes.
This is why…
We’re way stretched above the 100 moving average and we’re at the resistance of the trading channel:
Comparisons are being made between Trump and prior presidents that introduced fiscal spending. Many commentators are banking on the same type of stock market rally occurring. This stock market however, is currently at overvalued PE ratios and interest rates are going up in a highly levered, deep debt situation. No other president of the United States (POTUS in millennial speak) has ever had to deal with a 20 trillion dollar budget deficit. Each 1/4 point hike from the Fed increases annual debt by billions.
This is most important:
All of this disappointing figures above over the past two weeks are interest rate sensitive. Folks, we’re in an economy which is barely holding it together and the Fed is threatening higher rates in 2017. Who wants to be holding risk oriented stocks as the economy starts weakening ? Additionally, the strong dollar is about to wreak havoc on profit reporting for quarter 1!
So are stocks just going to keep going up with no one taking a profit before it’s too late? Is it different this time?
I don’t think so.
Look at the jobless claims sky rocketing in the last report:
Instead of 256k jobless claims we have 275k jobless claims. Previously the market would have tanked… But now, it’s all ok because Trump is going to fix it all up. Well is he going to fix it before people start exiting their stock positions to secure their profits in a poor economy? And when the numbers keep coming through worse and worse, who is going to keep holding to wait for Trump’s changes which will take months and years to eventuate?
So is a stock market correction coming? I think so.
A crash? Maybe too dramatic.
Watch this space and don’t be caught by surprise if the carpet gets pulled out from under the market’s feet in the next few days.
Yields and Dollar
We’re possibly seeing yields top out , just like last December… This would be good for gold would see the dollar starting to turn down just like last year:
Now keep in mind, if the stock market corrects, a few things will happen:
1.Emerging markets will rally, sending the dollar into a turn down.
2. Bonds will continue to bounce and rally.
3. Commodities and gold will bounce and rally.
However, if the stock market in the USA corrects/dives, but the bonds market does not rally then commodities and foreign markets will get a bigger boost as investors will need to place their funds somewhere out of harm’s way.
Let’s see how it all unfolds, but my bet (a mini bet) is that the correction occurs before January. I wouldn’t say sell out, but a stop loss would be a good idea for the general market.
Side note:
I’ve seen some commentary saying that gold is heading down to $1000.
Previously I did chart the dollar and say that 104 is a possible topping point for the dollar. That has almost played out as we reached around 103.6 and gold tumbled accordingly.
However, for gold to reach $1000, it would require bond yields to keep climbing and the dollar to continue it’s rally.
The data released recently may be too weaken to expect the 3 rate hikes the Fed spoke about. If the market starts thinking that its 2 rate hikes instead of 3, then the dollar needs to weaken and gold needs to reverse.
Once again no guarantees but this is what I see.
Now do us all a favour and don’t spend any more time on stock or research until it’s actually necessary.
Go live your life for a few days more 
A special thanks to all those who continue to support the Chamber of Merchants and for touching base via email so often.
It’s encouraging and appreciated.
Time to Reflect
Regardless of one’s religious or philosophical inclination, I believe we all want to live in a world where we can trust one another. I believe we all, regardless of background or culture, want to inherently be able to trust one another to do the right thing, to be safe with one another, to share a mutual future where we can trust that our children’s lives will matter and that our communities will be valued and safe. I have a deep seated faith in the potential that lives in all of us to make a difference for the betterment of our families, our neighbours and colleagues.
The faith I have and the trust I have is in the potential within us as human beings to reveal kindness, forgiveness and care to everyone that crosses our path.
Besides the markets and the madness, may today be a day for all of us to consider that we can make a difference if we commit to thinking better and acting on it, in all aspects of our lives and relationships. Let’s create the world that we want our future generations to inherit.
Merry Christmas.